Thursday, June 07, 2012

Nasdaq Refunding $40million Over Facebook IPO

Nasdaq will offer $40 million in refunds due to technical problems that plagued users on the first day of the Facebook IPO. An issue that has caused much uproar and at least one lawsuit. Nasdaq CEO Robert Greifeld explained to CNBC that the company will be offering cash and credit refunds totaling $40 million as compensation for the problems, with $14 million in cash going to investment companies that bought or sold shares (or tried to, unsuccessfully) during the troubled period.

Greifeld told CNBC that the company has been “embarrassed” by what happened, adding “certainly, we apologize to the industry.” Well, part of the industry, at least; Greifeld went on to say that, “as an exchange, we have registered broker-dealers as our customers. The registered broker-dealers have the retail and institutional investors. So as we look to our accommodation policy, we’re not privy to what happened at the retail level. So we obviously can only focus on what we see, and that’s our transaction with our member customers.”

Which is to say: Sorry, individual investors – None of this $40 million is for you. Greifiled and Nasdaq are in essence saying they have no direct responsibility to individual investors

On the first day of Facebook trading, technical glitches left the market makers — who facilitate trades for brokers and are crucial to the smooth operation of stock trading — in the dark for hours as to which trades had gone through. As a result, trading was delayed until 11:30 am on the morning of the IPO. Confirmations of those initial trades of 70 million shares didn’t post until 1:50 pm, Greifeld explained.

Some investors also say they did not receive proper prices or trade sizes as a result of the technical problems with the IPO which has prompted Phillip Goldberg, a Maryland investor, to file a lawsuit against the exchange company.

The proposal, already approved by the exchange's directors, still needs the stamp of approval from the Securities & Exchange Commission. However several companies including the NYSE and investment company Knight Capital have already hinted at the likelihood of challenging the plan as being severely inadequate.

While the $40 million amount is far more than usual for a situation like this: Nasdaq has traditionally imposed a $3 million cap for reimbursing customers who lost money because of technical problems. The amount is barely a fraction of the overall value that was reportedly lost by investment firms. Knight Capital alone has estimated that it lost as much as $35 million because of Nasdaq's glitches. Other trading firms argue they are owed -- closer to $100 million.

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