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In the face of scathing opposition, Nasdaq OMX Group (NASDAQ:NDAQ) defends its proposed $62 million plan to compensate firms who lost money in Facebook’s (NASDAQ:FB) mismanaged $16 billion initial public offering on May 18.
Because of technical glitches during the social network’s stock market debut, major investors and brokerages said they lost approximately $500 million. The rush of cancellations and changes to standing orders caused Nasdaq’s systems to re-enter orders multiple times; UBS AG (NYSE:UBS) claimed it lost $356 million in the confusion, Knight Capital Group (NYSE:KCG) said its losses amounted to $35 million, and Citigroup (NYSE:C) said its Automated Trading Desk lost $20 million.
In July, Nasdaq proposed $62 million in cash as compensation, a significant increase from its earlier proposal that included a $40 million payback fund. Citigroup and UBS, along with several smaller firms, said the proposal was still insufficient. In a series of letters to the Securities and Exchange Commission, those which criticized Nasdaq pushed for changes to the plan or its complete rejection. In a letter from August 22, UBS called the plan “woefully inadequate” and said the claims Nasdaq agreed to compensate “should be expanded to include the full extent of losses caused by Nasdaq.”
Knight Capital and Citadel were the only firms to support the plan.
Nasdaq’s response to the SEC, dated September 17, said the proposed compensation went “well beyond what is required under current Nasdaq rules.” According to regulations, the applicable limit of liability is $500,000, less than 1 percent of the exchange’s current offer.
The SEC has extended its review of the proposal and may not come to a decision until 2013.
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