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Nasdaq offers $40,000,000 in rebates over Facebook IPO

As if as an omen of the woes to come, the launch of the Facebook IPO on May 18 proved to be particularly frustrating for traders. Computer glitches on the Nasdaq stock exchange not only delayed opening for 30 minutes, but also left it unclear as to whether some stock trades had actually gone through afterwards, with some investors complaining afterwards that they had somehow ended up with stock they didn’t want as a result. Unsurprisingly, Nasdaq has felt compelled to apologize – but the form of that apology seems to have landed them back in hot water.

The New York-based stock exchange is offering cash and credit totalling $40 million as compensation for the problems, with $14 million in cash going to investment companies that bought or sold shares (or tried to, unsuccessfully) during the troubled period. Nasdaq CEO Robert Greifeld explained to CNBC that the company has been “embarrassed” by what happened, adding “certainly, we apologize to the industry.” Well, part of the industry, at least; Greifeld went on to say that, “as an exchange, we have registered broker-dealers as our customers. The registered broker-dealers have the retail and institutional investores. So as we look to our accommodation policy, we’re not privy to what happened at the retail level. So we obviously can only focus on what we see, and that’s our transaction with our member customers.” Which is to say: Sorry, individual investors – None of this $40 million is for you.

Nasdaq’s offer has met with criticism from multiple directions. The New York Stock Exchange, one of Nasdaq’s biggest rivals, has criticized the fact that the compensation includes credit as part of the package, which it described in a statement as “tantamount to forcing the industry to subsidize Nasdaq’s missteps” to continuing to use the stock exchange, a move which “would establish a harmful precedent that could have far reaching implications for the markets, investors and the public interest.”

For others, the credit isn’t the problem; what’s at fault is the size of the settlement. One broker, Knight Capital has reported that the reimbursements do “not come close to covering reported losses,” estimating that its own losses alone total in the region of $35 million. “Their proposed solution to this problem is simply unacceptable,” it said in a statement.

The offer may yet change; Nasdaq has to wait for it to be approved by the Securities and Exchange Commission, with both the NYSE and Knight Capital hinting at the likelihood of challenging the plan at that stage (Knight Capital is also, ominously, discussing “all remedies available under law,” which may mean a lawsuit lies ahead for Nasdaq).

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