Here's What Really Happened in the Botched Facebook IPO

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What really happened on May 18, 2012, with the botched IPO of Facebook Inc. (NasdaqGS: FB)?

Well, the Securities and Exchange Commission (SEC) just released its version of events under the guise of Administrative Proceeding File No. 3-15339.

And "In the Matter of THE NASDAQ STOCK MARKET, LLC and NASDAQ EXECUTION SERVICES, LLC (Respondents)" the SEC slapped wrists and fined the fools $10 million for screwing up Facebook's IPO – the largest-ever fine imposed on an exchange.

Of course, it's good reading. But there's something missing.

It's called "the truth."

How the Facebook IPO Was Supposed to Work

Here below in bold italics are excerpts from the actual order and my commentary (or the truth) in bold between the lines.

Let's go.

In its Introduction, the SEC states: National securities exchanges, which are registered by the Commission under Section 6 of the Exchange Act, are critical components of the National Market System, which provides the foundation for investor confidence in the integrity and stability of the United States' capital markets.

Which is all well and good if they practiced what they preach.

Except the SEC has aided and abetted the undermining of fair and orderly markets conducted at the exchanges. I'll get to that in a minute.

Here's how an initial public offering (IPO) is supposed to work.

Shares of the about-to-be-launched company are sold to participating purchasers (usually the fortunate ones) by the IPO's underwriters around midnight the night before the IPO.

"Secondary" trading, which is what happens when shares are released on the morning of the IPO, after they are priced, happens when the first "print" of the stock's price is announced and everyone can buy and sell based on the going price for stock.

Usually it's an easy process to get out the first "print" or the initial price of the offering.

Buyers and sellers place orders through their brokers and on their trading platforms for the amount of shares they want to buy or sell and at what price they want to transact.

The "display only period" (DOP) is the approximately 30 minutes it takes for orders to be put into the mixing bowl so that the largest number of shares aggregated at one price is "crossed" to determine the opening price.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. Barry Murray | June 2, 2013

    Thank you so much for an explanation of how the Small Business of American Mining is so underground in the dark. Those of us on the supply side of the second oldest profession — that is supposed to rule for having physical gold and silver— at WesternMiner and MiningMagazines haven't had the time to really study how we have been free traded away by an exploration money monopoly to IPO's out of Hong Kong also selling EB-5 green cards to Asians as us dumb hillbillies supposedly don't know a mine from a hole in the ground.

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