UBS says Nasdaq’s bungling of Facebook IPO cost bank $357 million
NEW YORK — Facebook Inc.’s botched IPO has claimed its biggest Wall Street casualty so far: Swiss banking giant UBS.
The Nasdaq Stock Market has been roundly criticized for its handling of the social network’s May 18 initial public offering of stock. UBS said it lost $357 million when it bought more shares than it intended because of Nasdaq’s trading glitches.
UBS criticized Nasdaq’s “gross mishandling” of Facebook’s IPO — the largest ever for a U.S. technology company — and vowed to take legal action to recoup the “full extent of our losses,” the bank said in a strongly worded statement. UBS reported Tuesday that the loss helped drag down its second-quarter profit 58%.
The bank’s losses, and its determination to take legal action, could complicate Nasdaq’s plans to compensate brokerages that lost money in the much-hyped offering. Nasdaq last week filed a plan with the Securities and Exchange Commission to offer $62 million to repay investment firms that lost money in the process.
Malfunctions led brokerages to buy more Facebook shares than intended, as Nasdaq’s system failed to confirm trade executions. UBS said it ultimately purchased “far more shares than our clients had ordered.”
“UBS’ loss resulted from Nasdaq’s multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day,” UBS said. “We will take appropriate legal action against Nasdaq to address its gross mishandling of the offering and its substantial failures to perform its duties.”
Nasdaq’s glitches had been estimated to have cost brokerages more than $100 million. Knight Capital Group, a major brokerage in Jersey City, N.J., has said it alone lost $35 million.
Nasdaq raised ire on Wall Street when it proposed a $40-million compensation plan in June. The fund would have included $13.7 million in cash, the rest coming from trading discounts.
Knight Capital opposed that plan, calling it “simply unacceptable” because of its size. The Nasdaq’s arch rival, NYSE Euronext, which operates the New York Stock Exchange, criticized the proposed trading discounts as unfair.
Nasdaq has since increased its planned compensation to all cash. Knight Capital was expected to support Nasdaq’s compensation plan after the stock exchange upped the proposed payout amount, according to a source familiar with the matter.
Nasdaq filed its plan with the SEC last week. After the plan receives comments, the agency would weigh whether to approve the plan later this year.
A Nasdaq spokesman did not respond to a request for comment.
Bob Greifeld, president and chief executive of Nasdaq OMX Group, which operates the stock exchange, told analysts last week that he expected SEC action on the plan by the fourth quarter.
“We have substantial legal and factual defenses to any litigation that has or could be brought in connection with this IPO,” Greifeld told analysts.
