Did Nasdaq Have a SHODDY Plan for Facebook?
Citigroup (NYSE:C) has told the U.S. Securities and Exchange Commission that Nasdaq OMX Group’s (NASDAQ:NDAQ) compensation plan related to the Facebook (NASDAQ:FB) IPO technical glitches is not an adequate response. The firm sent a letter to the regulator, criticizing Nasdaq for the “mishandling” of the IPO and insisting that the $62 million compensation proposal would only cover a “fraction” of its total losses.
“Nasdaq was grossly negligent in its handling of the Facebook IPO, and as such, Citi should be entitled to recover all of its losses attributable to Nasdaq’s gross negligence, not just a very small fraction as is currently the case,” the bank said in its letter.
Citigroup was one of several firms that lost millions of dollars after technical troubles with the stock exchange’s systems during the opening day of trading in Facebook shares led to unwanted transactions. Citigroup is said to have lost about $20 million, while UBS (NYSE:UBS) reported a $356 million loss and Knight Capital (NYSE:KCG) lost $35.4 million. While Nasdaq initially offered a total of $40 million, it increased the compensation plan to $62 million after protests from firms.
Citadel Securities, which also lost money in the trading mishaps, sent a separate letter to the SEC earlier this week, asking the agency to approve Nasdaq’s proposal and calling it “objective and fair.”
However, Citigroup is not being as generous. In its letter, the firm has accused Nasdaq of not having tested its systems thoroughly and said the exchange failed to properly disclose the problems on the morning of the IPO. The losses were not caused by a “system glitch” but rather “grossly negligent, self-serving business decisions,” the letter reads, according to The Wall Street Journal.
Citigroup is also unhappy with Nasdaq’s claim that its liability was limited because of its status as an exchange with regulatory responsibilities. “As set forth in detail below, the hundreds of millions of dollars of losses suffered by market participants in connection with the Facebook IPO resulted from a series of hasty, self-interested, and high-risk business decisions by Nasdaq, which did not take full account of the negative downstream effects of those decisions,” the firm said.
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