Stacey Cunningham, President, NYSE Group
Interviewer: Jen Wieczner, FORTUNE

MPW Summit 2020: The Market Must Go On: Leading The Stock Exchange In A Time Like No Other

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Stacey Cunningham offers insights into navigating the public markets in what’s likely to be choppy waters ahead.

Welcome Stacey. It's so great to have you here. Um I know it's been a particularly busy day. Let me tell me if I get this right. You've had to I. P. O. S. Tooth packs and to direct listings all go public today on the new york stock exchange. Um I just checked palantir which went public in a direct listing is up more than 47%. Is this your new normal? What is it like on the stock exchange? Well I don't know I would call it our new normal and again thanks for having me. It it's a um it's certainly a historic day here at the new york stock exchange with and I think it's reflective of how we're seeing our public markets evolve and that companies are looking for choices. So they have to choose an I. P. O. To choose a direct listing and to to choose a back as their their past to public certainly reflects some of the trends we're seeing in the capital markets. Yeah. So what is that? I mean um you know between the facts and the I. P. O. S. Uh there so far this year there have been 140 for I. P. O. S. Which is 20% more than last year and 30% more money raised. Um I don't know that that's any. I mean did you expect that at the beginning of the pandemic uh is the more completely connected to me? I think if you take a step back and you think about some of the trends we've seen more broadly over over several years is that companies are staying private a lot longer. And because they're staying private they tend to be much bigger before they go public. And their reasons for going public have changed. There's so much capital available in the private market that that's why companies as a driver of why companies are waiting. So the historically the reasons for a company to go public, the primary reason was to raise money. And then secondary, tertiary reasons behind that were to have the liquidity for employees who've been getting paid in stock and options or for early investors or currency. They can use their stock to engage in M and A. Or the visibility at the hype, you know, profile and branding experience that of public listing brings to you so you can attract new investors and new customers because there's so much money that's been available that primary capital raises no longer. The first reason anymore companies are looking and coming to the markets for second reason. The second and tertiary reasons, which means they're asking themselves, how else could they come public? And so direct listing was starting that process where barry McCarthy to see both. Spotify said, I'm not raising money, can I can I avoid doing an I. P. O. And actually choose a different path. So now we have a menu and companies are can choose an I. P. O. If they want the infrastructure and the shareholder base that they get to choose with their I. P. O. Process or a direct listing if they want to reduce their cost of capital or back if they want more control over negotiating terms with a single counter party. Yeah, I want to come back to that. But just a quick reminder that if you're watching you can put questions for safety in the chat and we'll have a chance to go to those later. Um But yeah let's talk a little bit about packs because I think everyone saw this kind of explosion for people who don't know, we're talking about blank check companies as they're called, or special purpose acquisition companies. Um You know, we're basically a shell companies taken private or sorry, taking public by somebody somewhat well known and then they can use the proceeds of that to acquire a company. Um but what's driving this now? I mean, we are in a pandemic and there have been so far this year, 116 IPO's of fat companies, what's driving that? Yeah, a couple of things. So 11 of the things that we've seen overall is that because the, during the pandemic, when, when the market got very, you know, when the market got tough and conditions tough for companies, the public markets were a great source of capital for public companies. So we saw airlines, retailers, uh, hospitality industries, all taking advantage of the public market. So we've raised over $130 billion to date across the companies on the new york stock exchange, both through IPO's and follow on offerings as companies were looking to help their businesses that have been negatively impacted by the pandemic or raise money for the uncertainty that might come in the future. So it was much tougher at that time to raise money in the private market. So a lot of the companies who have been on the sidelines for a long time and staying private now started to say, hey, perhaps this is the time to go public. So we just came off september is wrapping up today, the busiest month for I. P. O. S in new york stock exchange history, literally the busiest month we've ever had with respect to companies coming get coming public and that's following off of august which was the biggest august ever. Uh And and certainly the biggest month in several years prior prior to that. So among those choices are stacks and and with a back you're betting on the management team