 Lynn Martin, President, NYSE Group 
Interviewer: Michal Lev-Ram, Editor-at-Large, FORTUNE; Co-chair, Fortune Brainstorm Tech

Brainstorm Tech 2022: What’s Next For IPO’s? 

Conferences

Brainstorm Tech 2022: What’s Next For IPO’s? 


Lynn thank you for being here to kick off the conference. Um, yeah, it's nice, isn't it? They're real. Uh, so, okay. I'm sorry, I'm not starting out on a, on a high note, but I think this question is going to come up in this topic will come up over the next three days. Um, we've seen overall stock performance in the first half of this year, uh, be the worst since 1970. Tech stocks have gotten battered harder than they have in years as well. Um, you know, more specifically, so, my first question to you, um, given the perspective that, that you have in the experience you have, is just what do you think needs to happen for us to see a recovery in text specifically? Good question. Um, have a crystal ball. So clearly I have all the answers to this. But yeah, you know, it's, uh, it's certainly been a volatile time. It's been a volatile time in all sectors. As you rightly point out, not just tech, but clearly tech has weathered, uh, quite challenging six months. Um, I think what the market is really looking for is continued stability. What you're seeing in the market right now is just a manifestation of the way people are feeling about the economy. There's a lot of uncertainty. There's a lot of uncertainty when you look at various macro trans, like inflation, it costs more to fill up my gas tank, it costs more to fill up. Um, you know, to put food on the table for my family. So that's obviously a big area of concern for books and you layer on that, the unfortunate conflict that continues to go on with Russia Ukraine and unfortunately you're seeing it taken out on the equity market at the moment and it's really no sector is immune. I think what Will calm the market down is when we start to see some certainty from the Fed 75 basis points that they just did recently, I think surprised some folks not the day of, But certainly earlier in that week when they started to put out that message that they had to go aggressive. Um but they did that in relation to the really high inflation that we're seeing 8.6% inflation is clearly something to worry about. So if we see that start to plateau start to come off a little bit, I think you're gonna start to see a general rebound in the market, the market had in confidence that Yeah, we do see a light at the end of a tunnel, but importantly, this is not the first time the market has gone through bouts of volatility. So we've been here before, we were here in 2019, we were here in 2008, we were here in 2001 and the markets have weathered um those storms, be it, you know, volatility, be it, various bubbles in different sectors. Uh a variety of factors. Um such that if you put money in the market for the long term, you do your research, you put in a diversified portfolio, you come out ahead. Um, I want to ask you also about I. P. O. S specifically and um, you were just saying to me backstage that, you know, last year was such an anomaly a record number of I. P. O. S, both volume and value. Um, this year isn't a bit of an anomaly as well. Can you just talk about um, you know what you're hearing, You have conversations all the time with with private companies. Um, is there a chance that we will see a bit of an uptick in the second half of The year? Or is it going to be into 2023? The demand for companies to come public has never been stronger. You know, we do have a very vibrant pipeline, but everyone is on hold at the, at the moment we have seen a couple of sectors test the waters a bit unsurprisingly, saw energy come out with a couple of smaller I. P. O. S earlier this year. That sector is performed pretty well, all things considered. Um, text seems to still be on hold, but you do see pockets of where there will continue to be demand such as cyber. For example, if I think about, you know, where we are always going to spend more and more money, particularly in the wake of geopolitical tensions and uncertainty in the geopolitical environment. It's going to be on things like cyber. So that's probably an area that, that may reopen the market, but no one's going to go out to market with the vix, Well over 30 on a regular basis. We saw companies say March timeframe when it seemed like the Fed was doing exactly what they were telegraphing. That's when they had their 25 basis points move. Uh, we saw companies starting to test the waters in april, but then volatility came back and, you know, everything got put back on hold. But pipeline strong still having very interesting conversations with private companies that are looking to go public. Uh, so I couldn't be more optimistic about the future of capital markets, but it seems like everyone's gonna look at each other for a little bit longer and say, okay, you go first, no way you go first. So, um, seems like we're a little bit in that phenomenon at least until you start to see some of the more macro factors, uh, start to have some stability, some less volatility in the market. And, but certainly to your point last year was an anomaly with the record numbers that come out this year anomaly, I'm a statistician, as you pointed out, those are two opposite ends of tales when I think about the way the way the markets are, do anomalies start becoming trends that, I don't, I don't think so. Um, you know, the markets have been, Uh, we, we've had public markets, you know, for 230 years. So we've weathered many storms, wars pandemics, um volatility. So you know you put it in that light, well we'll we'll we'll get through this. Can you talk a little bit about the impact of private companies staying private longer? Obviously again a trend we've seen before, especially prior to the recent birth, you know, over the last few years, a couple of years. And what what is the impact overall? Yeah. I mean