Nanex pins Facebook blame on HFTs

Nanex, a US data analysis firm, has said high-speed traders may have been the primary cause of the delay the Facebook IPO and could have subsequently profited at the expense of retail investors.

Nanex, a US data analysis firm, has said high-speed traders may have been the primary cause of the delay the Facebook IPO and could have subsequently profited at the expense of retail investors.

On 18 May, the IPO of Facebook was delayed by around 25 minutes after Nasdaq OMX experienced technical difficulties when trying to set an opening price. The five millisecond continuous order placement period used by the US bourse to calculate the opening price was reportedly disrupted by order cancellations which required Nasdaq OMX to manually override the process, leading to the delay. As a result many investors received trade confirmations hours late and some were unable to determine whether they bought or sold the stock.

Although Eric Noll, head of transaction services at Nasdaq OMX, has stated that high-frequency traders were not active during the opening price auction and would have instead begun participating after the stock started trading on all US markets, Nanex has taken a conflicting view.

“Only high-frequency traders can cancel quotes at that rate,” read the research. “And ironic enough, it was mostly [high-frequency traders] that benefited later when Nasdaq quotes stopped coming from the Securities Information Processor which transmits quotes for everyone who doesn’t get the premium direct feeds.”

Those firms that are co-located and receive high-speed data feeds continued to receive quote information from Nasdaq OMX, demonstrated by the continuance of trading at the exchange, according to Nanex.

The technology issues surrounding the Facebook IPO have brought issues relating to the safety of markets back under the spotlight. The Financial Industry Regulatory Authority and Nasdaq OMX are jointly developing a procedure to compensate investors that lost money. Thomas Joyce, chairman and CEO of broker Knight Capital said that losses related to the glitch may cost the industry around US$100 million.

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