Nasdaq to pay $10M US for disrupting Facebook IPO
Largest penalty ever against an exchange
Nasdaq has agreed to pay a $10-million US penalty to settle federal civil charges after regulators said its systems and decisions disrupted Facebook's public stock offering last year.
The Securities and Exchange Commission said Wednesday that the penalty is the largest ever imposed against an exchange. Nasdaq also has had to pay $62 million in reimbursements to investment firms that lost money because of the problems.
Facebook launched its initial public offering on May 18, 2012, amid great fanfare. But computer glitches at Nasdaq delayed the start of trading and threw the launch into chaos. The technical problems kept many investors from buying shares that morning, selling them later in the day or even knowing whether their orders went through. Some said they were left holding shares they didn't want.
Flaw in design, bad decisions to blame
The SEC says a design flaw in Nasdaq's systems was to blame and that Nasdaq officials made a series of "ill-fated decisions."
Nasdaq neither admitted nor denied wrongdoing.
Robert Greifeld, the CEO of the exchange's parent company, Nasdaq OMX Group Inc., called the settlement an "important step forward."
In a letter to customers made public Wednesday, Greifeld said Nasdaq has carefully reviewed the Facebook disruption over the past year and put new technical safeguards in place. The exchange has taken steps such as creating new executive positions within its technology division and setting up teams to monitor and test trading systems, Greifeld said.
In addition to its namesake stock exchange, Nasdaq OMX also operates other exchanges and clearinghouses in the U.S. and abroad.
Could face stiffer penalty if problem recurs
The Facebook IPO was widely anticipated and one of the largest in history. The social network was valued at more than $100 billion when it went public for $38 a share.
Nasdaq violated market rules by being poorly prepared for the launch, the SEC said. Exchanges have an obligation to ensure that their systems and contingency plans are strong enough to manage an IPO without disrupting the market.
The SEC said Nasdaq officials believed they had fixed the design flaw by removing a few lines of computer code and opted not to delay the start of trading in Facebook. But they failed to understand the root cause of the problem, the SEC said.
The $10-million penalty had been expected. Nasdaq said last month that it might have to pay that amount to resolve the matter with regulators. It also agreed in March to pay $62 million in reimbursements to investment firms that lost money because of the technical problems during Facebook's IPO.
In its administrative order issued Wednesday, the SEC also censured Nasdaq. Censure brings the possibility of a stiffer sanction if the alleged violation is repeated.
On Wednesday, Facebook shares traded for $23.55 around 3:00 p.m.