Nasdaq OMX Group Inc. agreed to pay $10 million to settle Securities and Exchange Commission charges that its mishandling of Facebook Inc.’s initial public offering last year was a violation of securities laws.
Regulators cited the second-largest operator of U.S. equity markets for its “poor systems and decision-making” during the IPO in May that was delayed by a computer malfunction. The settlement is the largest with an American exchange, which enjoy legal protections because of their self-regulating role.
“Our focus in this investigation was on the design limitation in Nasdaq’s system and the exchange’s decision making after that limitation came to light,” Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit, said in the statement. “Too often in today’s markets, systems disruptions are written off as mere technical ‘glitches’ when it’s the design of the systems and the response of exchange officials that cause us the most concern.”
Brokers handling Facebook orders in the May 2012 IPO claimed they lost hundreds of millions of dollars after a design flaw in Nasdaq’s software delayed the stock’s open and left them confused about whether or not they owned shares. Today’s settlement is in addition to Nasdaq’s proposal to pay $62 million to compensate member firms for losses.
The SEC penalty was imposed because Nasdaq failed in its obligation to ensure that systems, processes and contingency planning are robust and adequate to manage an IPO without disruption to the market, the agency said.
“The settlement is another important step forward,” said Nasdaq CEO Robert Greifeld in an open letter e-mailed to Bloomberg News. “We have put in place innovative safeguards and taken a number of steps to help ensure that Nasdaq continues to deliver the world’s best trading technology.”
Greifeld said in the letter that Nasdaq has created positions for chief information officer and global head of market systems, changed its IPO, opening and closing crosses, implemented new processes for changing technology and established a group focused on testing the quality of its trading systems. The company handled 77 IPOs and raised $7.99 billion for investors and listed company since last May, the letter said.