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Report: Nasdaq Set To Compensate For Facebook’s IPO Glitch

Max ‘Beast from the East’ Smolaks covers open source, public sector, startups and technology of the future at TechWeekEurope.

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Stock exchange is set to atone for the technical problems that hit the Facebook IPO

Nasdaq, operator of the eponymous stock exchange, is expected to offer discounted trading fees to clients who lost money due to a technical glitch during Facebook’s problem-ridden IPO, according to a report in the Wall Street Journal.

The discounts are just one of many possible solutions, as the operator seeks to pay out more than $13.7 million (£8.85m) it has set aside to compensate for traders’ losses. However, this would only constitute a fraction of the losses claimed, which have been estimated to be above $100 million.

Nasdaq is expected to file the first piece of its compensation plan with the US Securities and Exchange Commission (SEC) today.

Mishandled funds

The Facebook stock launch, hailed as the biggest technology IPO ever, was plagued by technical problems and many investors have claimed the shares themselves were overvalued. The $38 (£24.5) share price made the company worth $104 billion (£67.2b), when its profit for the whole of 2011 was just $1 billion (£0.65b) .

The amount of orders on 18 May overwhelmed the systems of the second-largest US stock exchange, causing a 30-minute delay in trades and leaving investors and brokers in the dark over the results of transactions involving millions of shares. According to the Wall Street Journal, some companies did not learn the results of their orders until more than two hours after the IPO opened.

Lead underwriter of the IPO, Morgan Stanley, later came under fire for alleged selective disclosure of important information that might have given an advantage to certain investors. Facebook itself lowered its revenue and earnings estimates just days before the IPO, while keeping the share price at $38 and increasing the number of shares being sold by 25 percent.

Morgan Stanley has insisted that limited disclosure of forecasts was standard procedure for an IPO, and in compliance with all applicable regulations. Despite the claims of legitimacy, shareholders are suing Facebook’s CEO mark Zuckerberg, the company itself and a number of banks for allegedly covering up weakened growth forecast prior to the IPO.

It is unclear if Nasdaq plans to compensate for the full amount of losses claimed, as its liabilities for a trading glitch are limited to $3 million (£1.94m) per month. The exchange has applied to the SEC to increase the amount to $13.7 million, to include a gain of $10.7 million (£6.92m) it made from Facebook’s IPO. Any additional payouts the operator makes would come directly from its coffers.

Facebook’s shares continued to drop to an all-time low of $25.75 (£16.64) on Tuesday.

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