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The Facebook IPO mess has become a costly ordeal.
After market close Wednesday the Nasdaq OMX Group announced it will pay $40 million in compensation damages to brokerages that lost money because of the Facebook (Nasdaq: FB) IPO fiasco.
Facebook's epic debut on May 18 was marred by technical glitches at its home exchange, the Nasdaq. After a great deal of anticipation, a rock-star like roadshow, and repeated SEC filings and re-filings, shares were finally priced at $38 each.
But there were problems from the first trades went off around 11:30 a.m. EDT. Executions were late, allotments askew, and prices delayed. Investors who did manage to get shares were disappointed when Facebook stock barely finished above the IPO price on its first day of trading, closing at $38.27.
Many investors felt misled and cheated. Scores have joined class action law suits against Facebook, Nasdaq, and the 33 underwriters.
But Nasdaq's recompense is being called a public relations ploy and does little to help individual investors.
"The retail investor, the true victim, gets lost in the shuffle," Andrew Stoltmann of Stoltmann Law told USA Today.
Nasdaq's payments only cover faulty trades due to technical glitches, not losses investors suffered betting wrongly on the stock.
Facebook IPO Fix Not a Good Answer
For the disastrous first day of Facebook trading, Nasdaq will pay $13.7 million in cash and provide $26.3 million of trading discounts to affected member firms for select trades.
The exchange will compensate affected firms for three types of trading issues: Orders to sell that were priced at $42 or less that didn't go through; orders to sell at $42 that went through at a lower price; and buy orders priced at $42 that weren't confirmed. Firms have until June 20 to file their claims.
Despite the settlement, even some companies that might get some of Nasdaq's compensation are not pleased. Knight Trading, a market maker, said it was disappointed by the size of the compensation.
"$40 million seems woefully inadequate," agreed Stoltmann.
Several large brokerages, not waiting for the Nasdaq to move, say they have already started working with market makers to fix errors. Trading giant Fidelity reports it has resolved a handful of disputes regarding Facebook trading, and continues to work with market markers.
Meanwhile, spokespersons from Charles Schwab (NYSE: SCHW) and Scott Trade said they currently are assessing the situation. Online broker TradeKing maintains customer errors have been fixed.
The NYSE Euronext (NYSE: NYX) jumped swiftly to comment about lower trading fees the Nasdaq plans to provide to affected firms, noting the discounted fees would hurt competition.
"This is tantamount to forcing the industry to subsidize Nasdaq's missteps and would establish a harmful precedent that could have far reaching implications for the markets, investors and the public interest," the NYSE said in a statement.
Nasdaq, trying to save face and Facebook, added it has selected tech behemoth International Business Machines (NYSE: IBM) to conduct a review of its trading systems.
Facebook stock rose 94 cents Wednesday amid a strong rally for U.S equities, and tacked on 22 cents in pre-market trading Thursday. But shares still sit some 30% below the Facebook IPO price.
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