Alibaba Group could have sold nearly $2 billion worth of stock without lifting a finger. All it had to do was list its shares on Nasdaq.
That listing would have guaranteed Alibaba inclusion in the by the end of the year, and funds which track the index would have had to buy.
But two sources familiar with the situation said Alibaba executives worried about Nasdaq's ability to handle their $21 billion initial public offering later this month, since the exchange botched Facebook's market debut two years ago.
Nasdaq tried to persuade Alibaba that it had fixed the problem, the sources said, but it is not clear whether they were swayed.
One of the sources said that Alibaba eventually was satisfied that Nasdaq had solved the issue and chose NYSE because its overall pitch was better. The other said Nasdaq executives believed that Alibaba decided that the possibility of a botched IPO, however small, outweighed the possible benefits of being in the index.
Alibaba and NYSE declined to comment, while a spokesman for Nasdaq, which has repeatedly said it has fixed the issues that went wrong in the Facebook IPO, said "It was a close race, and we wish Alibaba well."
Alibaba's misgivings about Nasdaq's technology, two years after Facebook's glitch-ridden, $16 billion market debut, show the incident continues to threaten Nasdaq's reputation.
Listings contributed only 12 percent of Nasdaq's $1.9 billion in revenues in 2013, and large listings such as Alibaba's are less profitable for exchanges, but within the financial community they are taken as a barometer of success.
Nasdaq systems buckled under the tremendous volume of orders on the first day of trading in Facebook's shares in 2012, leading to hours of delay.
In its presentation to Alibaba, Nasdaq detailed the steps it had taken to prevent another Facebook-style glitch, two sources familiar with the pitch said. The exchange has said it responded to Facebook by putting extra safeguards in place, creating new positions within the company to improve communications with the industry and regulators when errors occur, and establishing an engineering team to monitor and analyze daily performance.
Index fund bedrock
The decision not to go with Nasdaq meant that Alibaba may not join any major global index this year.
"There is a pretty strong argument that index inclusion equals stability," Kevin Landis, chief investment officer of Firsthand Capital Management, a Silicon-Valley-based technology-investing specialist with $400 million in assets under management.
ETFs and mutual funds that track such benchmarks have to buy and hold their stock.
The Nasdaq 100, which includes companies such as Apple and Google, has a market capitalization of $4.75 trillion. Funds such as the $46.8 billion QQQ PowerShares exchange-traded fund, the fifth-biggest ETF in the world, track the Nasdaq 100, according to data from Thomson Reuters' Lipper service.
If the IPO values the company at $200 billion, Alibaba would have been about 3.3 percent of the index. There are more than $54 billion in ETF assets alone linked to the index, which means at least $1.7 billion would have flown into Alibaba shares.
The chance to get on Nasdaq 100 was a selling point for Facebook itself. In the lead-up to the Facebook IPO, Nasdaq reduced the amount of time a qualifying firm needs to be listed on Nasdaq in order to be added in the index to three months from a year.
Alibaba doesn't qualify to be on many of the world's major indices, since it is registered in the Cayman Islands. The behemoth S&P 500 Index, which has a market capitalization of $18.6 trillion, only lists U.S. companies.
The Chinese firm is not eligible to be part of the biggest MSCI or FTSE indices for other reasons, although MSCI is looking at changing its index rules in a way that could put Alibaba on a major index.
And finally, Alibaba gave up a chance for mainland Chinese to invest, since China-based money manager Guotai Asset Management's Guotai Nasdaq 100 Index trades on the Shanghai Stock Exchange.
"It falls into this no man's land of indexing," said Dennis Hudachek, a senior ETF specialist with ETF.com, an expert on exchange-traded funds.