6th June 2012
Any such compensation, as reported in yesterday's Wall Street Journal, will only benefit the big banks and trading firms hit by problems with Nasdaq's exchange systems, which delayed the initial public offering (IPO) by about 30 minutes. The systems snafu left brokers with millions of shares' worth of unconfirmed trades, causing a reported £100 million in losses.
Meanwhile individual investors hit in the wallet by the plummeting share price are unlikely to see a penny of Nasdaq compensation. Shares in the highly-anticipated Facebook float launched at $38 on May 18. By close of business yesterday, the shares had lost almost a third of their value, down to $25.87, as highlighted by the Huffington Post.
Nasdaq OMX is expected to file the first piece of its compensation plan with the Securities and Exchange Commission today. Under current rules, Nasdaq is capped at paying out $3 million a month to traders that lose money due to system outages. However, Nasdaq executives have also indicated they might top up the compensation with $10.7 million gained when the exchange was forced to take a position in Facebook shares on the launch day, in an attempt to fix the problems caused by the trading delay.
Meanwhile rival stock exchange operators such as NYSE Euronext and BATS Global Markets will be watching compensation payouts closely, concerned by any precedents set by Nasdaq. Back in March, BATS Global Markets was forced to withdraw its own IPO after technical issues. The New York Stock Exchange fought hard to land the Facebook float, but may now be glad to have avoided the problems bedevilling Nasdaq.
"The Nasdaq's handling of this issue is the best advertisement the NYSE could dream of," said one NYSE floor trader to Fox News.
Facebook raised more than $16 billion in funding by going public, a record for tech companies. However, it may yet also hold the accolade of the poorest performing company IPO of the last decade, according to research by MSN Money.
Jason Buckland reported that of the previous three worst-performing IPOs of the past decade, two have been long-term disasters. Asset manager Blackstone Group is trading at about a third of its launch price in 2007, while MF Global collapsed due to bad debts. Third however, American bank holding company CIT Group, may offer a glimmer of hope. CIT lost value in its first five trading days in 2009, but is now trading higher than its initial price.
Facebook's much-hyped stockmarket debut is now engulfed in a mass of lawsuits from angry investors, investigations by regulators, abject apologies by Nasdaq, attacks by short sellers and allegations that Morgan Stanley and other banks briefed select investors that the outlook for Facebook's profits had dimmed.
As Mindful Money's pyschology blogger Ken Eisold has highlighted in his blog, investors may find in the future that it pays to be sceptical about hot new company offerings.
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