Pressure on Nasdaq after Facebook IPO debacle

Fri, May 25, 2012, 01:00

THE REPERCUSSIONS from Facebook’s botched initial public offering deepened on yesterday as Fidelity Investments found itself dealing with “thousands” of customers with order problems and Knight Capital demanded tens of millions of dollars in compensation from Nasdaq for trading-related losses.

The pressure on Nasdaq, in particular, was intense, not only from investor lawsuits and angry customers, but from the outside prospect it could lose the Facebook listing entirely after having just obtained it.

Facebook shares added a penny to $32.01 in midday trading, but action on its stock has essentially become secondary to the fallout over the IPO – its price, its size, its execution and questions about selective disclosure of its financial prospects.

Advisers familiar with the situation at Fidelity said many investors were now finding out, nearly a week after the fact, that their orders were not executed at the prices they thought.

Fidelity, in a statement, said it was working with regulators and market makers on its clients’ issues “and we will continue to do so until we are confident that Nasdaq has done everything it can to mitigate the impact to our customers”.

Knight Capital’s claims could end up dwarfing the Fidelity issues, though. The amount of compensation sought by Knight, a leading market maker in US equities, is nearly three times what Nasdaq has set aside as compensation for trading losses.

“They are certainly facing the spectre of some significant lawsuits if this pool is not enough,” a source familiar with Knights situation said.

Other firms said they had not had similar problems, though, raising questions about the scope of the losses.

“The problems were where people were trying to cancel orders; we didn’t have that,” said Peter Boockvar, equity strategist at Miller Tabak in New York. But he added: “Because we didn’t have a problem doesn’t mean there weren’t problems.”

Shares of Nasdaq fell 14 cents to $21.67 in afternoon trading. As of midday yesterday the stock was down nearly 6 per cent from its last close before the Facebook debacle. – (Reuters)