The Nasdaq stock market said Wednesday it will offer cash and rebates totaling approximately $40 million to compensate clients affected by the problems with Facebook’s initial public offering.
A first-day trading glitch marred Facebook’s IPO, leading to complaints of slow order confirmations and too many shares offered at too high a price.
Subsequent lawsuits have alleged that the Nasdaq botched the offering and that deal underwriters Morgan Stanley and others failed to share lowered earnings forecasts with retail investors before the IPO.
Robert Greifeld, CEO of the Nasdaq, said in a CNBC interview his company has “been embarrassed” by the technical problems that occurred during the Facebook IPO. “We certainly apologize” to the industry, he said.
The compensation, which is subject to approval by regulators, will see the Nasdaq pay $13.7 million in cash to its affected 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 Nasdaq said in a statement.
The top four market makers in the Facebook IPO -- UBS, Citigroup, Knight Capital, and Citadel Securities -- together lost upward of $115 million due to technical problems that prevented them from knowing for about two hours if their orders had gone through after Facebook shares began trading on May 18.
Under the Nasdaq's plan, investors who attempted to buy the company's shares at $42 or less -- but whose orders were not executed, were executed at an inferior price, or where the transaction did go through successfully but was not immediately confirmed because of technical problems -- would be eligible for compensation.
The Nasdaq’s chief rival, the New York Stock Exchange, objected to the compensation plan, saying in a statement Wednesday it 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.”
Shares of Facebook are down 29 percent from the company's initial offering price of $38. They recovered slightly Wednesday on news that the company plans to make it easier for advertisers to reach the growing ranks of its users on mobile devices.
Reuters contributed to this report.
