Swiss investment bank UBS may have suffered losses of as much as $350 million (£225 million) during the Facebook IPO last month, due to a number of technical glitches experienced by Nasdaq OMX on the day.
According to reports on news channel CNBC, UBS wanted to buy one million Facebook shares but did not receive confirmation that the order had been placed. This led to the bank reordering the shares a number of times, which resulted in all of its orders being placed and UBS holding far more shares than originally intended.
Sources familiar with the matter have also said that UBS is now considering legal action against Nasdaq, as the exchange revealed last week that it is only planning to offer $40 million (£25.7 million) in compensation to financial firms that suffered losses during the floatation.
This is going to be offered as $13.7 million (£8.8 million) cash, with the remaining amount being offered in discounted trading fees.
The compensation announcement drew harsh criticism from the industry. Knight Capital, one of Wall Street’s largest trading firms that lost money during the floatation, said that the amount being offered was paltry and also hinted that it might take legal action.
Furthermore, operating rival New York Stock Exchange (NYSE) has released a statement claiming that if the US’ Securities and Exchange Commission (SEC) were to approve Nasdaq’s plans this would result in unfair practice and equates to the industry subsidising the exchange’s mistakes.
“We believe it would be wholly inconsistent with fair practice and an undue burden on competition to allow Nasdaq to use pricing and other machination as a guise for fairly compensating those impacted by the Facebook IPO issues,” said NYSE.
“Such a tactic would potentially strongly incentivise customers to divert order flow to Nasdaq in order to receive compensation to which they are entitled, and allow Nasdaq to reap benefit from market share gains they would not have otherwise received.”
The technical problems stemmed from Nasdaq’s IPO Cross, a pre-IPO auction process that the exchange put in place in 2006 that allows traders to place orders and agree on an IPO price before the stock is officially launched, which couldn’t handle the trading demand.