Nasdaq in settlement talks over Facebook IPO debacle

Facebook's debut was something of an anti-climax, and now it seems that exchange group Nasdaq may have to pay the price.

facebook ipo nasdaq sec
credit: C.Osborne/ZDNet

Facebook's IPO did little to impress investors, and now after an eight-month investigation, Nasdaq is in talks with the Securities and Exchange Commission to reach a potential settlement.

The Wall Street Journal reports that Nasdaq is currently engaged in conversation with the Securities and Exchange Commission (SEC) in relation to the exchange group's less than impressive handling of the Facebook IPO.

Citing anonymous sources with knowledge of the matter, the Journal says that both sides are discussing a potential penalty of roughly $5 million -- one percent of approximately $500 million which Nasdaq's handling of Facebook's March 18 IPO cost Wall Street. In addition to this, Nasdaq has offered a further $62 million to customers who faced financial damage due to the IPO's trading.

However, the exchange group considers the additional compensation "voluntary," and that despite technical faults, executives at the firm say there is no formal obligation to make up for losses through trading.

The social networking site's initial public offering was widely anticipated and debated -- and the result? SEC believes that the Nasdaq lost control of its systems, which resulted in a loop which collected orders before the official IPO trading began. This caused the opening of the trade to be delayed by thirty minutes, and for three hours afterwards, brokers received no information concerning order confirmations. Such market confusion caused the share price to slide rapidly.

After the debacle, Nasdaq CEO Robert Greifeld blamed the "arrogance" and "over-confidence" of Nasdaq staff, as well as his own IT department.

See also: Facebook IPO: Overhyped or Oversold?

If SEC decides to fine the firm, it will only be the second time a stock exchange has taken the rap in history. In September, the New York Stock Exchange agreed to settle SEC's allegations that the NYSE provided data and tips to preferential customers in trading, and paid $5 million as a result. The stock exchange still denies the claims.

A Nasdaq spokesperson told the Journal that the firm is working closely with the SEC to resolve the issues surrounding Facebook's public offering, however:

"We continue to believe we acted appropriately and in the best interests of investors under challenging circumstances."