Facebook IPO Cost Market Makers $100M

Nasdaq, market makers argue about who will eat losses
By Mark Russell,  Newser Staff
Posted May 25, 2012 10:42 AM CDT
Facebook IPO Cost Market Makers $100M
A television anchor stands in front of screens showing the start of trading in Facebook shares at the NASDAQ stock exchange on Times Square in New York, on May 18, 2012.   (Getty Images)

The technical glitches at Nasdaq that made Facebook's troubled IPO into an even bigger bungle cost four of Wall Street's biggest market makers big time—probably more than $100 million, reports Reuters. Trades are supposed to be honored in milliseconds, but technical problems delayed the social networking giant's debut by 30 minutes and client orders for up to two hours. For example, if an order to sell 10,000 shares was made when Facebook was worth $42 per share, but not processed until the price fell to $39 per share, the market maker would have to make up the difference of $30,000. Brokers and investors are furious; even now, a week after the IPO, some investors are only just finding out their orders were not placed at the prices they thought.

The question between Nasdaq and the market markers is who will eat that loss. Some analysts say that Nasdaq's liability is limited, typically to $3 million per month, but the market makers say Nasdaq was so negligent in this case that those limits need to be overridden. Morgan Stanley has already announced that unprocessed sell orders made when the stock was over $43 per share would be settled at $42.99. (More NASDAQ stories.)

Get the news faster.
Tap to install our app.
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.