Nasdaq OMX Group Inc. is moving to put its role in Facebook Inc.’s botched public debut behind it as talks with federal regulators progress and the firm awaits a decision on a settlement with brokers.
The second-biggest U.S. exchange operator and Securities and Exchange Commission officials are examining Nasdaq Stock Market’s technology controls in discussions spurred by the botched initial public offering, according to a person with knowledge of the matter who asked not to be named because the talks are private. Nasdaq and the SEC are in preliminary negotiations toward a settlement that may include a $5 million fine, the Wall Street Journal reported yesterday.
The SEC is still gathering information from Nasdaq, the person said. The exchange operator mishandled Facebook’s IPO on May 18 when its auction to set the first traded price for the shares failed. Its systems were overwhelmed before the stock began trading, causing the market operator to make technology changes that prevented data from being disseminated for hours, leading to confusion among investors, brokers and market makers.
“We’re working closely with the SEC to resolve the issues that arose from the events on May 18,” Joseph Christinat, a spokesman for Nasdaq OMX, said in a statement. “We continue to believe we acted appropriately and in the best interest of investors under challenging circumstances and we have volunteered an accommodation plan supported by many members.”
John Nester, an SEC spokesman, declined to comment on discussions between the agency and Nasdaq.
The New York regional office of the SEC’s division of enforcement is conducting an investigation of Nasdaq related to the Facebook IPO, the company said in a regulatory filing in November. The regulator is collecting information, documents and witness interview and Nasdaq is cooperating with the investigation, it said.
Four brokerage firms say they lost a combined half-billion dollars after Nasdaq mishandled Facebook’s offering on May 18. Nasdaq, enjoying legal protection afforded by its status as a self-regulatory organization, has proposed a voluntary compensation of $62 million instead of the $3 million cap its rules allow for technical problems it causes.
The SEC’s deadline to review the payout plan is March 29. Citigroup Inc. asked the commission to reject it, saying the exchange’s decisions resulted from “high-risk, profit-oriented behavior” by Nasdaq and not actions that are part of its regulatory oversight, according to an August letter.
UBS AG, which says it lost more than $350 million related to technical problems with the Facebook IPO, told the SEC that brokers should be made whole. Market-maker Knight Capital Group Inc., which nearly went bankrupt after its own trading mishap in August, recommended the SEC approve Nasdaq’s proposal.
The payout proposal covers what’s “directly attributable to the system issues experienced by Nasdaq,” the exchange operator told the SEC in a Dec. 7 letter.
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