Nasdaq compensation plan may not be enough

Sun Jul 22, 2012 7:51pm EDT
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By John McCrank

NEW YORK (Reuters) - Nasdaq OMX Group's (NDAQ.O: Quote) plan to pay a total of $62 million to firms that lost money due to Facebook Inc's (FB.O: Quote) botched market debut may fall short of appeasing Wall Street market makers, which would have to sign off on their right to take legal action against the exchange in order to collect.

"I have a hard time believing that they will just settle for that," said consultant Chris Nagy, who thinks "that it's not going to be enough at this point in time."

Market makers, which facilitate trades for brokers and ensure liquidity, lost upward of $200 million in the $16 billion IPO on May 18, 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 all-cash reimbursement plan, which Nasdaq filed with regulators late Friday, is $22 million more than originally proposed in June.

Nasdaq is due to report its earnings on Wednesday and executives will likely be asked to explain why the company decided to boost the amount, and how it intends to pay for it.

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 legal source told Reuters a firm could sue in the case of gross negligence.

The fact that Nasdaq boosted the amount it plans to pay out may indicate that the exchange is not confident in its legal position, Nagy said.

Nasdaq originally proposed a $40 million plan comprised mostly of trading rebates.   Continued...

Monitors show the value of the Facebook, Inc. stock before the closing bell at the NASDAQ Marketsite in New York, May 18, 2012. In late trading, Facebook shares were only a few cents above the company's initial public offering price of $38, after opening 11 percent higher, rapidly heading south to touch their initial price and then rebounding by several dollars. REUTERS/Keith Bedford