and investing in the management team that they're going to acquire a company that that they can negotiate terms with. And at the time of the business combination, that's when the company goes public. So they reverse the order of operations, they do the I. P. O. First and raise money and then once they identify a business at that time is when that company becomes a public company. Many of the serial uh back sponsors are looking at this as a way to get companies public sooner because they can go out and help them through that process. Which is a good thing for the everyday investor who, you know, if you think about the growth that happens in the early years of accompanies life cycle. if that's happening in the private markets, the everyday investor doesn't get to share in that growth. And so we really want to see a lot of that growth happen in the public markets. So the sooner we can get companies out to public, the better it is for our nation overall. And you know, it really does contribute to the wealth divide if the if the most exciting years in the fastest growing years of the company are happening while they're private very often now we're asking leaders and ceos to think about being stakeholders, you know about their stakeholders and about society more broadly. And this is a great way to do. It is getting companies public sooner. So do you think, well, is this happening in spite of the pandemic or because of the pandemic? Is this something that will continue after both? I mean it certainly the pandemic helped swing the pendulum from private to public. It was very clear that the value of the public markets for unclear display. And so we've certainly seen that move and we were coming off a very long bull market and so many companies started to ask themselves, wait a minute. I shouldn't always assume I'm going to be able to access capital in the private markets the way I had been, it became very expensive to access capital in the spring. And so we are we are seeing this swing the pendulum but it's highlighting some of the some of the drawbacks of companies staying private. And so I think it's a very good thing for society more broadly if we can get more companies public. Yeah. And you know, we talked about direct listing, Spotify and slack went first. And so and just today we had two more direct listings. Um, so you know, the number of journalism has doubled just today. Um, is that a trend that you expect to continue? Why? Why not? Yeah, absolutely. What, what after slack went public via direct listing. You started, we started to get a lot of phone calls are literally on the phone was ringing off the hook with people asking questions about, hey, how does this work? And is this really a new thing that's going to be around for a while and not just a flash in the pan since then. While palantir and Asana both went public today using a directly things they did so without raising capital. So direct listing really decoupled the need to raise capital with when you go public, it provides democratize access because everybody is on a level playing field at the time of the opening. But we're also working on continuing to innovate on that and evolve, evolve that mechanism so that you can raise money with a direct listing. So we filed with the sec to allow for a capital raise at the time of your listing. So a company can issue new primary shares at the same moment they're going public, but the market prices them. So as they're opening trade occurs on the new york stock exchange, the market determines the value. The company. Many buyers and sellers coming together, not just a handful of the evening before. So we're working on that process with the sec and they're definitely companies interesting that as well. So I do think this will be a trend. I don't think it's going to replace the I. P. O. Companies are going to choose what which passed. The public makes the most sense for them. Yeah. Um Just another reminder. If you have questions, please put them in the chat. Otherwise I have plenty of questions. Um But uh you know, one thing that you did, that was pretty unprecedented this year. Actually unprecedented with that, um in March, you shut down the stock exchange, you were all remote. Um Now you're back there, you are from, you are on the stock exchange today, you've been open since May. What lessons have you learned so far about reopening safely? That might help too, reopened new york more folio or reopen businesses more broadly. Yeah, it's a great question. We've learned a lot. So when we made the decision at the end of March to close the trading floor, it was a really tough decision. I found myself in a position where I had to choose between people's livelihoods and people's safety and that's not a position and you really want to be in because there are many independent businesses on the trading floor. The people that work on the training for the new york stock exchange largely don't work for the new york stock exchange, their their own businesses and many of them are very small businesses, like so many of the restaurants that were forced into closing back in the spring. And so when we made the decision to close the trading floor, we were shutting down their businesses. What we've seen since, what we've learned since is how to open and operate safely. So we worked with medical advisers