Nasdaq to Pay $40 Million in Compensation for Facebook IPO Debacle

Category: Global Markets / Jun 07, 2012 10:08AM EDT

Nasdaq OMX Group said it will offer cash and rebates totaling $40 million to compensate clients affected by the problems with Facebook’s initial public offering (IPO). After approval by regulators, Nasdaq said on Wednesday, $13.7 million would be paid to its affected member firms and the balance would be credited to members to reduce trading costs, with all benefits expected to be awarded within six months.

The top four market makers in the Facebook IPO – including UBS, Citigroup, Knight Capital, and Citadel Securities - together lost upward of $115 million due to technical problems that prevented them from knowing for about two hours if their orders had gone through after Facebook began trading. Fordham Law School adjunct professor Annemarie (pronounced Anna-marie) McAvoy, said the move is an attempt by NASDAQ to correct the situation and retain business on the exchange.

The idea of rebates has caused some concern at other exchanges. Sources at Nasdaq rivals said that such a plan would force brokers to trade at Nasdaq, taking market share from competing exchanges. Under the plan, investors who attempted to buy the company's shares at $42 or less, but whose orders weren’t executed, would be eligible for compensation. In addition, trades that were executed at an inferior price would also be eligible, as well as trades that did go through successfully but were not confirmed because of Nasdaq's technical problems.