Nasdaq Catches Flak For Proposal To Remedy Facebook IPO Issues

By David Cohen 

Nasdaq’s proposal to compensate traders and investors affected by its technical issues with Facebook’s initial public offering is already meeting resistance in the financial community.

The embattled exchange filed a proposal with the Securities and Exchange Commission in which it detailed a one-time payout of some $40 million to compensate affected firms, to be made up as follows: $13.7 million in cash from the $10.7 million profit Nasdaq made on the first day of Facebook trading May 18, as well as the maximum $3 million regulators allow exchanges to pay out due to trading issues, with trading discounts over the next six months making up the remainder.

Speaking at a Sandler O’Neill and Partners conference, Direct Edge Holdings Chief Executive Officer William O’Brien said, as quoted by The Wall Street Journal, that Nasdaq’s proposal to discount trading fees for affected firms seemed “illegal,” adding:

(The plan is a) shameless attempt to turn a big investor-confidence-eroding event into a competitive advantage. I think Nasdaq’s going to have to go back to the drawing board. We’re going to vigorously object in any form we can.

Speaking at the same event, Mark Hemsley, head of European share-trading platform BATS Chi-X Europe, said that the plan to cut trading fees was “a bad way to do it,” adding that his exchange’s issues with its own IPO in late March, due to software issues, prompted it to halt trading immediately, and calling it a “very clean decision,” adding that BATS “took it on the chin” when it came to its reputation, according to the Journal.

Virtu Financial Partner Chris Concannon was blunt about the subject, telling the Journal:

We had an IPO window. The IPO window is gone because of this IPO.

Readers: Do you think the SEC will approve Nasdaq’s proposal?