NYSE SHOCKED at Nasdaq’s Behavior
The holding company of NYSE is less than thrilled about how direct competitor Nasdaq OMX Group (NASDAQ:NDAQ) has shaped its compensation plan for firms that lose money because of mishandled orders during the Facebook (NASDAQ:FB) IPO. On Wednesday, Nasdaq OMX announced a plan worth $40 million to pay off the affected brokers, putting aside $13.7 million for cash payments and assigning the rest of the money as credit on trading fees over the next few months.
NYSE Euronext (NYSE:NYX) said the second part of the proposal would not be fair practice, as it effectively compels customers to trade on Nasdaq to get refunds. In its statement, the NYSE said “such a tactic would potentially strongly incent customers to divert order flow to Nasdaq in order to receive compensation to which they are entitled, and allow Nasdaq to reap a benefit from market share gains they would not have otherwise received.”
The NYSE added that the plan would “establish a harmful precedent that could have far-reaching implications for the markets, investors and the public interest.”
Technical malfunctions during Facebook’s initial public offering on May 18 first delayed the company’s opening trade and later left brokers with millions of unconfirmed trades. Firms have reported big losses, with Knight Capital (NYSE:KCG), UBS Group (NYSE:UBS), Citigroup (NYSE:C), and Citadel Securities reportedly losing almost $115 million collectively.
Knight Capital also expressed unhappiness at Nasdaq OMX’s plan, but mainly because it thought the stock exchange was doing too little.
“Clearly, we are disappointed that Nasdaq’s compensation fund does not come close to covering reported losses from broker-dealers like Knight who traded Facebook shares on behalf of average investors the day of the IPO, and who suffered losses as a result of Nasdaq’s failures in connection with this IPO,” the firm, with reported losses up to $35 million, said in a statement.
Nasdaq OMX chief executive Robert Greifeld responded to the criticism in an interview with CNBC, saying that “we had to see the orders that were trying to come into our cross, and we had to make compensation for those orders that were not properly executed in the cross. We could not take responsibility for trading decisions other firms made.”
The Facebook stock is down 29 percent since the $16 billion offering, the biggest ever by a technology company.
Greifeld also said that NYSE Euronext’s assertion was fundamentally wrong because firms don’t necessarily have to make larger orders to get compensated. “Our market share could be constant or decline and people will still get paid,” he said. “It’s just a misunderstanding of the fact there. We are offering this to our customers that transact with us every day. They do not have to give us one incremental share for them to earn this payment.”
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