Affected companies argue that NASDAQ enjoys no legal protection as self-regulatory organization.
UBS has joined Citigroup and others in protests against NASDAQ’s proposed $62 million settlement for investors who lost money due to the series of problems surrounding the initial public offering of Facebook in May.
In a strongly worded letter to the SEC on Thursday, UBS Americas general counsel Mark Shelton called NASDAQ’s proposal ‘inadequate to address the magnitude of NASDAQ’s unprecedented failures’ and argued that any settlement should take into account losses of ‘members who were harmed by downstream system consequences resulting from NASDAQ’s failures.
’ The letter was in direct reaction to NASDAQ’s proposal for cash compensation capped at $62 million for all parties affected by a series of errors and missteps during the $16 billion IPO of Facebook on May 18. The problems included a delay in confirming trades from the opening auction, which created uncertainty among brokers over whether millions of dollars in transactions had been carried out.
The delays and malfunctions during the IPO, which was underwritten by Morgan Stanley, Goldman Sachs and others, cost major market participants more than $500 million. UBS said it suffered $350 millionn in losses, ‘the vast majority of which resulted directly from NASDAQ’s unprecedented failure to deliver execution reports for tens of thousands of trades delivered in the opening cross of the Facebook IPO.’
The UBS letter to the SEC joins similar protests by Citigroup, Knight Capital Group and others who say they suffered multi-million-dollar losses due to the errors during Facebook’s IPO. ‘NASDAQ was grossly negligent in its handling of the Facebook IPO and, as such, Citi should be entitled to recover all of its losses attributable to NASDAQ’s gross negligence, not just a very small fraction as is currently the case under the proposed SEC submission,’ Daniel Keegan, managing director of Citigroup Global Markets, wrote in an e-mail to the SEC. ‘The hundreds of millions of dollars of losses suffered by market participants in connection with the Facebook IPO resulted from a series of hasty, self-interested, and high-risk business decisions by NASDAQ.’
Citigroup also countered NASDAQ’s claim that it is protected from liability due to the exchange’s role as a self-regulatory organization. ‘The law is clear that NASDAQ does not enjoy immunity from liability for its misdeeds where it was acting in its capacity as a profit-maximizing, publicly held corporation,’ Keegan wrote. ‘The era of market self-regulation has passed. NASDAQ no longer regulates its market participants.’
Citadel, which also suffered losses due to the IPO errors, urged the SEC to accept the NASDAQ proposal, however.
In a letter to the regulator, Citadel general counsel John Nagel wrote that ‘the NASDAQ problems on May 18 were unprecedented and NASDAQ Rule 4626 was simply not designed to address problems of this magnitude.
‘As a result, it is entirely appropriate for NASDAQ to establish a special accommodation plan to compensate members for certain losses that directly resulted from this event, and for the Commission to approve the rule filing.’
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