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On Friday, the Nasdaq OMX Group Inc said that it will file a $62 million compensation plan for compensating firms that lost money in the Facebook Inc IPO in May.
The current compensation fund offered for reconciliation is bigger by an amount of $22 million to what had been initially planned by Nasdaq in June. The new plan also departs significantly from the earlier plan in that Nasdaq has now promised all payments to be made up front in cash, whereas the earlier plan had called for partial compensation through trading credits.
Nasdaq said the new compensation plan would be filed with the Securities and Exchange commission and it expects all payouts to complete within the next six months.
The original plan for compensation drafted by Nasdaq had been heavily criticized by traders who lost upwards of $200 million because of technical glitches at Nasdaq during the IPO. Other exchanges too, jumped on the issue and said offering trading credits in lieu of cash compensation would in effect compel firms to trade on Nasdaq. In effect, the market caught on to the tactics of some in Nasdaq who consider themselves smarter than the rest of the country.
To diffuse market sentiment, Nasdaq CEO Robert Grefield issued a statement saying, “We deeply regret the problems encountered during the initial public offering of Facebook … We failed to meet our own high standards based on our long history of providing outstanding technology to our members and exchange customers.” Greifield also said that Nasdaq has learned from the experience and will continue constant improvement of its trading platform.
The FINRA, Wall Street’s self-regulator, would be evaluating the claims submitted under the new compensation program. Nasdaq said that the filing of the accommodation program with the SEC begins a comment period.
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Facebook’s IPO was set to be one of the biggest in the history of internet companies, and was meant to be a pinnacle of Facebook’s success story. It turned into an anticlimax with system support glitches, misinformation leading to miscalculations, and customer grievances. The shares of Facebook have taken quite a beating since the company went public.
