Nasdaq Fined $10M Over Facebook IPO Failures

twoheadedboy writes "Nasdaq has been fined $10 million by the U.S. Securities and Exchange Commission over 'poor systems and decision-making' during the Facebook initial public offering. When Facebook went public on 18 May 2012, it was hoping for a major success, but technical glitches and poor decision making at Nasdaq caused real problems. The SEC said 'a design limitation' in the system to match IPO buy and sell orders was at the root of the disruption, thought to have cost investors $500 million. Orders failed to register properly, leaving banks like Citigroup and UBS in the lurch and making additional, unnecessary bids. They may still win money back from Nasdaq if legal challenges go their way."

Re:Lemme get this straight

[the eric conspiracy]

Wrong.

The problem is that Nasdaq wasn't able to deliver trade confirmations to brokerage houses and institutional buyers. This caused these organizations to try to place multiple orders that they didn't actually want, and it contributed to price uncertainty in the market.

Re:Note the discrepancy

[Score Whore]

The more fundamental problem was NASDAQs inability to carry the trades so that people who were interested in trading FB stock were entirely unable to receive market indicators of the value of the stock nor were they able to modify trades. It's known that trades were cancelled shortly after FB began trading yet due to the exchanges issues the trades were settled hours later regardless of the cancellation.

Re:They should THANK Nasdaq

[GodfatherofSoul]

Check out that tractor beam YouTube video. I don't understand the mechanics, but someone was dumping a lot of money into keeping that stock price up.

Re:They should THANK Nasdaq

[Swistak]

It's called underwriting - when stock goes public, it usually has one or more major banks as underwriters which are required to keep stock at certain price (not neceserilly a IPO price, limit can be lower). Company can go public without it, but most big IPOs have that option.
It's a system designed to avoid "flops" and for more realistic IPO prices. If underwriter values stock to high they have to spend money buying that stock.
Usually there's time and/or a value limit (so we'll prop up price fo x days, or we'll spend Y$ to keep it above Z$)

Re:insiders got burned

[smellotron]

What if you buy the new hot ipo and then immediately short the stock?

"Buying the IPO" is just buying stock in the IPO auction. "Shorting" the stock means selling stock which you do not own. So if you buy the IPO and then immediately sell, you're not actually shorting it. This is high-risk day trading, and not an activity recommended for Joe Q. Investor. Not to mention that the high IPO price for FB seems to have been crafted to punish traders expecting an "IPO pop".

Now, suppose you wanted to sell more than you initially bought. Then, the excess sell quantity actually is "short", and you must confirm the ability to borrow the stock from e.g. your broker or some other large institution. If you do not confirm the ability to borrow, then you are shorting "naked" which is not permitted. Because everyone is in this situation on IPO day, you will probably have a hard time finding someone to borrow from without paying out the nose for the "stock loan".