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Nasdaq plans $40 mln (USD) in Facebook IPO compensation

posted 6 Jun 2012, 13:46 by Mpelembe   [ updated 6 Jun 2012, 13:47 ]

Nasdaq releases a statement announcing that its board has approved a plan to spend 40 million U.S. dollars to repay investors for losses incurred due to its glitches during Facebook's IPO.

NEW YORK CITY, NEW YORK, UNITED STATES (JUNE 5, 2012) (REUTERS) - Nasdaq OMX Group Inc said it will offer cash and rebates totaling $40 million (USD) to compensate clients affected by the problems with Facebook Inc's initial public offering (IPO).

After approval by regulators, Nasdaq said on Wednesday (June 6), $13.7 million (USD) would be paid to its affected member firms and the

balance would be credited to members to reduce trading costs, with all benefits expected to be awarded within six months.

The top four market makers in the Facebook IPO - UBS, Citigroup, Knight Capital, and Citadel Securities - together lost upward of $115 million (USD) due to technical problems that prevented them from knowing for about two hours if their orders had gone through after Facebook began trading.

Fordham Law School adjunct professor Annemarie (pronounced Anna-marie) McAvoy, said the move is an attempt by NASDAQ to correct the situation and retain business on the exchange.

"I think there's a very good chance that if somebody has an IPO in the future they are going to say well, I don't want to go through what they went through with the Facebook IPO. That's the reality and that's what NASDAQ is trying to make sure doesn't happen. They are trying to say we've got programs now, companies looking at us, FINRA involved, IBM looking at us, we've got all these things going on to make sure we're going to be perfect the next time. But the problem is customers may not believe them. The word of mouth is very poor for them because of what just happened," McAvoy told Reuters.

The idea of rebates has caused some concern at other exchanges. Sources at Nasdaq rivals said that such a plan would force brokers to trade at Nasdaq, taking market share from competing exchanges.

"These companies will want, these are big companies Citigroup, UBS. They will want the freedom to go where they want to go. They don't want most likely to be forced to use the NASDAQ so that certainly doesn't help with good will," said McAvoy.

Under the plan, investors who attempted to buy the company's shares at $42 (USD) or less, but whose orders were not executed, would be eligible for compensation. In addition, trades that were executed at an inferior price would also be eligible, as well as trades that did go through successfully but were not confirmed because of Nasdaq's technical problems.