Nasdaq to pay $10 million to settle SEC charges from Facebook snafu

Wed May 29, 2013 5:56pm EDT
 
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By Sarah N. Lynch

WASHINGTON (Reuters) - Nasdaq OMX on Wednesday agreed to pay $10 million, the largest penalty ever levied against a stock exchange, to settle civil charges stemming from mistakes made during Facebook's initial public offering last year, U.S. securities regulators said on Wednesday.

In its administrative proceeding against the stock exchange operator, the U.S. Securities and Exchange Commission said Nasdaq's "ill-fated decisions" on the day of the IPO led to a series of regulatory violations.

The SEC said Nasdaq's senior executives were aware of technical problems but decided to open up Facebook stock for secondary trading without first getting to the root cause of the troubles.

After trading had opened to the wider marketplace, the problems persisted. The exchange's chief economist spotted discrepancies in trading volume, and complaints from market makers started to mount. Still, exchange management decided not to halt trading, the SEC said.

As a result of those poor decisions, more than 30,000 Facebook orders remained stuck in Nasdaq's system for more than two hours when they should have been either executed or canceled. Investors were left in the lurch and market makers lost an estimated $500 million.

"This action against Nasdaq tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets," said George Canellos, co-director of the SEC's enforcement division.

The exchange operator agreed to settle the charges without admitting or denying the allegations.

Separately, the exchange has agreed to pay as much as $62 million to compensate market makers for losses, an agreement approved by the SEC earlier this year.   Continued...

 
The Nasdaq logo is seen on the exterior of the Nasdaq MarketSite as a headline about a penalty paid over the Facebook stock scrolls on the Times Square Newsticker, in New York, May 29, 2013. REUTERS/Brendan McDermid