Nasdaq Tabs $40M As Facebook IPO Compensation
By The Wall Street Journal
NEW YORK -- Nasdaq OMX Group Inc. outlined plans Wednesday for a "one-time" payout of around $40 million to compensate some financial firms that lost money after the exchange operator botched their trades during the initial public offering of Facebook Inc.
The plan involves a mix of cash and trading discounts aimed at easing the reputational damage from the technical problems that plagued Facebook's debut last month and left brokers with unwanted trading positions.
The planned payouts are subject
to Securities and Exchange Commission approval and fall well below the $100 million or more that financial firms said they lost because of the technical problems. The payouts will also likely stir objections from rival exchanges, according to people familiar with the situation.
Problems with Nasdaq OMX exchange systems handling the May 18 opening of Facebook shares delayed the debut by 30 minutes and left brokers with millions of shares worth of unconfirmed trades. Firms did not learn the results of their orders until more than two hours after the stock opened, and some were caught by surprise when they were notified by Nasdaq of unexpected positions in the social-networking company's newly listed stock.
Nasdaq OMX chief executive Robert Greifeld said Wednesday that he and other Nasdaq Stock Market officials "owe the industry an apology" for the technical problems that marred the highly anticipated stock offering.
Greifeld's concession marks a departure from his initial public comments on the IPO, made two days after the offering on a conference call with reporters. He insisted at the time that the offering had been a success, though he tempered those remarks by saying Nasdaq was "humbly embarrassed" by the technical problems and that the day was not "perfect."
"Clearly we didn't succeed here," Greifeld said in his office at Nasdaq's MarketSite in New York's Times Square.
Nasdaq said it would pay $13.7 million in cash to member firms that suffered losses, including the $10.7-million profit it made from first-day trading and the maximum $3 million allowed by regulators to make good for trading snafus.
The rest would come in the form of trading discounts seen vesting over six months, with the push to pay out more than the $3 million cap set by regulators raising concerns among rivals that it would set an unwelcome precedent.
Nasdaq said compensation would be limited to claims fitting a number of criteria and will not be extended to "losses that resulted from affirmative decisions by members."