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Nasdaq's Facebook mess gets nastier

posted 24 May 2012, 14:31 by Mpelembe   [ updated 24 May 2012, 14:33 ]

Knight Capital Group is suing the Nasdaq to cover its losses from the Facebook IPO, and questions are being raised about the exchange's recent cutbacks and the possibility of any impact on the Facebook debacle.

USA-NASDAQ/FACEBOOK LIABILITY - Forget the $3 million liability cap the Nasdaq was counting on- the exchange could be on the hook for tens of millions more.

Electronic trader Knight Capital says it lost as much as $35 million in the botched Facebook debut- and it wants Nasdaq to pay up.

At first it seems the Nasdaq would be protected- because regulations limit their liability regarding client losses to $3 million dollars a month. But if Knight Capital can prove something happened outside of certain parameters- all bets are off.

Cornell University Law Professor Charles Whitehead:


"More generally this wasn't just simply a software glitch, it was also the result of perhaps mismanagement, it's something of course that they are going to have to prove, but mismanagement or some other broader problem that existed. "

The Nasdaq has said it hopes to put aside $13 million to settle bad trades- a sign that could indicate it is prepared to pay above that $3 million cap.

While there is not necessarily a connection, it is a fact that the Nasdaq has been cutting costs.

In an investor presentation earlier this month Nasdaq said in the last 3 years, capital expenditures have gone down by 30% in their technology unit. Operating expenses are down by 20 percent. Headcount is down by 25%.

Nasdaq has admitted it used the wrong fix for a technical glitch during the Facebook IPO on Friday. Rather than solve the problem, it led to a 2-1/2 hour period in which many brokers were unable to see the results of their trades.

This raises questions about whether they should be investing more, not less, in technology.


"It's certainly something that in the ordinary course you'd expect people to look at. It's not uncommon when you see a drop in headcount, a cutback in capital expenditures, gremlins suddenly appear in your software packages and that seems to be perhaps what happened here."


Retail investors were also caught in the chaos.

Fidelity Investments says thousands of retail clients had problems- and that it won't be satisfied until it is confident the Nasdaq has done everything it can to mitigate the impact to its customers.

Bobbi Rebell, Reuters.