Analysis: Regulator seen conflicted in Nasdaq's Facebook mess

Tue Jun 19, 2012 12:06am EDT
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By Suzanne Barlyn

NEW YORK (Reuters) - It is not every day that a company bungles something so badly that it has to turn to a regulator for help to clean up its mess. But that is what the Nasdaq stock market has done with the Financial Industry Regulatory Authority following its blunders in Facebook's $16 billion initial public offering.

The move is causing raised eyebrows because of the long and intertwined relationship between the exchange and Wall Street's industry-funded regulator.

Market makers say Nasdaq OMX Group Inc owes them at least $115 million and probably much more because of costly delays in processing orders when Facebook Inc made its debut on the exchange on May 18. Nasdaq has only offered $40 million in compensation for the losses, and most of that is in rebates on trading rather than in cash.

Nasdaq, which says software glitches caused the delays, has asked FINRA to review the client transactions and claims. But some industry lawyers and compliance experts on Wall Street disapprove.

Conflicts of interest are inevitable and could lead to questions of fairness, say observers and people familiar with both entities.

For its part, FINRA sees the review and subsequent report as a "natural extension of the services we provide to Nasdaq under our regulatory agreement," spokeswoman Nancy Condon said in response to Reuters' questions about possible conflicts. "We make decisions every day that could have an impact on Nasdaq."

A Nasdaq spokesman declined to comment.

FINRA's involvement in the process is "a mistake," said a person familiar with the regulator's operations.   Continued...

A man walks past a sign welcoming Facebook to the NASDAQ Marketsite in New York May 18, 2012.REUTERS/Brendan McDermid