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Nasdaq Payout on Facebook Is $41.6 Million After Finra Review

Brokers handling Facebook orders in the IPO lost money after a design flaw in Nasdaq’s software delayed the stock’s open and left them confused about whether or not they owned shares. Photographer: Peter Foley/Bloomberg
Brokers handling Facebook orders in the IPO lost money after a design flaw in Nasdaq’s software delayed the stock’s open and left them confused about whether or not they owned shares. Photographer: Peter Foley/Bloomberg

Oct. 25 (Bloomberg) -- Nasdaq OMX Group Inc. owes $41.6 million to firms that lost money in Facebook Inc.’s initial public offering last year due to a malfunction in the exchange’s computers, according to the group that oversees brokerages.

The amount is less than the $62 million Nasdaq had planned to cover losses in the May 2012 offering, which went awry just as Facebook was set to begin trading at the second-biggest U.S. exchange operator. One firm started an arbitration proceeding instead of filing for compensation. Members will be notified of their claim value in coming days, according to a notice from New York-based Nasdaq today.

Brokers handling Facebook orders in the IPO lost money after a design flaw in Nasdaq’s software delayed the stock’s open and left them confused about whether or not they owned shares. In May 2013, Nasdaq agreed to pay $10 million to settle Securities and Exchange Commission charges that its mishandling was a violation of securities laws.

The Financial Industry Regulatory Authority $41.6 million estimate of claims represents 13 percent of Nasdaq OMX’s net income from the past four quarters, according to data compiled by Bloomberg.

Some claims weren’t approved, including those by firms that delayed entering orders to purchase Facebook shares as they awaited confirmations that earlier trades went through.

The pricing of the first public Facebook transaction, a trade known as the IPO cross, took a half hour longer than Nasdaq OMX planned because of technical malfunctions. Days later, Nasdaq OMX Chief Executive Officer Robert Greifeld acknowledged “poor design” in software put the opening auction into a loop that delayed its completion.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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