Knight accepts Nasdaq's $62 million Facebook payback plan

Thu Aug 30, 2012 1:30pm EDT
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By John McCrank

(Reuters) - After heaping criticism on Nasdaq OMX Group's initial offer for compensating brokers for its botching of Facebook's initial public offering, trading firm Knight Capital Group Inc said it accepts the exchange's latest plan, which would pay out $62 million.

The plan, which Nasdaq has called its "definitive word" on the Facebook debacle, is under consideration by the SEC and brings into question the extent to which an exchange can be liable for technical slip-ups. U.S. exchanges match hundreds of billions of dollars of securities transactions every day.

Knight's support comes after Nasdaq increased the payback fund to $62 million in cash from an earlier $40 million, made up mostly of trading rebates, the market-making firm said in a letter to the U.S. Securities and Exchange Commission, dated August 29.

Nasdaq has around 300 member firms that trade on the exchange. Knight and other retail market-making firms and brokers together lost more than $500 million in the IPO.

Of the handful of comment letters on the compensation plan, two have voiced support: Knight's and hedge fund Citadel's. Seven -- from market makers, brokers, and lawyers for individual investors -- have called for it to be rejected.

"Although we would have preferred that the accommodation pool cover all losses sustained by Nasdaq members, we do support Nasdaq's proposal," Knight said in the letter.

Knight, which facilitates trades for other firms, had called Nasdaq's earlier plan "inadequate," and said it was considering legal action over the Facebook IPO.

Liabilities at exchanges, which have some regulatory duties, are capped in most instances. Nasdaq's cap is $3 million.   Continued...

Barclays Capital specialists work at the post that trades Knight Capital on the floor of the New York Stock Exchange, August 6, 2012. REUTERS/Brendan McDermid