23 October 2014

Nasdaq OMX offers brokers $40m over Facebook fiasco

07 June 2012  |  4499 views  |  0 Nasdaq

Nasdaq OMX is setting aside around $40 million to cover broker losses related to its botched handling of last month's Facebook IPO but the planned package is facing widespread criticism.

The exchange operator's board has approved a voluntary accommodations fund of $40 million. The details are subject to SEC approval but $13.7 million is due to be paid in cash to member firms with the balance credited to members to reduce trading costs.

This part of the deal has infuriated rival exchange operator Nyse Euronext, which argues that making firms trade on Nasdaq to receive compensation is anticompetitive.

Says a statement: "Such a tactic would potentially strongly incent customers to divert order flow to Nasdaq in order to receive compensation to which they are entitled, and allow Nasdaq to reap a benefit from market share gains they would not have otherwise received. This is tantamount to forcing the industry to subsidise Nasdaq's missteps and would establish a harmful precedent that could have far reaching implications for the markets, investors and the public interest."

Meanwhile, Knight Capital, which has previously asked for $35 million in compensation from Nasdaq over the IPO, has slammed the planned package, calling it "simply unacceptable".

Ex-SEX chief Harvey Pitt has also questioned the size of the deal, telling Reuters that "I think the steps it [Nasdaq OMX] has taken - while positive - are too limited. The dollar estimates for harm caused by Nasdaq's failures easily exceed - several times over - the $40 million it has set aside."

Separately, IBM has been called in by the exchange to conduct a thorough review of the current state of processes for designing, developing, testing, deploying and operating market systems.

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