Payment attempts to compensate investors who say they lost hundreds of millions of dollars in IPO glitches
US stock exchange NASDAQ has received approval from the SEC to pay Facebook investors a total of $62 mn for losses suffered as a result of technical glitches and delays during the social media company’s IPO last year.
The payment, to be made in cash, will go to traders who lost money due to problems with NASDAQ’s computer system in the first half-hour of trading in Facebook shares during the May 18, 2012 IPO. The $62 mn sum is far below the compensation demanded by many Facebook investors, including Citigroup and UBS.
The SEC ruling allows NASDAQ to modify existing rules that would have limited its liability to as little as $500,000 payable to investors who claim their losses – which reportedly ran into hundreds of millions of dollars – were caused by the 30-minute delay in registering some Facebook trades. NASDAQ’s proposal to pay $62 mn, instead of the lower amount stated in its own regulations, is an attempt to address complaints from investors who bought more shares than they wanted because the system didn’t visibly register their first purchases.
‘While the accommodation proposal is not designed to, and would not, compensate all claims of loss suffered by market participants relating to NASDAQ’s system difficulties with the Cross [a pre-IPO auction process], the commission notes that the accommodation proposal would create a means of providing significantly more compensation for eligible claims, outside of litigation, than would otherwise be available,’ the SEC writes in its decision.
Investors have threatened to sue NASDAQ for more compensation, and the SEC ruling still leaves that possibility open. The commission stipulates that its ruling does not give the stock exchange regulatory immunity for any problems created by technical shortcomings.
Citigroup and UBS publicly opposed NASDAQ’s settlement plan when it was proposed last year, saying they suffered losses far exceeding the stock exchange’s proposal as a direct result of the technical glitches.
‘NASDAQ was grossly negligent in its handling of the Facebook IPO and, as such, Citi should be entitled to recover all of its losses attributable to NASDAQ’s gross negligence, not just a very small fraction as is currently the case under the proposed SEC submission,’ Citigroup wrote in an email to the SEC last August. ‘The hundreds of millions of dollars in losses suffered by market participants in connection with the Facebook IPO resulted from a series of hasty, self-interested and high-risk business decisions by NASDAQ.’
Other investors, including Knight Capital Group and Citadel, had urged the SEC to allow NASDAQ to modify its Rule 4626, which limited its liability to $500,000.
‘The NASDAQ problems on May 18 were unprecedented and NASDAQ Rule 4626 was simply not designed to address problems of this magnitude,’ Citadel wrote to the SEC last year. ‘As a result, it is entirely appropriate for NASDAQ to establish a special accommodation plan to compensate members for certain losses that directly resulted from this event, and for the commission to approve the rule filing.’