Nasdaq's $40 million offer for Facebook losses draws criticism

Wed Jun 6, 2012 5:57pm EDT
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By John McCrank

(Reuters) - Nasdaq OMX Group Inc said it will offer $40 million in cash and rebates to clients harmed by its mishandling of Facebook Inc's market debut.

But the proposed compensation, subject to approval by regulators, drew sharp criticism from rival exchanges for its use of rebates and from clients claiming losses far in excess of what Nasdaq is offering.

Nasdaq said on Wednesday $13.7 million would be paid to its affected member firms and the balance would be credited to members to reduce trading costs, with all benefits expected to be awarded within six months.

"We have been embarrassed and certainly we apologized to the industry, but the important thing we have to do is focus on the future," Nasdaq Chief Executive Robert Greifeld said in an interview on CNBC on Wednesday.

The idea of rebates drew the ire of other exchanges, which said it would essentially allow Nasdaq to undercut them on prices. Sources at Nasdaq rivals said that such a plan would force brokers to trade at Nasdaq, taking market share from competing exchanges.

"This is tantamount to forcing the industry to subsidize Nasdaq's missteps and would establish a harmful precedent that could have far reaching implications for the markets, investors and the public interest," NYSE Euronext, Nasdaq's main competitor, said in a statement Wednesday afternoon.

"We intend to strongly press our views that Nasdaq's proposal cannot be allowed to permit an unjust and anti-competitive situation."

Direct Edge, the No. 4 U.S. cash equities exchange by volume, said it has "several significant concerns with the Nasdaq remedy and plan(s) to aggressively voice them throughout the process."   Continued...

The Nasdaq logo is seen on the exterior of the Nasdaq MarketSite as a headline about the Facebook stock scrolls on the Times Square Newsticker, in New York, May 22, 2012. REUTERS/Brendan McDermid