Post date: Jun 06, 2012 10:11:51 PM
Nasdaq's controversial Facebook IPO settlement offer falls way short of losses and has victims and the competition crying foul.
USA-NASDAQ/FACEBOOK SETTLEMENT - The Nasdaq has a peace offering for investors snared in the botched Facebook IPO.
Nasdaq OMX is offering a total of $40 million to compensate clients- victims of the technical problems that prevented many from knowing if their orders had gone through after Facebook began trading.
But that pales in comparison to even what the top four market makers lost. Upward of $115 million, when technical problems kept them in the dark for about 2 hours about whether their orders had gone through. One of them, Knight Trading called the deal "simply unacceptable".
Fordham Law School Professor Annemarie McAvoy:
ANNEMARIE MCAVOY, ADJUNCT PROFESSOR, FORDHAM LAW SCHOOL SAYING:
"This may be the first offer on the table essentially too. They may wind up being pushed. There still may be regulatory involvement here. "
Here's how it would work: under the plan, investors who tried to buy Facebook at $42 or less, but whose orders were not completed, would be eligible for compensation. Those who did go through but at an inferior price, would also be included, as well as trades that went through- but didn't get confirmation.
And there's a catch- only $13.7 million is in cash. That's made up of their liability cap of $3 million, and then the $10.7 million in proceeds from the Facebook IPO.
The rest will be in trading credits - forcing brokers to trade at Nasdaq.
ANNEMARIE MCAVOY, ADJUNCT PROFESSOR, FORDHAM LAW SCHOOL SAYING:
"People generally just as a matter of course don't like those kinds of refunds. If you are getting your money back, even if you are going to a store, if you are getting the money back you want your money back. You don't want to have to go back into the same store to use a credit. People just don't like that. And it's no different here."
It also has the competition crying foul:
The NYSE saying: "We believe it would be wholly inconsistent with fair practice and an undue burden on competition to allow NASDAQ to use pricing and other machinations as a guise for fairly compensating those impacted by the Facebook IPO issues."
The benefits would be paid within 6 months, assuming the deal gets regulatory approval.
Nasdaq is still in a review process with the SEC.
Bobbi Rebell, Reuters.