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DONE DEALS - Listings War 2.0

Data storage company Netezza's initial offering last month on NYSE Euronext's upstart Arca market could spell trouble ahead for tech IPO leader Nasdaq.

ON JULY 17, DATA STORAGE PROVIDER Netezza did something no technology company had ever done. Instead of going public on the Nasdaq Stock Market -- the preferred destination for tech IPOs for decades -- the Framingham, Massachusetts, vendor steered its $124 million initial offering to NYSE Arca -- a rival platform NYSE Euronext has been promoting as a venue for issuers that don't meet the standards for listing on its marquee market, the New York Stock Exchange.

NYSE absorbed the all-electronic ArcaEx market through its March 2006 acquisition of Archipelago Holdings. Since then it has been rebranding the exchange, which had a negligible listings business at the time of the merger, as a farm team of sorts for companies that want to be associated with the Big Board but don't qualify for an NYSE listing.

That pitch resonated with Netezza, whose CFO, Patrick Scannell, says he thinks NYSE is a better brand than Nasdaq with which to align his company. "A potential client is not going to make a decision to work with us because we're listed with NYSE rather than Nasdaq, but it's just one more part of the overall package they look at," he explains.

Among the other factors that influenced Netezza's decision: Arca's market structure, which assigns each listed company to a lead market maker -- in Netezza's case, Susquehanna International Group -- that must quote the best bid and offer in the company's shares at least 15 percent of the time. That requirement is meant to ensure an orderly market. Nasdaq employs a multiple market-maker system in which each dealer is required only to post both buy and sell quotes in each stock but not to keep markets moving when other buyers and sellers aren't present. Netezza sold 10.4 million shares at $12 apiece; in late August the stock was trading at about $14.

Scannell also cites personal attention from NYSE executives, including CEO John Thain, as a factor that influenced Netezza's choice of market.

"We got great service from everyone there, right up to the top of the house. We didn't get that at Nasdaq," he says. (Nasdaq declines to comment on the deal.)

NYSE did have a key advantage: It is a customer of Netezza's. John Metz, the banker who oversaw the deal for joint lead underwriter Credit Suisse, says the relationship gave NYSE a chance to make its case about the rebranded Arca market. Robin Weiss, an NYSE listings executive, agrees -- to a point. "It opened the door," she says. "But Netezza ultimately decided to list with us because they felt we had the better platform." Scannell won't discuss Netezza's client relationships.

Following Netezza's move, several other technology companies have shown an interest in NYSE Arca. On August 13 another data storage provider, Eden Prairie, Minnesota­based Compellent Technologies, indicated in an amended IPO prospectus that it will list on NYSE's Arca instead of on Nasdaq, as it had originally planned. Neither exchange has a business relationship with the company, says a Compellent spokesman. And Scannell says that since the deal, he has received calls from executives at about a half dozen tech companies that are considering initial offerings and are curious about NYSE Arca (he declines to name them).

Still, NYSE Arca, with a mere two IPOs so far this year and a total of just 14 listed companies, is hardly a major threat to Nasdaq, which has bagged 29 of this year's 36 tech-company debuts and has thousands of listings.

"Arca has been successful in many many ways as a trading platform, but it is not a listings platform," says Patrick Healy, CEO of the Issuer Advisory Group, a consulting firm that helps companies with capital-market-related questions. "If they get a tech company to switch over from Nasdaq, that would be worth paying attention to."