Here’s How Nasdaq Screwed Up Facebook’s Big Debut
After exchange owner Bats shot itself in the foot in March with the mishandling of its IPO, Nasdaq (NASDAQ:NDAQ) blushed on Friday as technical problems at the exchange marred the debut of its trophy listing, Facebook (NASDAQ:FB).
Investing Insights: Facebook Shares Plunge Below This Critical Price Point.
Blaming the “poor design” of its IPO auction software, Nasdaq CEO Robert Greifeld disclosed that the systems fell into a “loop” that delayed opening trades of the most hotly-anticipated tech debut since Google (NASDAQ:GOOG).
It seems that problems appeared shortly after 11:11 a.m., once Morgan Stanley (NYSE:MS) had set the opening trade price for the issue. The trade requests received in the first 5 milliseconds of the auction apparently caused an imbalance between the buy and sell orders and sent the system into a loop, causing Nasdaq to manually intervene and reschedule the auction for 11:30 a.m.
But at 11:31 a.m., exchange officials were confronted with the strange situation of a “crossed market” in Facebook shares – there were buyers at $42.99 and sellers at $42.50 – normally the prices are quoted in reverse. Nasdaq also witnessed a glitch in its messaging system, and according to a message at 11:59 a.m., it was unable to send trade confirmation messages to brokerages. This appeared to have been fixed by 1:57 p.m.
“This was not our finest hour,” Greifeld said, but appeared to be confident that he would retain his job.
“It’s amazing that both Bats and Nasdaq unfortunately failed in an inglorious way,” said William Karsh, the former chief operating officer at Direct Edge Holdings LLC, a competing exchange operator. “It proves that technology isn’t infallible. There are so many moving parts that things can go wrong. That’s the lesson we learn.”
Investors can look forward to some compensation for botched trades — Nasdaq will use an “accommodation pool” to pay back investors who should have received executions in the opening auction, based on the decisions of a third-party reviewer, Greifeld said. It may total $13 million, he said.
The U.S. Securities and Exchange Commission said it will put Nasdaq under review.