Nasdaq agrees to pay $10 million to settle SEC Facebook case

‘Poor Design’

The pricing of the first public Facebook transaction, a trade known as the IPO cross, took a half hour longer than Nasdaq planned because of technical malfunctions. Days later, Greifeld acknowledged “poor design” in software put the opening auction into a loop that delayed its completion.

Citigroup Inc., Chicago-based Citadel LLC, UBS AG 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. Combined, the firms claim they lost almost $500 million in the offering.

The delays were the first signs of trouble in the Facebook IPO that burned investors and prompted lawsuits against the company, its exchange and the underwriters. The stock is still down more than 37 percent from the price set by underwriters. It slipped 2 percent to $23.62 as of 12:40 p.m. in New York. Nasdaq shares added 0.4 percent to $31.59.

$38 IPO

Facebook was priced at $38 on May 17. The IPO cross took place at 11:30 a.m. New York time the next morning, a half hour later than Nasdaq planned. About 30 minutes after that, the market owner reported a delay confirming trades from the opening auction with the brokers that placed orders.

The transaction reports, normally distributed immediately, were sent at 1:50 p.m., leaving market makers, brokers and their customers uncertain about whether orders submitted into Nasdaq’s opening cross had been executed. Traders and individuals couldn’t sell to limit losses until they received the reports and knew how many shares they held.

“It was a mess by their own admission,” Mark Coffelt, who manages $75 million as president of Empiric Advisors Inc. in Austin, Texas, said in a phone interview today. “It burned a lot of firms.”

www.bloomberg.com

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