and and we work through the process of determining how can we reopen and do in a way that we can keep the community safe. So we're not adding any strain on to the health care system and we're not taking the risk with people coming into the building. So by wearing masks using social distancing, by cleaning the trading floor and and going through some of the mechanisms and tools that we've learned, We've been able to open and as you mentioned, we open memorial day weekend. We have roughly 350 people coming onto the three for each day. No outbreaks, no issues with COVID-19. And so if we use those lessons, I think that's how the city's can start to reopen. Yeah, that's helpful. Um, we do have a question from Michael that I'd like to bring in now nickel. Go ahead. Hi. Um, we have a question from, hey guys, we have a question from the syndication. I'm gonna read it. Um, and it is obviously on fact, um, facts have come and gone in years past as well. Do you think that this year is any different? Absolute. The facts of Yesteryear are nothing like what the facts are that are listening today when the New York Stock Exchange did not used to list facts. We actually only started listing them in 2017. But a change in our rules structure and we're already seeing them continue to evolve as they become more modern product offerings. And some of the sponsors, Bill Ackman notoriously had a very large pack that launched and he changed the mechanisms and the structures of the facts I think across backs direct listings and I. P. O. S. We're going to start to see people get more creative with what elements of each one of those they want to leverage. And as they come to the public markets like lockups and and the um disclosures and and structures around compensation with us back wow, that's fascinating. Thanks for the great question. I also want to talk to you a little bit about the volatility that you've seen this year, which has been um just doctors. We're for the market were triggered four times because of the volatility. That's just in March. We have an election coming up, There's a lot of potential. What do you see for, What kind of volatility are you preparing for? Um what should we should we buckle up the March. Volatility was unprecedented. We've never seen the markets move that way before. And we have a lot of tools as an industry. We do a great job of coming together to figure out how we can learn from every market event and enhance the resiliency of the market so that we can be ready for the next thing that comes. And we used all of those tools in the toolbox in the spring. Whether it was market weight circuit breakers are business continuity plans that moved everybody remote. Uh, the mechanisms where we could delay the closing auction based on, on news that was coming out at the end of the day, we literally used every tool we had, they all worked the way they are designed. So that was a good thing. It's important to recognize that the markets operated the way they should. That doesn't mean that they, you know, when the markets move that quickly. I think that's certainly concerning for investors and we're sensitive to that you hope that they don't panic and that they wait and sort of ride it out. And if you didn't end up panicking during that time in March, as you have seen, the markets did end up recovering over time. And so that's, I think the lesson as we come into other triggers that might trigger volatility in the fall. You know, elections tend to have an event, but let's just rewind to 2016 markets sold off really dramatically overnight, as the market was surprised by the election results, but recovered by the morning the next day. So I just think the important point is to not not panic too much into two. Let the markets do their job. Yeah, you're talking to CEOS and companies every day based on what you're hearing. What is your outlook for the coming months? In terms of the election? In terms of the market and the economy, it's not consistent. You know, if you if you look at how CeoS have been impacted, it's certainly varies by industry very often. Get the question around, look at the market, so it's performing so strongly, but the economy doesn't feel that way. Or I see restaurants shutting down and small businesses shutting down. And that that's true. The market is not the S. And P. 500 index or the dow jones index. So the major indices that we use to measure market performance are not reflective of the economy. Overall, there's many small to mid sized businesses aren't even included at all in the market. And and those indexes are weighted very heavily by a handful of large technology stocks like Apple and others that have performed very an amazon that have performed very well during this period of time. So I would say it's not a consistent results across industries, different sectors and businesses are are performing better. Technology has done very well during this period of time. For sure, help uh health care as well in many ways. And so we're going to see how it unfolds but they're pretty resilient. And so I am optimistic over the long term, the short to midterm. That's very mixed. So it sounds like we still have an efficient market with everything that we've seen this year. Thank you so much for being here Stacy. It's so great to speak with you. Thanks for having me.