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NASDAQ's $62m apology for Facebook snafu approved by SEC

Payoff for market FAIL around IPO

Internet Security Threat Report 2014

The Securities and Exchange Commission has approved a $63m settlement by NASDAQ OMX Group for the downtime its exchange suffered during the Facebook IPO which left traders unsure if their requested trades had gone through.

"Nasdaq proposes to compensate market participants for certain claims related to system difficulties in the Nasdaq Halt and Imbalance Cross process in connection with the Facebook IPO in an amount not to exceed $62 million," said the high-tech stock exchange group in a statement.

During Facebook's IPO last May, the NASDAQ trading system stuttered and then fell over, leaving some traders buying shares twice or not getting any shares at all. Facebook's initial stock price of $38 rose quickly to $42 before the problems kicked in, then slid back down over the hours, days, and weeks that followed to under $20 before recovering somewhat; as we click Publish on this report, the share price stands at just over $25.

NASDAQ chief Robert Greifeld said he was "humbly embarrassed" by the incident, and said his company offered $40m in cash and reduced trading costs to make up for the snafu before this latest settlement was approved.

The latest $62m compensation fund is in cash alone, but is tightly restricted. Compensation is only available to trades made between 11:11am and 1:50pm on May 18 of last year for stock orders on the social network at the $42 price point. Any company that takes the compensation waives any right to further legal action.

Bear in mind also that this money goes solely to banking institutions and not to retail investors who buy and sell stocks on their own account. As such, it's unlikely to stop Facebook's private litigation problems.

"We have previously filed comment letters to the SEC in August and November 2012 condemning Nasdaq's proposed compensation plan as inadequate and insufficient, and the SEC's approval of the plan does not change our opinion," UBS told El Reg in a statement.

"Moreover, UBS has already filed an arbitration demand against Nasdaq for the full extent of our losses over Nasdaq's gross mishandling of the Facebook IPO in May 2012 and its substantial failures to perform its duties."

Other traders are unlikely to be happy with this result, as well – of the 17 official comments made to the SEC ahead of the deal, 14 companies disagreed with the settlement. Some estimates by brokers said that as much as $500m may have been lost by the NASDAQ failure – although some might point out that traders are hardly going to skip a cash-grabbing opportunity by low-balling their estimates.

NASDAQ called such estimates "unpersuasive" in the settlement document, and said it was satisfied with the settlement as it stands. No doubt Wall Street brokerage legal teams are looking over the settlement and gearing up for a round of litigation however. ®

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