Nasdaq boosts Facebook compensation plan to $62 million

Sat Jul 21, 2012 12:31am EDT
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By Rick Rothacker and John McCrank

WASHINGTON/NEW YORK (Reuters) - Nasdaq OMX Group Inc (NDAQ.O: Quote) plans to pay out $62 million in cash to firms that lost money in Facebook Inc's (FB.O: Quote) bungled initial public offering in May, modifying an earlier plan that drew intense criticism from market makers and other exchanges.

The plan, which Nasdaq filed with regulators late Friday, is $22 million larger than originally proposed in June. All accommodations will be paid in cash, a departure from the prior proposal, in which Nasdaq would have mostly compensated firms through trading credits or rebates.

All payouts are expected to occur within six months for firms that qualify and agree not to pursue legal action against Nasdaq, the filing said.

U.S. exchanges match hundreds of billions of dollars of securities transactions every day.

"If exchanges could be called upon to bear all costs associated with system malfunctions and the varying reactions of market participants taken in their wake, the potential would exist for a single catastrophic event to bankrupt one or multiple exchanges," Nasdaq said in the filing.

Liabilities at U.S. exchanges are capped in most instances. Nasdaq's cap is $3 million and the plan filed with the SEC is meant to increase that in this specific instance. But a firm could sue in the case of gross negligence, one legal source said.

Market makers, which facilitate trades for brokers, lost upward of $200 million in the IPO as technical glitches on Nasdaq's systems delayed the offering, and then left many investors in the dark for more than two hours as to whether their orders had gone through.

The market makers said Nasdaq's original plan fell far short. Some said they were weighing their legal options.   Continued...

The Facebook symbol is seen on the screen inside the Nasdaq Market site in New York, May 17, 2012. REUTERS/Keith Bedford