When the lockup period ends for Tradeweb Markets (TW) on October 1, 2019, the company's pre-IPO shareholders and insiders will have the opportunity to sell nearly 98 million shares of currently-restricted shares for the first time. This number dwarfs the 27 million shares offered in the IPO.

(Click on image to enlarge)

(Source: S-1/A)

Significant sales of these nearly 98 million shares could flood the secondary market and cause a sharp, short-term decrease in TW's share price. This potential downturn in share price is a reality which the company openly acknowledges in their S-1/A.

(Click on image to enlarge)

(Source: S-1/A)

We believe that the company's pre-IPO shareholders and insiders are likely eager to cash in on some of their gains - TW has a return from IPO of more than 46%. The upcoming lockup expiration provides a short opportunity for aggressive investors before October 1st.

Business Overview: Provider of Electronic Platform for Trading Derivatives, Fixed Income, and ETF

Tradeweb Markets is a provider of electronic trading services in the derivatives and fixed income markets. The Tradeweb Markets platform offers solutions throughout the trading lifecycle such as pre-trade, trade execution, data tracking, and post-trade services. The company is currently expanding into the equity markets. Tradeweb Markets believes its platform provides better price discovery, trading workflows, and order execution when compared to competitors.

(Source: S-1/A)

The company has over 2,500 clients across its global network, including asset managers, enterprise-level banking institutions, insurance companies, wealth managers, hedge funds, central banks, financial advisory firms, and retail brokerage clients. They focus on mortgage securities, government bonds, credit, municipal bonds, and derivatives. Their product portfolio encompasses over 40 products in 62 countries.

As of the second quarter of 2019, Tradeweb Markets facilitated more than $630 billion in daily trades. The company has an annual compound average daily trading volume growth of 12.5 percent in the 14 years between 2004 and 2018. The company reported an annual compound gross revenue growth of 12.2 percent. As of the end of fiscal year 2018, Tradeweb derived 48 percent of its gross revenue from subscription fees and minimum volume levels.

The company has over 910 employees and maintains offices in North America, Asia, and Europe. Tradeweb Markets Inc. keeps its headquarters in New York, New York.

(Company information was sourced from the firm's S-1/A and company website.)

Financial Highlights

Tradeweb Markets reported second-quarter financial highlights for the period ending December 31, 2018:

• Average daily volume set a new quarterly record of $753 billion for a significant increase of 39.6 percent.
• A new quarterly record for facilitating U.S. high-grade credit trading representing 12.4 percent of TRACE volume.
• New quarterly records in average daily volume in mortgages and interest rate swaps.
• Significant double-digit revenue increases in all four asset classes: money markets, equities, credit, and rates.
• Net income was $24.8 million. GAAP earnings per diluted share was $0.09 for the second quarter.
• Adjusted EBITDA margin was 45.6 percent. Adjusted Net Income was $56.6 million and Adjusted Net Income per diluted share was $0.25 for the quarter.

Financial highlights were sourced from the company's website.

Management

Co-founder, CEO, and Director Lee Olesky has extensive experience in the financial markets. Prior to launching Tradeweb Markets, he served at Credit Suisse First Boston as Chief Operating Officer and BrokerTec as CEO. He earned a B.A. from Tulane University. He also earned a J.D. from the George Washington University.

President Billy Hult has served in his position since the company’s formation. He has been on the board of directors since March 2019. His previous experience comes from senior positions at Société Générale. He earned a B.A. from Denison University.

Biographical information was sourced from the company's website.

Competition: MarketAxess, London Stock Exchange, Nasdaq

Tradeweb Markets faces competition from two primary areas: other electronic trading platforms and exchanges. These include Liquidnet, LiquidityEdge, trueEX, Trumid, Bloomberg, ITG, CME Group (CME), Nasdaq Fixed Income (NDAQ), ICE (ICE), London Stock Exchange Group, TMC, IDC and MarketAxess (MKTX).

Early Market Performance

The underwriters priced the IPO at $27 per share. Its expected price range was originally $24 to $26. The stock had a first-day return of 32.6%. To date, TW has a return from IPO of 46.4%.

Conclusion: Short Opportunity Ahead of 10/1 IPO Expiration

When the TW IPO lockup period expires on October 1st, pre-IPO shareholders and company insiders will be able to sell nearly 98 million shares of currently-restricted stock for the first time. Significant sales of currently-restricted stock could flood the secondary market and cause a sharp, short-term decline in share price.

Aggressive, risk-tolerant investors should consider shorting shares of TW ahead of the firm's lockup expiration on October 1st. Interested investors should cover short positions during the October 2nd and October 3rd trading sessions.

Interested in learning more about IPO Lockup investment opportunities? Check out our subscription service, IPO Insights. We update subscribers with actionable investment opportunities that follow the debut of select companies on U.S. exchanges.