Nasdaq OMX Group Inc. (NDAQ:US) will inform brokers today about the compensation process for firms that lost money in the initial public offering of Facebook Inc. (FB:US), according to a person with direct knowledge of the matter.
The second-largest U.S. stock-exchange operator told member companies and market participants that it will brief them by the end of the day, according to the person, who asked not to be identified because the discussions are private. Nasdaq OMX planned to set aside about $13 million for reimbursements, pending Securities and Exchange Commission approval, Chief Executive Officer Robert Greifeld said on May 20.
Joe Christinat, a Nasdaq spokesman, declined to comment. The Wall Street Journal reported earlier that Nasdaq OMX plans to brief brokers on Menlo Park, California-based Facebook.
Nasdaq and Facebook ran into trouble on the morning of May 18 when computer systems used to set the opening price in the IPO were overwhelmed by order cancellations and updates. The stock has declined (FB:US) 32 percent from the $38 price set by underwriters in the $16 billion offering, the biggest ever by a technology company. Facebook fell 3.8 percent to $25.87 yesterday.
Order updates and cancellations totaling 30 million shares were submitted into the opening auction as it was being repaired between 11:11 a.m. and 11:30 a.m. New York time on May 18, Greifeld said two days later. About half of them may involve “some level of dispute,” he said. Nasdaq has said the 30 million shares weren’t included in the IPO cross.
Losses may total $120 million for the four largest U.S. equity wholesalers, or market-makers that execute orders for individual investors supplied from brokers such as TD Ameritrade Holding Corp. (AMTD:US) and Charles Schwab.
Knight Capital Group Inc. (KCG:US) estimated it lost as much as $35 million trading Facebook because of the malfunction, the Jersey City, New Jersey-based broker said in a May 23 SEC filing. Citadel LLC, the Chicago-based investment firm run by Ken Griffin, lost as much as $35 million in its market-making unit, according to a person with knowledge of the firm.
UBS AG (UBSN) lost about $30 million and Citigroup Inc. (C:US) about $20 million from servicing retail customers through their wholesaling businesses, Dow Jones Newswires reported on May 25.
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