Citigroup Inc., whose market-making unit suffered millions of dollars of losses trading Facebook Inc. in its public debut, urged U.S. regulators to reject Nasdaq OMX Group Inc.’s proposal to make up for its errors.
The third-biggest U.S. bank said New York-based Nasdaq OMX’s claims that its liability should be limited by immunity afforded to exchanges is unsupported by legal precedent. Decisions made by the second-largest U.S. equity trading venue in the May 18 initial public offering were aimed at protecting its profits rather than member firms, the company said.
Citigroup’s assertions, contained in a 17-page letter to the Securities and Exchange Commission, came one day after rival market-maker Citadel LLC said Nasdaq OMX’s proposal should be approved. The New York-based bank said its losses exceed its portion of the pool proposed by Nasdaq OMX last month, which would compensate Wall Street firms that lost money after a design flaw in its computers delayed Facebook’s open and left traders confused about how many shares they owned.
“Market participants suffered hundreds of millions of dollars of losses as a result of Nasdaq’s profit-driven conduct prior to and during the Facebook IPO, not as a result of protected regulatory activity by Nasdaq, or routine system failures,” Citigroup wrote. “Nasdaq should not be permitted to hide behind regulatory immunity.”
Joseph Christinat, a Nasdaq OMX spokesman, declined to comment. Its stock slipped 0.4 percent to $23.09 at 12:21 p.m. in New York. Citigroup fell 1 percent to $30.19.
The opposition is another sign Nasdaq’s responsibility will be determined in court rather than by regulators. UBS AG, Switzerland’s largest bank, said last month that it is examining legal options after losing as much as $350 million in the IPO.
Citigroup, Chicago-based Citadel, UBS in Zurich and Knight Capital Group Inc. in Jersey City, New Jersey, operate equity wholesaling groups, brokers that execute orders for individual investors sent by securities firms such as Charles Schwab Corp., TD Ameritrade Holding Corp. and Fidelity Investments.
Nasdaq OMX last month increased its planned payout to brokers that lost money trading Facebook to $62 million from $40 million in cash and credit. The decision was made despite protections it possesses as a so-called self-regulatory organization, Nasdaq Stock Market said. The cap on Nasdaq’s liability stemming from technology errors it causes is $3 million, according to the exchange’s rules.