--Nasdaq plans mix of cash, trading fee discounts to make up
losses
--Proposal requires approval by Securities and Exchange
Commission
--NYSE Euronext objects to trading fee discounts to make up
losses
(Rewrites and updates throughout with background, detail and
comment from NYSE.)
By Doug Cameron and Jacob Bunge
Nasdaq OMX Group Inc. (NDAQ) on Wednesday outlined plans for a
"one-time" payout of around $40 million to compensate some
financial firms that lost money after the exchange operator botched
their trades during the ill-fated debut of Facebook Inc. (FB)
shares.
The plan involves a mix of cash and trading discounts aimed at
easing the reputational damage from the technical problems that
plagued Facebook's initial public offering last month and left
brokers with unwanted trading positions, though Nasdaq OMX has
insisted it isn't to blame for the sharp slide in the social media
network's valuation.
The planned payouts are subject to approval from the Securities
and Exchange Commission and fall well below the $100 million or
more that financial firms said they lost because of the technical
problems, and also stirred objections from a rival exchange.
Nasdaq said it would pay $13.7 million in cash to member firms
that suffered losses, including the $10.7 million profit the
exchange itself made from first-day trading and the maximum $3
million allowed by regulators to make good for trading snafus.
The rest would come in the form of trading discounts seen
vesting over six months, with the push to pay out more than the $3
million cap set by regulators raising concerns among rivals that it
would set an unwelcome precedent.
The move essentially aims to encourage brokers hit by the
Facebook IPO glitches to send their trades to Nasdaq's markets.
The estimated cost to Nasdaq OMX is around two quarters of
pre-tax earnings, though the company could recoup some of this if
fee discounts spur more trading.
In a statement, NYSE Euronext (NYX) blasted Nasdaq OMX's plan on
trading fees, saying it appeared "wholly inconsistent with fair
practice and an undue burden on competition" to allow Nasdaq OMX to
rely on pricing to compensate losses.
"This 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, investors and
the public interest," representatives for the Big Board parent
said.
The payout plan will be overseen by the Financial Industry
Regulatory Authority, which will evaluate claims, though the agency
has said Nasdaq will make the final decision.
Nasdaq said compensation would be limited to claims fitting a
number of criteria and won't be extended to "losses that resulted
from affirmative decisions by members."
The company outlined three types of transactions that would
qualify, including sell orders priced at or below $42 a share that
didn't execute. Sell orders priced at or below $42 a share that
executed at an inferior price and buy orders priced at $42 that
were executed but not immediately confirmed would also be
considered for what Nasdaq described as "accommodations."
Retail brokers facing claims from individual investors are in
turn seeking redress from the market-makers that handled trades,
while several class-action suits seeking financial redress have
also been filed.
Problems with Nasdaq OMX exchange systems handling the May 18
opening of Facebook shares delayed the hugely anticipated debut by
30 minutes and left brokers with millions of shares' worth of
unconfirmed trades. Firms didn't learn the results of their orders
until more than two hours after the stock opened, and some were
caught by surprise when they were notified by Nasdaq of unexpected
positions in the social-networking company's newly listed
stock.
Nasdaq said it has hired International Business Machines Corp.
(IBM) to review its trading systems.
Write to Doug Cameron at Doug.Cameron@dowjones.com and Jacob
Bunge at Jacob.Bunge@dowjones.com
--Chris Dieterich contribute to this article
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