June 7 (Bloomberg) -- Nasdaq OMX Group Inc.’s plan to earmark $40 million for brokers whose orders were mishandled in Facebook Inc.’s initial public offering will hurt competition, according to NYSE Euronext.
The second-biggest U.S. stock-exchange operator said yesterday that it would pay $13.7 million in cash, with the rest of the money credited through lower trading fees for members who took losses. That step was criticized by the New York Stock Exchange owner, which said it compels customers to trade on Nasdaq to get refunds. The Securities and Exchange Commission must approve Nasdaq’s plan before it can be implemented.
“This is tantamount to forcing the industry to subsidize Nasdaq’s missteps and would establish a harmful precedent,” NYSE Euronext said in an e-mailed statement. “We intend to strongly press our views that Nasdaq’s proposal cannot be allowed to permit an unjust and anti-competitive situation.”
Delays and malfunctions on the Nasdaq Stock Market were the first signs of trouble in the May 18 Facebook IPO that burned investors, cost Wall Street market makers an estimated $120 million and prompted lawsuits against the company, its exchange and the underwriters. The stock is down 29 percent since the $16 billion offering, the biggest ever by a technology company.
Knight Capital Group Inc. in Jersey City, New Jersey, estimated in a May 23 government filing that it lost as much as $35 million in the IPO. The company is one of the largest wholesalers, a category of market makers that executes orders for individual investors sent to the firm from retail brokers.
“Clearly, we are disappointed that Nasdaq’s compensation fund does not come close to covering reported losses from broker-dealers like Knight,” the company said in a statement. “Their proposed solution to this problem is simply unacceptable. As previously stated, the company is evaluating all remedies available under law.”
Executives of Bats Global Markets Inc. and Direct Edge Holdings Inc., the biggest U.S. equity market operators after NYSE and Nasdaq, said today at a conference sponsored by Sandler O’Neill & Partners LP in New York that they also objected to Nasdaq’s plan and would oppose it.