Botched Facebook IPO Puts NDAQ on the Hook for Over $100 Million
The fiasco of Facebook’s (NASDAQ:FB) IPO listing has left exchange operator Nasdaq OMX Group (NASDAQ:NDAQ) open to claims from market participants who lost money on failed or delayed trade executions, and these claims could well exceed $100 million.
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A system glitch delayed the execution of many clients’ trades, and the brunt of the losses were borne by four of the top market makers in the Facebook IPO – Citadel Securities, UBS AG (NYSE:UBS), Knight Capital (NYSE:KCG), and Citi (NYSE:C). These market makers could end up claiming over $100 million from Nasdaq.
According to one market maker, “We’re gonna be looking at a loss on our books” if Nasdaq does not honor the requests. “We basically made most of our clients whole because Nasdaq told us to go through the process and file for accommodation. If Nasdaq does not accommodate us we’re going to end up taking a loss.”
However, it is not yet clear whether Nasdaq can take shelter under a rule that limits its liability to $3 million a month to certain kinds of trading issues.
The flip side to this argument may be that Nasdaq may have lost the right to exercise this limit given its grossly negligent handling of the IPO.
Meanwhile Nasdaq’s shares are significantly underperforming those of peer NYSE Euronext (NYSE:NYX), which has fallen only 0.1 percent since the date of the IPO, while Nasdaq has lost over five percent.