Nasdaq defends Facebook compensation plan-letter to SEC

Wed Sep 19, 2012 4:39pm EDT
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By Ashley Lau

(Reuters) - Nasdaq OMX Group Inc stood by its proposed $62 million plan to compensate firms affected by the fallout from Facebook's botched initial public offering, taking aim at UBS AG, Citigroup Inc and other parties that derided the payback plan.

In a letter to the U.S. Securities and Exchange Commission dated September 17, Nasdaq said the proposed compensation pool "goes well beyond what is required under current Nasdaq rules." It noted that if the proposal is not approved, the applicable limit of liability under the approved rule would instead be $500,000 - less than 1 percent of the proposed pool.

Major market makers and broker dealers say they lost upward of $500 million because of technical glitches during Facebook's May 18 stock market debut. Nasdaq's plan to offer $62 million in cash to compensate those who lost money was an increase from earlier discussions, which would have included a $40 million payback fund, made up mostly of trading rebates.

The proposal prompted a series of letters to the SEC in late August from concerned market makers, brokers, a trade group and lawyers who criticized Nasdaq's plan. Many called for changes or the outright rejection of the plan.

UBS Securities, an arm of the Swiss bank, said it lost more than $350 million in the botched IPO, and called the plan "woefully inadequate" in a letter to the SEC dated August 22.

The firm said the types of claims for trading losses that Nasdaq agreed to compensate "should be expanded to include the full extent of losses caused by Nasdaq." UBS said technical malfunctions from the IPO caused its systems to re-enter orders multiple times and left it with a huge position of unwanted stock.

Citi expressed similar discontent in its own scathing letter to the SEC in August in which it said Nasdaq's actions on the day of the IPO amounted to "gross negligence." The No. 3 U.S. bank's market-making arm, Automated Trading Desk, is said to have lost around $20 million in the IPO.

Both UBS and Citi declined to comment.   Continued...

The falling price of Facebook's stock is seen on a screen reflected in the window of the Nasdaq building in New York August 16, 2012. REUTERS/Lucas Jackson