NASDAQ will set aside $40 million in a fund, drawing upon it to offer restitution to investors impacted by technical glitches that accompanied Facebook's public launch.
The Boards of The NASDAQ OMX Group and The NASDAQ Stock Market are asking the Securities and Exchange Commission for approval of a “one-time, voluntary accommodations program for qualifying members who were disadvantaged by technical problems that arose during the Facebook IPO cross on May 18.”
In a statement, the NASDAQ OMX Group Board said it considered several factors to determine the scope of the accommodation program including:
- The history and precedent of NASDAQ Rule 4626, which established a $3 million ceiling for accommodation funds
- NASDAQ's estimated Facebook-related revenues over the next five years ($7 million)
- NASDAQ's error account on May 18, 2012 ($10.7 million)
These were among the factors that led to the anticipated creation of a "voluntary accommodations fund" of approximately $40 million. Under the proposal, the details of which are subject to SEC review, approximately $13.7 million would be paid in cash to member firms. The balance would be credited to members to reduce trading costs, with all benefits expected to be achieved within six months for the vast majority of firms.
The independent Financial Industry Regulatory Authority (FINRA) has agreed to evaluate claims submitted by firms under the voluntary accommodations program.
Members will qualify for accommodation if: they were directly disadvantaged due to technical problems on the part of NASDAQ prior to the start of continuous trading at 11:30 a.m.; and they had uncertainty regarding their IPO cross position.
The program will provide accommodations involving three kinds of orders that were placed during the IPO cross:
- Sells priced at $42 or less that did not execute
- Sells priced at $42 or less that executed at an inferior price
- Buys priced at $42 that were executed in the cross but not immediately confirmed
Accommodations will not be made available for losses that resulted from affirmative decisions by members, or in cases where members told investors that unconfirmed trades had been executed.
NASDAQ competitor, NYSE Euronext, has voiced its displeasure with the plan.
“We have yet to receive full details of NASDAQ's plan,” it said in a statement. “However, we believe it would be wholly inconsistent with fair practice and an undue burden on competition to allow NASDAQ to use pricing and other machinations as a guise for fairly compensating those impacted by the Facebook IPO issues. Such a tactic would potentially strongly incent customers to divert order flow to NASDAQ in order to receive compensation to which they are entitled, and allow NASDAQ to reap a benefit from market share gains they would not have otherwise received.”
“This is tantamount to forcing the industry to subsidize NASDAQ's missteps and would establish a harmful precedent that could have far reaching implications for the markets, investors and the public interest,” it added. “We intend to strongly press our views that NASDAQ's proposal cannot be allowed to permit an unjust and anti-competitive situation.”