NASDAQ said on Wednesday it was setting aside US$40 million to cover brokers’ trading losses due to computer glitches that disrupted the market debut of Facebook shares on May 18.
NASDAQ chief executive Robert Greifeld apologized for the foul-up, which marred the US$16 billion Facebook share issue, the US’ most hotly awaited initial public offering (IPO) in years.
However, the compensation plan immediately ran into objections from one broker, who said it was deeply inadequate, and from rival New York Stock Exchange (NYSE), which said the plan masked a scheme to steal business away from it.
“We have been embarrassed and certainly we’ve apologized to the industry,” Greifeld told CNBC television.
NASDAQ announced that the company’s board had approved a “one-time voluntary accommodations program” that would pay US$13.7 million in cash to NASDAQ member firms, with the rest to be credited to qualified claimants “to reduce trading costs” over six months.
The compensation plan will apply to claimed losses on trades made in Facebook stock on the first day between the IPO price of US$38 — also the day’s low — and up to US$42.
The stock hit a high of US$45 on the first day, but since then has lost nearly 30 percent from the IPO, closing on Wednesday at US$26.81.
The plan requires the approval of the US Securities and Exchange Commission, and the independent Financial Industry Regulatory Authority will evaluate claims from the brokers, NASDAQ said.
Facebook’s US$16 billion IPO overwhelmed NASDAQ’s systems when it hit the market on May 18, forcing a half-hour delay in opening trading and leaving investors and brokers in the dark for hours over the results of orders involving millions of shares.
Claims of losses related to the market’s computer problems are estimated above US$100 million, according to the Wall Street Journal.
The NYSE raised strong objections to the compensation plan.
“We believe it would be wholly inconsistent with fair practice and an undue burden on competition to allow NASDAQ to use pricing and other machinations as a guise for fairly compensating those impacted by the Facebook IPO issues,” it said in a statement.
“Such a tactic would potentially strongly incent customers to divert order flow to NASDAQ in order to receive compensation to which they are entitled, and allow NASDAQ to reap a benefit from market share gains they would not have otherwise received,” it said.
Meanwhile, Knight Capital, one of several broker-dealers claiming large losses due to NASDAQ’s technical problems on the opening day, called the compensation scheme “simply unacceptable.”
“Clearly, we are disappointed that NASDAQ’s compensation fund does not come close to covering reported losses from broker-dealers like Knight who traded Facebook shares on behalf of average investors the day of the IPO, and who suffered losses as a result of NASDAQ’s failures in connection with this IPO,” Knight said.