What to Expect From Slack’s Direct Listing

It may be psychologically pleasing to see shares of a company rise during its first day of trading following an initial public offering.

But in the case of a direct listing, investors might see the stock hit its high at the start of the day before sliding back down, said Joe Mecane, head of execution services at Citadel Securities during Fortune’s Brainstorm Finance conference in Montauk, N.Y.

That’s exactly what may happen with workplace messaging application Slack, which is set to start trading as a direct listing on the New York Stock Exchange as “WORK” Thursday, with a price of around $26 a share.

In a typical IPO, underwriters build a book of buyers and sellers and are expected to stabilize shares of a company for a period after it debuts.

In the case of a direct listing, the underwriters are cut out. Instead, the market maker is expected to figure out supply and demand on the day of the listing. But since all shares sold come from existing shareholders, supply volume isn’t immediately clear. Citadel Securities is Slack’s market maker.

“In a normal IPO, you’re more worried about buyers than sellers showing up,” Mecane said. But in the case of a direct listing, the selling shareholders “will often just wait because they want to see what is going to happen. In which case you can end up in a situation where you have buyers showing up, but you’re not quite sure whether or not the supply is in the market.”

As the trading day continues, selling shareholders typically start entering the market and the balance evens out.

Although Spotify—and now Slack—have opted for direct listings, companies and investors are just beginning to understand how they operate. So Slack’s offering will be watched closely. “It could be very good for direct listings if Slack goes well,” says Leslie Pfrang, a partner at Class V Group, which advises companies going public.

Slack’s listing comes at a time when investors are wary of the ongoing China-U.S. trade war, a backdrop that certainly didn’t help Uber on its dismal first day on the market. But, in the case of direct listings, “Market conditions matter a little bit less than in a traditional IPO,” says John Tuttle, Chief Commercial Officer at the NYSE.

More must-read stories from Fortune:

—Slack is doing a direct listing instead of an IPO. What is that?

4 things investors need to know about Slack’s direct listing

—Slack’s CEO was raised in a log cabin—and now he’s worth $1.3 billion

—When the next recession hits, four good things could happen

—The Huawei ban is hurting some companies, but it may help others

—Listen to our new audio briefing, Fortune 500 Daily

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