The Facebook IPO was one of the biggest events on the Nasdaq exchange in years, but it was also an event that had its share of problems. In response to that, the Nasdaq exchange announced yesterday that it was establishing a $40 million fund for those investors trying to trade Facebook stock, but incurred technical problems beyond its control, and saw subsequent losses.
The financial industry's regulatory arm, FINRA, will be handling the claims for compensation stemming from the May 18 IPO of Facebook. While generating great fanfare and consumer interest, it also generated plenty of technical issues that may have left a lot of people flat-footed.
From the beginning, trading had been delayed by a full half-hour, as systems were slammed with orders. Many investors who wanted to buy in were unable to buy or sell what they had bought, and some even couldn't tell if orders they'd placed had even gone through in the first place, making for a perfect storm of problems for investors, and by extension, the Nasdaq itself.
The Nasdaq plans to pay out about $14 million in cash to those investors who file valid claims, while the remaining $26 million will be issued as credit to cover the costs that firms would ordinarily pay to make trades.
While this may not sound like much, considering the sheer amount of investment that went on here – officials at Nasdaq hasn't said whether or not they think the $40 million would cover all the costs – it's also a substantially larger amount than is normally set aside for such matters, with the usual response generally being a $3-million reimbursement or less.
The Securities and Exchange Commission, however, would need to ultimately approve the reimbursement plan.
Since even Nasdaq calls the trading glitches embarrassing, it's no surprise seeing them visibly beef up compensation amounts. Nasdaq's plan is to reimburse firms that tried to sell shares when the price hit $42 or less that day, but either had to accept lower prices than they wanted or couldn't sell at all due to trading glitches.
Nasdaq said its problems have since been fixed, and plans to bring in IBM to check over its operations and assess the possibility future issues.
The Nasdaq exchange has long had to fight it out for listings with the established New York Stock Exchange, and some have even expressed concerns that the recent Facebook issues may lead more investors to put their investments – and their new listings, where applicable – on the NYSE.
Nasdaq's attempts to distinguish itself as the "high-tech stock exchange" have seen some success, but there’s still lingering doubt that it's the national headquarters for flashes in the pan. Glitches like the Facebook IPO don't help that perception, and Nasdaq needs to do its best to better promote reliability and safety in trading, even as it promotes the new generation of stocks.
Still, bringing in IBM is a smart move, and one that's likely to pay dividends all its own as more Silicon Valley companies start looking to their own IPOs.
Contributing TechZone360 Writer
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