John Tuttle heads the listings business for the New York Stock Exchange.
John Tuttle has his pitch down. The 35-year-old head of global listings at the New York Stock Exchange — one of Wall Street's most iconic institutions — is in charge of attracting companies to go public on the exchange. The Michigan native glows when talking about the 225-year-old exchange and its family of listed companies, which he says represent the "greatest community of companies on earth."
"It is 84% of the Fortune 100, 87% of the Dow, and 76% of the S&P 500," Tuttle told Business Insider in a recent interview. He described the exchange as one of the "four buildings that define America" — along with the White House, the Capitol, and the Supreme Court.
Still, the draw of going public isn't as strong as it once was, with 52 companies going public on the exchange in the first half of this year. And while that's better than last year, and 2015, it's not as good as 2014 when 68 companies went public by mid-year.
Companies are staying private longer to avoid the regulatory cost and increased scrutiny that comes with being a public company, not to mention that some of the most anticipated IPOs of the year — Snap and Blue Apron — have significantly lagged behind the markets since going public. Both are down since listing on the exchange.
Yet Tuttle is looking forward. He's bullish on the IPO market and thinks the environment is primed for more companies to go public in the second half of the year.
During our wide-ranging interview, Tuttle addressed business at the exchange, the reasons he thinks the market for IPOs will pick up, and rival IEX. This interview has been edited for clarity and length.
Frank Chaparro: What are your thoughts on the IPO market? Business is tougher now than it was in 2014 or 2013, but do you expect it to improve?
John Tuttle: As an absolute number, the number of companies that went public in 2014 versus this year is down a little. If you look at what makes the IPO market kind of warm or the IPO window open, it's low and stable interest rates, telegraphed to steadily rise. And they are right now.
And why does that matter? It matters because a lot of asset managers haven't had many options with regard to the asset classes to allocate money toward and receive a meaningful return. Some of them took capital and put it into private companies, which let those companies stay private longer. So with interest rates telegraphed to steadily rise, other asset classes become more appealing.
Also, volatility has been low and stable. The correlation between volatility and IPO market is pretty much a negative one. Now that it's stable, the IPO window is open. Asset prices and indexes are flirting with record highs, which means there's confidence in the markets. And those companies that have gone public — with a few exceptions that I would argue are idiosyncratic to what is going all overall — have done well in the months, quarters, following their IPO.
If you look at the companies that have gone public in the US for pretty much all asset classes, but particularly technology, they have done pretty well as a public company. By and large, the majority of them have performed well in the months and weeks following their listing.
Chaparro: Why do you think large companies waiting to go public are making a mistake?
Tuttle: The thing that's interesting is something the media never focuses on. There are benefits to being a private company — I get it. But there are a lot of benefits to being a public company. It instills discipline, from a financial and a governance standpoint. Some of these companies, by staying private longer, do not necessarily have the governance and financial discipline they need.
Chaparro: Some of the largest and most recognized technology companies are listed on Nasdaq, but lately we have seen more and more big tech companies — Alibaba, Snap, Blue Apron, and now, reportedly, Spotify — listing on your exchange. Has the listings team taken specific steps to attract technology companies to the exchange and chip away at the idea that Nasdaq is the go-to venue for such companies?
Tuttle: We want all great companies to list on the New York Stock Exchange. And there are a lot of great technology companies coming to market. I think the standards we had in place up until the mid-2000 were not accommodating for 21st-century companies, like technology companies. But since we modernized our listing standards, the majority of technology companies by count and by capital raise over that period have chosen to list on the New York Stock Exchange.
The proof is in the pudding this year: 93% of the tech proceeds were raised on the New York Stock Exchange. The majority of companies by count as well. And we have different listing standards. Of course we want to see that trend continue.
Chaparro: I'm sure you came across David Swensen's criticism of rebates in The New York Times. What's your defense of paying brokers billions of dollars to send trades to the exchange, and why shouldn't folks consider them kickbacks?
Tuttle: Market structure matters. We incentivize market participants to provide liquidity, which accrues to the benefit of our issues. That lowers cost of capitals for our issuers. It makes markets more liquid, which results in savings not only for the issuer but for institutional investors and mom-and-pop investors, period. People love to say these things are nefarious and they're not well intended. Absolutely not.
Chaparro: Why do you think people think rebates are nefarious?
Tuttle: Market structure matters, and having the tools to provide less volatility, tighter spreads, and superior market quality to issuers and to investors is not something that can be built overnight. It is something that takes expertise and something that takes resources committed to it.
Chaparro: But IEX, according to Swensen, has the tightest spreads for over 490 stocks in the S&P 500.
Tuttle: I would question the integrity of that data. I can assure you that the New York Stock Exchange's high-tech, high-touch market model allows us to have more displayed size, much narrower spreads, and larger and less volatile auctions.
Chaparro: Speaking of IEX, they're looking to snag listings from you and Nasdaq this fall. Are you worried they'll be able to successfully lure business away from your venue?
Tuttle: What I focus on every day when I get up is not on what other people are doing but how we can deliver more and more value to our issuers. That is what we've been doing for 225 years. That's what we continue to do every day.
We are constantly investing in products and services to help our companies be better publicly traded companies. We are investing in this building to be a field office in lower Manhattan. We are investing in our market model. And we are investing in people who will help them during their lifetime as a public company.
Chaparro: I talked to Nelson Griggs, the president of the Nasdaq Stock Exchange, and he said the SEC's approval of IEX last year was a good thing for the marketplace because it opens exchanges up to innovate more. Do you agree?
Tuttle: I think that is fair. Markets are going to continue to evolve. Exchanges are going to continue to evolve. The landscape will get more competitive. To be able to succeed, and the way we've succeeded, is by constantly finding ways to make our experience better for our customers. We talk to investors. We talk to issuers. We talk to market participants. And we want to tailor our offerings to meet their needs.
Chaparro: Shifting gears a bit, Wall Street is abuzz about techs such as machine learning and AI. What technologies are the exchange looking at?
Tuttle: We think technology is going to continue to evolve. We think the future will be driven by smart people interacting with sophisticated technology to produce better outcomes. We are not convinced it will be this dystopian world. It is going to create opportunities we don't know exist.
When it comes to things like machine learning, the blockchain, cryptocurrencies, we look to find what is interesting. If there is an immediate application to our business model, we will dive deeper.
Chaparro: What have you dived deep into?
Tuttle: We've done some stuff. We are following the development of digital currencies, and we are observing the result of other organizations as they begin to use technologies such as AI.
As with past technologies, we will integrate them into our business once they are mature technologies that demonstrably can improve what we offer to our clients. But the near-term applications of some of this is mainly in the post-trade area, so settlement and clearing, and that in the US is all controlled by the Depository Trust and Clearing Corp., so they are looking at all this stuff, like the distributed ledger.
When it comes to the stock exchange, it is not necessarily at that point yet. And also some other products, when you're talking about coffee futures, for instance, that's a lot more complex than a single share of a single company. You are talking about a set amount of product delivered at a set price at a certain time at a certain location, so it's not as easy to turn that into a distributed ledger or blockchain.