Why is Nasdaq Keeping Quiet on Facebook Disaster?
As the buzz of losses incurred by investors on technical troubles during the Facebook (NASDAQ:FB) IPO keeps growing, one party has been awfully quiet. The Nasdaq OMX Group (NASDAQ:NDAQ), the parent company for the stock exchange whose systems collapsed on the high-volume opening day of the stock, has done little to conciliate market making clients, or even come out and publicly apologize.
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That there was a major breakdown in the system is obvious. Nasdaq member claims due to the losses have been projected to total between $150 million to $200 million, with just the top four market makers for the exchange losing as much as $115 million. Firms including UBS (NYSE:UBS), Citigroup (NYSE:C), Knight Capital (NYSE:KCG), and Citadel Securities are said to have lost between $20 million and $35 million each. A group of investors has filed a lawsuit targeting the handling of the IPO, and more than one regulatory body is conducting independent inquiries.
However, as Reuters notes, there has been no outright apology from Nasdaq OMX other than a statement released in the days after the bungling that it would set aside about $13.7 million to address loss claims. The inaction is not making clients happy, especially because in Corporate America this kind of a situation usually puts executives into crisis communications overload.
Others agree. “They have failed in executing a comprehensive or cohesive communications strategy,” said Michael Robinson, a former U.S. Securities and Exchange Commission public affairs chief who also spent time at Nasdaq media relations. “Here we are a couple of weeks later and I’m still not entirely sure what it is they said went wrong.”
But despite the unhappiness, experts say customers have to keep trading on the exchange because of a lack of many alternatives. Nasdaq is one of only two U.S. exchanges on which companies can list their shares and has a big clout because it hosts big technology names like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG). The exchange’s trading volume this week has been above the monthly average.
“This is their modus operandi,” independent trading and market structure consultant William Karsh told Reuters. “They screw the wholesalers because they can. At the end of the day, the wholesalers have no choice but to use them — they are still a huge liquidity pool.”
But maybe there is a longer-term risk for the exchange — of not landing the next big newly public stock. “The Nasdaq has just handed the New York Stock Exchange the best marketing bonanza they could ever hope for,” said Robinson.
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