US REGULATORS have sanctioned an unprecedented payout from Nasdaq over its botched handling of Facebook’s stock market flotation last year, although the proposed amount falls short of banks’ losses.
The Securities and Exchange Commission said yesterday it had agreed to lift the maximum amount Nasdaq is able to offer in compensation for technical errors to $62m (£40.8m) from a previous $3m limit.
However, this is far less than the approximately $500m that brokers including UBS and Citigroup claim the errors cost them.
On the first day of Facebook’s initial public offering on the Nasdaq exchange last May, in which $16bn worth of shares flooded the market, trading was repeatedly delayed due to technical glitches. UBS claims this cost it $350m, meaning that even if it saw a sizeable chunk of Nasdaq’s $62m, it would not nearly be fully compensated.
Citigroup has also attacked Nasdaq over the proposed payout, calling its handling of the IPO “reckless” and “profit-oriented” and saying its share of $62m would only a cover a very small fraction of its losses.
Yesterday, UBS requested that Nasdaq cover all its losses, and demanded arbitration, criticising Nasdaq for its “substantial failures to perform its duties”.
Other firms to have lost money over the IPO, such as Knight Capital and Citadel, have supported Nasdaq, saying the payout is better than expected, while Nasdaq has said it has robust legal defences against any higher damages, and that the $62m voluntary payment is an unusually generous offer.
“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... [it] would create a means of providing significantly more compensation for eligible claims, outside of litigation, than would otherwise be available under existing [rules],” the SEC said.
Banks now have a week to write to the US Financial Industry Regulatory Authority, which will decide how the $62m fee should be allocated.