UBS cannot arbitrate vs Nasdaq over Facebook IPO: court

Fri Oct 31, 2014 1:24pm EDT
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By Jonathan Stempel

NEW YORK (Reuters) - A divided U.S. appeals court rejected UBS AG's UBSN.VX bid to force Nasdaq OMX Group Inc (NDAQ.O: Quote) to arbitrate a dispute over the exchange operator's alleged "catastrophic mismanagement" of Facebook Inc's (FB.O: Quote) $16 billion initial public offering.

The 2nd U.S. Circuit Court of Appeals in New York on Friday said UBS' agreement with Nasdaq to help make a market for Facebook shares did not entitle the Swiss bank to arbitration, in its effort to recoup more than $350 million of losses.

Circuit Judge Reena Raggi wrote for a 2-1 majority that the agreement was subject to a Nasdaq rule that "specifically disallows" claims over trading losses, showing that "the parties did not intend to submit such foreclosed claims to binding arbitration."

UBS had no immediate comment. Nasdaq spokesman Joseph Christinat declined to comment.

Facebook's first day of trading on May 18, 2012 was plagued by technology problems, resulting in a delayed opening and tens of thousands of trade and cancellation orders being stuck in Nasdaq's system for more than two hours.

While market makers lost an estimated $500 million on Facebook's IPO, federal regulators last year approved a plan for Nasdaq to repay only about $41.6 million.

Friday's decision may therefore make it more difficult for UBS to recoup anything close to its estimated losses.

It upheld a June 2013 preliminary injunction issued by U.S. District Judge Robert Sweet barring arbitration.   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