Nasdaq planning to compensate brokers for Facebook IPO trading glitch

[Shawn Knight]

Officials at Nasdaq are preparing to offer compensation to firms that lost money due to a computer glitch on the opening morning of Facebook’s IPO. It’s been estimated that traders lost a collective sum of over $100 million but the initial payout from Nasdaq is expected to be much less.

The Wall Street Journal is reporting that Nasdaq is considering multiple options to right the wrong with traders. People familiar with the matter told the Journal that the group is preparing to dish out $13.7 million in the first wave of compensation in a filing with the Securities and Exchange Commission.

Instead of flat out refunding money, Nasdaq will reportedly be offering discounted trading fees to those who were affected by the glitch. Brokers and traders in general have been frustrated with the group’s slow approach to compensation but it’s worth noting that the $13.7 million payout is far more than they are required to refund at this time.

Current exchange rules dictate that Nasdaq is only required to pay up to $3 million per month in reimbursement as a result of problems due to their trading system. At that rate, it would take close to three years to resolve $100 million worth of claims.

Facebook’s IPO got off to a rocky start on May 18 when Nasdaq’s computer system halted opening trades for half an hour. Investors were left in the dark for up to two hours with regards to whether or not their transactions had been processed.

Stock value in the social network continues to drop, closing at $25.87 on Tuesday.

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https://www.techspot.com/news/48904-nasdaq-planning-to-compensate-brokers-for-facebook-ipo-trading-glitch.html

 

[Tygerstrike]

What I dont get is how they can have a disasterous glitch that screwed alot of ppl out of their hard earned money, and they arent going to give that money back. They will offer discounted trading fees. This is sheer stupidity. Now the Brokers will make even more money by pocketing the difference in the trading fee while charging the investors the regular price. Talk about SHADY!!!! They are giving the brokers a discount while the investors who lost the money because of the glitch get nothing. Talk about a ripoff.

 

[davislane1]

Maybe someone with more education or experience with the matter can correct me here, but it looks like the only people who are really being compensated are institutional traders. For that group, I can certainly see the benefit of discounted fees. But what about the non-business accounts that got stuffed on the glitch? Discounted fees seems a bit lackluster from that side of the fence.

 

[MilwaukeeMike]

yeah, there's a lot going on. So far as I know, only very big traders can get in on IPOs, so Davis, you're correct in saying that only institutional traders would be affected and would benefit highly from the fee reduction.

Tyger, according to other sources I've read, the top broker firms who were unable to see if their trades went through claim they lost between $150 million and $200 million dollars. It's not 'hard earned money' it's hypothetical money. Bascially the brokers are saying that if they had known what the trades were doing they could have bought and sold FB stock quickly throughout the day and made millions. I don't understand how, considering the price never went very high, but that's the claim.

It's not an issue of some average investor losing his saving's, it's some huge brokers who didn't make what they should have if the systems had been working right.

 

[davislane1]

@mike Well, the way institutions and large traders are able to make millions on small moves is through position size. Same for small independent traders (such as myself). For small individuals (the majority of the market) a couple dollar move, or even a few cents, isn't really going to yield you huge profits. However, if you're buying up thousands upon thousands of shares in a given position, all you need is a small move in the market to make or lose millions of dollars (such as the $2 billion dollar blunder over at JP Morgan). It's the same thing that enables large firms to make so-called risk-free trades.

As for the hard-earned portions of money that were lost... That's what my issue is with this compensation package. This plan seems to only benefit institutional entities and not individuals who may have lost several thousand dollars trading their own accounts. Anyone who was having either their investment portfolio or trading account managed by a firm probably wasn't too adversely affected by the glitch. However, the droves of non-professional traders and investors who jumped on the band wagon are the individuals who would have really been hammered by the glitch.

 

[Tygerstrike]

@Mike

As I understand it the large firms are the ones benifiting from the discounted fees. But they get their money from their investors. I myself have an account with a chunk of cash in it and it goes toward a group purchase. Thats where the "Hard earned" statment comes in. They take their investors money and pool it then make a stock purchase. Its the little ppl who are getting screwed on this one. They lose their money that was used for the purchase and the investment group suffers no loss as they had none of their own cash in the deal. Then add on the fact that they will be getting a discounted rate, that they will pocket the difference from the normal rate they charge the investors.

 

[davislane1]

^ This.

 

[wiyosaya]

I hate to sound like the antagonist here, but is everyone expecting something different? I certainly do not agree with this in that the big companies, once again, are getting richly rewarded for hypothetical losses while the little guy gets screwed. There are people fighting to make this kind of thing illegal, however, there also people stifling normal government action that makes the fight, for those fighting for the little guy, extremely difficult. In my opinion, we need change at a much higher level than this in order for the little guy to get some traction.

The bigger fight, though, is with the people in charge of such companies who are out to make a buck by whatever means available, ethical or not. In my opinion, those people are so far out of touch with the little people that they serve that they should not be allowed to run those companies. As I see it, it is not just the financial sector, it is many other sectors, too, that exhibit this kind of screw everyone else but ourselves type of behavior.