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Compensation to firms that lost money due to technical troubles during Facebook’s (NASDAQ:FB) IPO may be delayed after a trade regulations controversy looks to be intensifying. The debate between NYSE Euronext (NYSE:NYX) and Nasdaq OMX Group (NASDAQ:NDAQ) over the latter’s compensation plan has put the U.S. Securities and Exchange Commission in the middle of a dispute that does not look like ending anytime soon.
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Nasdaq OMX is trying to SEC approval for a plan that proposes to pay brokerage firms facing losses from mishandled orders during the technical glitch on May 18 a total of $40 million. Nasdaq plans to pay qualified brokers $13.7 million in cash and credit the rest of the money through lower trading fees.
The NYSE insists any kind of trading discounts would encourage customers to trade on Nasdaq to get refunds, unfairly boosting its market share at the expense of competitors. Now executives of exchanges Bats Global Markets and Direct Edge Holdings have raised similar concern. “There’s a horrible conflict of interest for brokers who have to decide is Nasdaq right because of its general value proposition or am I motivated by getting a discount?” Direct Edge chief executive William O’Brien said. “It’s like going to a restaurant,” he added. “Are you going there for the food or because you have a 50 percent off coupon?”
To complicate matters, there is little precedent for how the SEC should handle an issue like this. “This is a novel situation,” James Angel, a professor at Georgetown University’s McDonough School of Business in Washington, told Bloomberg. “This is really the first time where a major technical glitch has led to such major issues.”
On Facebook’s debut on May 17, the pricing of the first public transaction took 30 minutes longer than Nasdaq had planned. Later in the day, there was an almost 20-minute period during which orders made were not registered. Because firms did not find out about the completion of their orders until much later, they incurred trading losses on the errors.
Nasdaq insists the compensation plan is fair. “We are offering this to our customers that transact with us every day,” Robert Greifeld said. “They do not have to give us one incremental share for them to earn this payment.”
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