Knight Capital backs Nasdaq’s $62-million payout for Facebook IPO
Knight Capital Group Inc. supports Nasdaq’s proposal to pay $62 million to companies that suffered losses in Facebook Inc.’s public debut, it said in a letter to the Securities and Exchange Commission.
The market maker backed the plan to reimburse members for losses resulting from technology errors May 18, the first day of trading in Facebook shares. Citigroup Inc. asked the SEC last week to reject Nasdaq’s proposal, and UBS, which said it lost more than $350 million in trading related to Facebook, urged the agency to work with the exchange company to revise the plan to increase the amount paid.
Knight, along with Citigroup and the Securities Industry and Financial Markets Assn., recommended a broader discussion of the limitation of liability that exchanges enjoy for financial losses resulting from their own technical mishaps. Nasdaq’s reimbursement plan is voluntary since the exchange’s cap on specific losses it causes is $3 million.
“As exchanges have evolved over the years, with greater and greater emphasis on profits and business expansion, the time is right for a more fulsome discussion on this issue,” Knight said in a letter. The broker asked the SEC to approve the $62-million payout and defer commenting on “issues relating to liability limitations and/or regulatory immunity until there can be a more comprehensive discussion,” it said.
Knight suffered a trading malfunction Aug. 1 that depleted the firm’s capital. The $440-million loss forced it into a rescue in which six investors bought convertible stock representing more than 70% of the company.
Knight said it supports the plan proposed by Nasdaq to boost the pool for payments to $62 million from $40 million and to reimburse brokers in cash instead of a combination of cash and credit. The company said July 18 that it lost $35.4 million related to the Facebook initial public stock offering.
Joseph Christinat, a spokesman for Nasdaq, declined to comment.
Delays and malfunctions on Nasdaq were the first signs of trouble in the May 18 Facebook IPO, which prompted lawsuits against the New York company, its exchange and the underwriters. The pricing of the first public transaction, a trade known as the IPO cross, took longer than Nasdaq planned. It was “poor design” in the software that put the opening auction into a loop that delayed its completion, Nasdaq OMX Chief Executive Robert Greifeld said.
