Nasdaq OMX postpones Facebook payout
Nasdaq OMX has
delayed its plan to compensate members that lost money during a technical
glitch that affected the IPO of Facebook.
The US bourse
operator said it would postpone its US$40 million reimbursement proposal until
further notice, pending further review by regulator, the Securities and Exchange
Commission. Affected members were required to submit their claims by 20 June.
Some aspects of
Nasdaq OMX’s plan have come under fire from rival US exchanges.
Member Accommodation Plan would compensate members directly disadvantaged by the error which occurred prior to the start of continuous trading in Facebook shares at 11.30
on 18 May, its first day of trading, or if they had uncertainty regarding their
IPO cross position. This includes sell trades placed at US$42 or less which
failed to execute, sells priced at US$42 or less which executed at an inferior
price, or buys priced at US$42 which were executed during the cross but not
Of the US$40
million in planned reimbursement, around US$13.7 million would be paid in cash, with the remainder distributed as a reduction in trading fees for affected members over the next
six months. Member claims for compensation are to be reviewed by independent regulator, the Financial Industry Regulatory
But the proposal
to discount trading fees has come in for criticism by other US exchanges,
including NYSE Euronext, which stated that the plan was “tantamount to forcing the industry to subsidise
Nasdaq’s missteps and would establish a harmful precedent that could have far
reaching implications for the markets, investors and the public interest”.
The glitch on 18
May meant Nasdaq OMX was unable to calculate an opening price for Facebook’s
stock, leading to a 25-minute delay to the start of continuous trading. Because
of the error, some traders were unable to determine their Facebook positions or
the price they executed at.
Meanwhile, research from consultancy TABB Group titled ‘IPO survey industry barometer’, has claimed that the impact of the Facebook IPO is almost as significant as the 6 May 2010 flash crash. During the flash crash, a single algorithmic trade sent US markets spiralling in the space of 20 minutes, before rebounding just as quickly.
46% of those questioned said the Facebook incident would affect the IPO market for the next six months, while half of respondents said technical errors related to new issues are of greater concern than market structure issues or the compensation process. Furthermore, 63% said the syndicate process, i.e. the means by which underwriting brokers that build up interest in IPO investment, was an area that was ripe for change.