--Revamped compensation plan is expected to be filed with
regulators late Friday
--It will be all cash; previous plan was for $40 million but
included about $27 million in discounted trading fees
--Brokers felt Nasdaq OMX's earlier offering was not
adequate
By Jacob Bunge
Nasdaq OMX Group Inc. (NDAQ) plans to boost its planned payback
package for brokers that lost money trading in Facebook Inc.'s (FB)
problematic stock-market debut to $62 million, according to a
person familiar with the plan.
The revamped compensation scheme, expected to be filed with
regulators late Friday, will be all cash, versus a previously
planned $40 million plan that included about $27 million in
discounted trading fees, the person said.
Changes to the plan follow an outcry among brokers that felt
Nasdaq OMX's earlier offering in June did not come close to
covering their losses. Rival exchanges also objected to offering
payback via cheapened trading fees, which they saw as a ploy to
lure more market share to Nasdaq OMX's stock markets.
A spokesman for the Securities and Exchange Commission, which
must approve the proposal from Nasdaq OMX, declined comment.
Brokers, exchanges and other market participants will be able to
weigh in on the plan before regulators decide on it.
Nasdaq OMX's effort to repay brokers and traders that lost as
much as $500 million due to technology problems that hampered
Facebook's public market debut comes more than two months after the
glitch-ridden May 18 offering, and follows a lengthy back-and-forth
between exchange officials and regulators on the issue, according
to people close to the discussions.
The exchange group also plans to broaden the spectrum of trading
that will be covered by the proposal, and orient the plan so that
trading firms handling the business of retail investors--among the
heaviest investors in Facebook's IPO--are prioritized, the person
familiar with the plan said.
The proposed $62 million cash payout to loss-taking brokers
compares with an $84 million net profit earned by Nasdaq OMX in the
first quarter of 2012.
An unusually high number of orders lodged for Facebook's stock
snarled Nasdaq OMX's process for matching buy and sell orders
during initial trading of the hotly anticipated shares, exchange
executives said in the days after the episode. Getting around that
problem led to a 19-minute period in which traders did not receive
confirmation from the exchange on the status of their orders,
leaving them guessing at their positions for hours before they
learned what happened to their trades.
Representatives for UBS AG (UBS) and Citadel, among the
market-making firms that sustained the heaviest losses in
Facebook's market debut, declined comment. Representatives for
Knight Capital Group Inc. (KCG) and Citigroup Inc. (C) did not
immediately respond to requests for comment.
A spokesman for NYSE Euronext (NYX) said the Big Board parent
would reserve comment on the plan until it was formally filed. A
spokesman for BATS Global Markets Inc. declined comment.
Paying back trading losses has been seen raising sticky legal
issues for exchanges, which have regulatory protections against
liability for financial damage caused by system outages. David
Weild, capital markets adviser at Grant Thornton LLP, at a hearing
last month warned that creating "open-ended liability" runs the
risk of putting exchanges out of business in the event of a
large-scale glitch.
Firms hit with losses due to the glitches have considered filing
lawsuits against Nasdaq OMX, despite the legal protections afforded
exchanges. Formal filing of the compensation plan was seen as a
precursor to any decision on legal action. Officials of several
firms have discussed the potential of a joint lawsuit if the plan
proves inadequate, according to one person close to the talks.
Nasdaq OMX's aim to reorient the payback plan was earlier
reported by Fox Business Network.
The exchange hired International Business Machines Corp. (IBM)
to review its trading systems and said Friday that the process is
continuing.
-Write to By Jacob Bunge at jacob.bunge@dowjones.com
--Doug Cameron contributed to this article.
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