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."

Comments

Note the discrepancy

[Anonymous Coward]

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.

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.

And people wonder why the average person hates the very idea of the stock market.

Re:Note the discrepancy

[ranton]

Now we just need to punish the people who valuated Facebook so high.

You mean like the hundreds of millions of users it has and who still value the service to the point where major established companies are bending over backwards to fit Facebook into their marketing schemes? Huh. Weird, I can't tell if that's more misanthropic or solipsistic of you.

Are you being serious? Considering Facebook's stock started at $38 and is now $23, and it took less than a week to lose 25% of its value, the only people being misanthropic or solipsistic are the ones who thought Facebook was worth such as ridiculous P/E ratio in the first place. Or the people who took advantage of the more weak minded traders who wanted another get rich quick scheme by buying an IPO they just expected to double in value over the first week.

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:Note the discrepancy

[mspohr]

"Now we just need to punish the people who valuated Facebook so high."

I just don't understand this logic.
In retrospect, Facebook was priced "high" but still had lots of greedy people clamoring to buy it at that price.
Who should we punish?
- The greedy people who thought they would make a killing by flipping the stock?
or
- The greedy people at Facebook who priced the IPO to maximize revenue?

Nobody forced anyone to buy the stock. Nobody committed fraud by hiding material facts.
This is just a clusterfuck of greedy people. NASDAQ did screw up and made it harder for the greedy buyers to get in or get out and make profits. NASDAQ should pay for these screwups... and $10 million is peanuts.
I will enjoy watching all of these greedy people fight over money.

Re:Note the discrepancy

[Impy the Impiuos Imp]

> And people wonder why the average person hates the very idea of the stock market.

The average person does not hate it. Just your own little moral online tribal society hates it, where you reinforce to each other statements about the awfulness of this or that vis-a-vis politics, in support of a meme-based amalgam of people looking for power themselves.

Re:Note the discrepancy

[DarkOx]

Now we just need to punish the people who valuated Facebook so high.

Why? the market did that for you. The people who valued facebook that high at the end of the day are the ones who agreed to pay the $38 dollar IPO price. They now own shares worth ~$23.50. Isn't that punishment enough?

It was mostly big institutional investors too, probably could not happened to a more deserving bunch.

Re:insiders got burned

[the eric conspiracy]

It depends what you mean by Joe q investor, but it is possible for a lot of people.

https://eresearch.fidelity.com/eresearch/ipo/ipocalendar.jhtml#eligibility

But really you don't want to mess with that sort of thing. Sound investing isn't about gambling with hot ipos. It's about using sound principles of portfolio management, diversification and risk management, and keeping management costs down.

http://online.wsj.com/article/SB10001424127887323475304578502973521526236.html

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: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.

The taint of Goldman Sachs

[GodfatherofSoul]

Once they got in and started floating that insane value for Facebook pre IPO, it should've been obvious to investors that the fix was in. If you see GS jumping in on anything, think of it as a neon "Warning: anal rape ahead" sign. Unless, you're privy to the innards of the deal of course...

Re:Why bother?

[tazan]

According to the article NASDAQ made 10.8 million profit by shorting Facebook in just one of their rule violations. So they aren't even getting fined as much as the profits they made violating the rules.

Re:Want to Avoid this problem

[wisnoskij]

Because before going public FB was totally not about the money.

Re:How do you value a "FaceBook"?

[fuzzyfuzzyfungus]

Just remember: An 'analyst' is somebody who can make more money by selling advice on investing than he can by investing according to his own advice...

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".