Tuesday, November 21, 2017

SEC approves Nasdaq's $62 million Facebook IPO settlement

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NEW YORK — Regulators cleared Nasdaq OMX Group's plan Monday to pay $62 million to compensate brokers for its mishandling of Facebook's public debut, dealing a defeat to Wall Street firms that say they lost many times that amount.

The Securities and Exchange Commission approved Nasdaq's request to change its rules and expand the compensation pool for member firms in the initial public offering held May 18, 2012. The funds will go to traders who lost money after a design flaw in the exchange's computers delayed Facebook's open and left them confused about how many shares they owned.

"This announcement is a positive in that it removes a layer of uncertainty, although it was likely expected," Christopher Harris, a Baltimore-based analyst at Wells Fargo & Co., wrote in a note to clients Monday. "We continue to believe further damages from this episode will be either minimal or manageable."

Nasdaq said last June that it would pay $40 million, but later increased the amount to $62 million.

Nasdaq's proposal was opposed by Citigroup and UBS, which said in letters urging the SEC to reject it that losses within their market-making units exceeded $62 million. Nasdaq, balancing its role as an organization with legal immunity for technology breakdowns with its obligations to members, said the pool covers "objective, discernible" losses suffered by brokers.

While agreeing the proposal won't pay all purported losses, the SEC said it provides "significantly more compensation for eligible claims, outside of litigation, than would otherwise be available," according to its order. "Approval of the proposed rule change will make more funds available to compensate investors and Nasdaq members under Nasdaq rules, which the commission believes is in the public interest," it wrote.

UBS has not changed its opinion of Nadsaq's "inadequate and insufficient" proposal, Megan Stinson, a New York-based spokeswoman for UBS, said Monday. The bank filed an arbitration demand against Nasdaq for the losses from the Facebook offering, Stinson wrote.

Scott Helfman, a spokesman for Citigroup, declined to comment on the settlement.

Under existing rules, Nasdaq's liability for losses related to computer malfunctions is $3 million, and may have been as low as $500,000 in the Facebook case, the SEC said in its order.

"We're pleased that the Securities and Exchange Commission has approved our accommodation plan, which will enable our customers and members and market participants to receive appropriate restitution …," said Joseph Christinat, a spokesman for Nasdaq OMX.

Facebook's stock originally priced at $38 and closed that first day at $38.23 after going as high as $45.

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