Nasdaq ups compensation plan for Facebook IPO

1:00 PM compensation, Facebook, NASDAQ No Comments

The Nasdaq stock market plans to increase the amount of money it will offer to compensate clients affected by the problems with Facebook’s initial public offering in May.

The Nasdaq said Saturday it will pay a total of $62 million to companies that lost money due to Facebook’s botched stock market debut.

A first-day trading glitch marred Facebook’s IPO, leading to complaints of slow order confirmations and too many shares offered at too high a price.

Subsequent lawsuits alleged the Nasdaq botched the offering and that deal underwriters Morgan Stanley and others failed to share lowered earnings forecasts with retail investors before the IPO.

In early June, the Nasdaq said it will offer cash and rebates totaling approximately $40 million to compensate clients affected by the problems with Facebook’s IPO. The new program increases the amount offered by $22 million to $62 million. Market professionals will have to sign off on their right to take legal action against the exchange to collect the funds.

“We deeply regret the problems encountered during the initial public offering of Facebook,” Robert Greifeld, the Nasdaq’s CEO and president said in a statement.

“We failed to meet our own high standards based on our long history of providing outstanding technology to our members and exchange customers,” he added. “We have learned from this experience and we will continue to improve our trading platforms.”

The Nasdaq’s original compensation plan was criticized by market makers for being too small, and an increase of $20 million may fall short of appeasing some on Wall Street.

The top four market makers in the Facebook IPO -- 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 shares began trading on May 18.

Last week Knight Capital Group, the largest trader of U.S. shares by volume, said its quarterly net income fell 81.3 percent in its most recent quarter, slammed by trading losses that resulted from the confusion that surrounded the Facebook IPO.

Thomas M. Joyce, Knight’s chairman and CEO, hinted that the company may still pursue legal action against the Nasdaq, saying in a statement Knight is “evaluating all legal rights and remedies in connection with the Facebook IPO.”

Reuters contributed to this report.