Facebook Inc’s initial public offering (IPO), plagued by trading errors and a share price drop of 16 percent, will push more individual investors out of a stock market that they already distrust after the financial crisis.
“This is clearly the latest in a long string of events that is eviscerating the confidence investors have in the market,” said Andrew Stoltmann, a Chicago attorney who represents retail investors. “The perception is Wall Street jiggered this IPO so the underwriters made money, Facebook executives made money and the small investor got left holding the bag.”
Individual buyers’ willingness to venture into stocks was undercut by difficulties in executing trades on the first day of trading on May 18, Facebook’s subsequent decline and questions as to whether the firm and underwriters selectively disclosed material and non-public information.
“If you have a lot of angry people out there, they’re going to express their anger in different ways,” said Steve Sosnick, equity risk manager for Timber Hill LLC, the market-making unit of Connecticut-based Interactive Brokers Group Inc. “One of them may be with their feet.”
The IPO produced the worst five-day return among the largest US deals of the past decade. The 13 percent decline through Thursday exceeded the 10 percent drop by MF Global Holdings Inc in its first five sessions. Visa Inc did best among the biggest deals, rising 45 percent.
Patricia Arroyo, 53, a psychologist and executive coach in Boston who manages her own investments, said: “What shakes my investor confidence more than the glitches is to see all the institutional investors, insiders and favored clients get all the advantages in these situations.”
After Facebook said on May 9 that growth in advertising had failed to keep up with user gains, analysts at some banks underwriting the deal cut their earnings estimates, people familiar with the process said. The new estimates were relayed to institutional investors.
US Federal securities regulators and the US Senate’s banking committee have said they will or may review the Facebook offering. Buyers of the stock have sued Facebook, the sale’s underwriters and NASDAQ OMX Group Inc, the exchange handling the listing. New York-based NASDAQ was overwhelmed by order cancelations and trade confirmations were delayed on the first day of trading.
Brokerages whose customers had trouble executing Facebook trades, including Boston-based Fidelity Investments and Charles Schwab Corp, said they are trying to resolve complaints.
“Fidelity senior management has been working with regulators, market makers and NASDAQ to represent all of our customers’ trading issues from May 18 and we will continue to do so in order to persuade NASDAQ to mitigate the impact on our customers,” Stephen Austin, a spokesman at Fidelity, said in a phone interview.
Despite trading problems and losses, many investors who have already purchased the stock are continuing to hold on, said John Dominic, vice president of trading for TradeKing, an online broker based in Fort Lauderdale, Florida.
“Most are probably taking a wait-and-see approach,” Dominic said.