The Securities and Exchange Commission (SEC) has fined Nasdaq OMX a record $10 million over its botched handling of the Facebook initial public offering (IPO) last year.
The exchange operator violated securities laws because of its "poor systems and decision-making" during the IPO on 18 May 2012, ruled the SEC, leaving more than 30,000 Facebook orders "stuck" for over two hours and costing market participants an estimated $500 million in losses.
Nasdaq OMX has agreed to settle the charges - and pay the largest ever penalty against a US exchange - without admitting or denying them. It has already put together a $62 million compensation package for affected firms and could yet face legal action.
Despite the hype surrounding what was widely expected to be one of the largest IPOs in history, a "design limitation" in Nasdaq's system to match buy and sell orders caused massive disruptions, says the SEC.
A 30 minute delay in trading was caused by the software problem but Nasdaq OMX thought it had fixed the issue by "removing a few lines of computer code". In a 'code blue' conference call, senior management then decided not to delay the start of secondary market trading, a mistake, says the SEC, because "they did not understand the root cause of the problem".
Daniel Hawke, chief, market abuse unit, enforcement division, SEC, says: "Too often in today's markets, systems disruptions are written off as mere technical 'glitches' when it's the design of the systems and the response of exchange officials that cause us the most concern."
You can read the full SEC order here