you saw private, you saw companies stay private during other periods of volatility. I mean you saw the government shutdown in 2019 and you saw the pandemic in 2020 and those were two moments in time when the the private markets were companies the same private, they weren't they weren't going public. Ultimately. Unsurprisingly we believe in the future of public markets just get a different currency when you're a public company, you can use that currency for a variety of things. Including mergers and acquisitions um Being a public company uh to reward shareholders to uh reward employees. And those types of messages continue to resonate what you are seeing. Also. Uh is some of the private market valuations now start to match some of the public market valuation. So it does feel like there's starting to be parity across the markets from evaluation standpoint. So if a company stays private longer, you know maybe they retool their efforts maybe they do a couple of things to make them more public company ready, such as getting their finance teams ready or their E. S. G. Disclosures, which is a very important area, an emerging area for companies getting those ready. There's a lot of things that companies can do while the market is on pause uh to really get public company ready. And that's an area that in addition to the conversations we're having with those companies ready to go public, we're having with the earlier stage companies. What does E. S. G. Disclosure actually mean? What does it look like? And how does it affect your life in the public market? What is uh your not just day one, your I. P. O. Day. What's your first earnings call look like? Um How do you deal with the investors and your new friends that are sell side analysts that cover your stock. Those types of more consultative processes are the conversations that we're having with those private companies while they're while they're staying private. So these are the new wave of I. P. O. S. Whenever it does happen, they should be like really really well prepared is what they will be prepared. They have time to prepare. Um Our stacks dead. I do not think backs are dead. I think that word, would you use to describe the current status is I think facts along with a variety of other listing mechanisms Remain a very attractive form for some companies to go public. Will you see 600 packs in the market at any one given point. Again, probably not. Um So you saw a flood of packs in the last couple of years come to market what you probably will see our SPAC continue to come to market that are gonna have different governance um around them. And that's really as a result of what the sec has proposed. So more transparency, better governance facts, we think will be the future. Uh we think there's going to be much fewer of them though than than there are today. Okay. There's a push for more transparency overall write something you're welcoming? Absolutely. In our mind, transparency is, you know, what makes markets liquid and what makes markets efficient and what makes our markets in the US the greatest markets in the world. So we're huge proponents of transparency. We've been proponents of transparency since we were founded 230 years ago, but also since our affiliate companies um our futures exchanges on the ice side of the business since they launched uh in the more more recent future. So, transparency in our mind is really the way that you get better outcomes. You get uh fair market value actually transacting and there's a variety of mechanisms that come into those, those forming transparent ecosystems. Okay, I'm gonna go to you guys for questions in just a minute. So be prepared if you have any questions for lin. Um I want to ask you also just real quick, you sort of touched on this in the question about tax but direct listings, you were really a pioneer pioneer here. Um At what point do you expect? Do you expect those to come back? And at what point? And is it kind of closely tied to everything else that. Yeah so I mean direct listings have been a fabulous form of companies, a great innovation and fabulous former companies coming to market um that didn't necessarily need all of the belts and Suspenders that you're more traditional. I. P. O. Brings. So those companies that were profitable didn't necessarily need um Some of the capital raises didn't need um um Some of the stability that that the traditional I. P. O. Mechanism brought afford themselves the direct listing route right now given the market volatility is probably unsurprising that a lot of companies that were thinking about direct listings are probably going to think about the more traditional ways to come uh to market when they do come to market. Uh But I very much see direct listings as an area of of continued innovation. Continued customers coming to market not just without a capital raise but we also have a mechanism which allows a company to do a capital raise as a direct listing facts are much more fun to say though. And we have had a lot of fun with headlines you know spectacular but anyways. Um So any questions Berlin from the audience, raise your hand and we will bring a microphone over to you. I know it's still people feel it's early, you're recovering from your bike ride. Alan mike over here or hike or horseback riding biking. But Lynn I just wanted to ask, you gave the optimistic scenario at the beginning that if you start to see inflation abating the markets are off to the races. But what if the opposite happens? What if we don't see inflation abating? What if it looks like it's getting baked into wage increases? Uh I was around her in the 1970s, a lot of people here probably weren't. But uh what happens then yeah, it's tough to say honestly because it's going to depend on all the fundamentals. You know, you look at the fundamentals of inflation that those are scary numbers, You look at the unemployment and the unemployment rates, those are really healthy