Nasdaq Offers $40 Million to Cover Facebook Investor Losses

Nasdaq Offers $40 Million to Cover Facebook Investor Losses

Nasdaq OMX Group Inc announced it will offer cash rebates totaling $40 million to compensate clients affected by the problems with Facebook Inc's initial public offering, an amount well short of the losses claimed by top market makers for the IPO.

After approval by regulators, $13.7 million would be paid to its affected member firms and the balance would be credited to members to reduce trading costs, with all benefits expected to be awarded within six months, Nasdaq said on Wednesday.

Nasdaq Chief Executive Reobert Greifeld announced that he and other Nasdaq officials "owe the industry an apology" for the technical problems that plagued the Facebook IPO.

The idea of rebates has caused some concern at other exchanges. Sources at Nasdaq rivals said that such a plan would force brokers to trade at Nasdaq, taking market share from competing exchanges.

The top four market makers in the $16 billion Facebook IPO - UBS (UBSN.VX), Citigroup (C.N), Knight Capital (KCG.N), and Citadel Securities - together lost upward of $115 million due to technical problems that prevented them from knowing for almost two hours if their orders had gone through after Facebook began trading.

One of those firms, Knight Capital, said in a statement that it was "disappointed that Nasdaq's compensation fund does not come close to covering reported losses from broker-dealers. Their proposed solution to this problem is simply unacceptable."

Smaller market makers that might have suffered losses would also receive a part of the $40 million Nasdaq proposes. Two senior executives in the financial industry have said they expect Nasdaq member claims to total $150 million to $200 million.

Posted by James Fried on Thursday June 07 2012, 5:08 AM EST. Ref: Reuters. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0