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.
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.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
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