numbers, unemployment at record lows. So it's just a really interesting time for Mark. It's a little hard to say if, you know, inflation continues to tick up what happens because I feel like we're a little bit in uncharted territories where there are positive fundamentals for the economy and some scary ones. Um So I think what you might see is just, you know, maybe some less volatility and market doesn't mean someone's gonna go out to market doesn't mean the I. P. O. Markets are all gonna be off to the races the minute that inflation starts to taper off. But it does you know get some of those companies that have been waiting in the wings back to revving up their machines around. Okay. What does our filings look like? Do they need to be updated with the financials that now have um become a bit stale because they've they've been shelved for a period of time. You know what does what what does the plan look like? Other questions from Berlin raise your hand. Okay. I'll go back to you guys in a minute if if anybody thinks of a question um I want to ask you about um about crypto as as well. Um And again this will come up repeatedly on stage over the next three days. But you've you've said that this is the market that needs guardrails. Um What does a regulatory framework that you would welcome look like? I think well when I say it needs guardrails it needs first it needs to know who's regulating it. So when you think about the different crypto assets, you've got cftc, it's got the sec, you've got the Fed and their oversight of currencies. You have the zero cc. If you're a bank. So you've got a variety of regulators that are right now trying to figure out who is going to regulate what and until that's clear I just don't see that there's going to be a tremendous amount of institutional participation in in those markets to really take those markets to the next level in my mind the ideal regulation is one that is very transparent such that the person who is getting into the market nose, what happens after it wants to get out? What does the tax regime look like? For example what does um what does our their position limits? Are there other types of concentration considerations, how does that fit into different capital charges? So there's a whole swath of questions that need to be answered and until some of those questions can really be answered in a pretty detailed fashion. I think it's gonna be challenging for some of the more institutional type users to incorporate that into their portfolio and then that's going to inhibit it, going to the next level. It's obviously got a lot of other benefits. Um I know there's a lot of very you know smart people that are thinking about how to how to properly regulate this market but but it's just not there yet and I know you weren't present at the time but you made um you made a minority investment in coin base um back later on. What was the what was the thinking there? Was it kind of dipping your toes in a little bit. It was it was 2015. Nyc made a minority investment of $10 million in coin base which we exited last year um around its I. P. O. Ah our thought there was there is something that is really interesting about a digital currency and the whole process of digitization. Um It allowed us to get a lot smarter on the crypto markets. Actually what because we got smarter on that's what led us to form a company called back which is an institutional wallet um which has a variety of regulatory uh perimeters around it which we combined with a pack actually last last november to give it its own currency. No pun intended um in in the market. Um So it allowed us to get a lot smarter, learn a lot more about how the market actually works. So that was really why we why we did that. It's not that different from an investment we made a couple of months ago in a company called T0 which is focused on Blockchain and technology and further digitization of various asset classes. We want to get smarter about about this area, this emerging area of technology, particularly from a technology And very very quick. Um Nyc is 230 years old. We are you you've always had people on the floor take us into the, I mean you're you're in person, you're has anything changed culturally actually have a hybrid mentality of the people that that operate the exchange. So the executives are in five days a week. Um because some of us actually work better in the in the office but most importantly uh we're in five days a week so we can allow that mentoring for the next generation of leaders. We do actually have a remote first option where you know, someone can come in one day a week, one day a month, whatever the case may be with, depending on coordination with their teams and then we also have another hybrid three on two off. But the only way you actually get the mentoring and you have to identify that next group of talent is if you know the executives, the decision makers get to get, get to have the conversation with you in person and get to know you. So that's why the executives have been in five days a week on the floor. You know, I actually think the floor manifests itself as the way any tech forward organization should operate. There are half a trillion messages coming into our exchange every day, Um inbound order messages so this is up 20% versus what we saw during the pandemic. So that's buy sell transactions, whatever the case may be. No human can process half trillion messages no matter how wonderful the human is. But what the humans can do is they can be the volatility overlay if you will so they can see what is just noise or what is, you know, good data and that really helps them smooth out outcomes. So that's the way I view the role of the floor. Well Lynn thank you so much for coming and answering these questions and you know, maybe we'll have a whole, well, we'll be looking at this from the other side of things next year, hopefully. So thank you for being with us, counting on it. Thank you.