* Nasdaq's $62 mln pay-back plan filed late Friday
* Plan is $22 mln above previous proposal
* Exchange reports quarterly financial results on Wednesday
By John McCrank
NEW YORK, July 22 Nasdaq OMX Group's
plan to pay a total of $62 million to firms that lost money due
to Facebook Inc's botched market debut may fall short of
appeasing Wall Street market makers, which would have to sign
off on their right to take legal action against the exchange in
order to collect.
"I have a hard time believing that they will just settle for
that," said consultant Chris Nagy, who thinks "that it's not
going to be enough at this point in time."
Market makers, which facilitate trades for brokers and
ensure liquidity, lost upward of $200 million in the $16 billion
IPO on May 18, as technical glitches on Nasdaq's systems delayed
the offering, and then left many investors in the dark for more
than two hours as to whether their orders had gone through.
The all-cash reimbursement plan, which Nasdaq filed with
regulators late Friday, is $22 million more than originally
proposed in June.
Nasdaq is due to report its earnings on Wednesday and
executives will likely be asked to explain why the company
decided to boost the amount, and how it intends to pay for it.
Liabilities at U.S. exchanges are capped in most instances.
Nasdaq's cap is $3 million and the plan filed with the SEC is
meant to increase that in this specific instance. But a legal
source told Reuters a firm could sue in the case of gross
The fact that Nasdaq boosted the amount it plans to pay out
may indicate that the exchange is not confident in its legal
position, Nagy said.
Nasdaq originally proposed a $40 million plan comprised
mostly of trading rebates.
That plan was blasted by market makers for being too little
and it drew accusations of anticompetitiveness from other
exchanges, which said the rebates would force clients to trade
on Nasdaq's exchange in order to be paid back.
HIT TO REPUTATION, BALANCE SHEETS
The modification of the plan was seen as just another step
in the negotiations over an issue both sides would like to see
cleared up quickly, according to James Angel, a professor at
"As long as it is outstanding, there is a continuing
reputational hit to Nasdaq," he said. "Nasdaq has to consider
not only the direct cost of what they could get away with not
paying, but also the relational cost of a long legal battle with
their biggest customers."
The market makers obviously want their money sooner rather
than later, and neither side wants to end up paying millions in
legal fees, he added.
But Nasdaq's bumping up the amount to be paid back by $20
million may not be enough.
Knight Capital Group -- one of the top four retail
market makers in the Facebook IPO, along with UBS,
Citigroup's Automated Trading Desk, and Citadel Securities
-- reported its earnings on Wednesday, detailing its $35.4
million in losses associated with the Facebook IPO problems.
Knight's shares sank 11 percent on Wednesday, another 2
percent on Thursday, and 1.3 percent on Friday, hitting more
than six year lows.
A Knight spokeswoman said it would probably not have
anything to say about Nasdaq's new plan until it has the chance
to file a comment letter to the U.S. Securities and Exchange
Commission as part of the regulatory process.
UBS and Citadel representatives had no comment, while Citi
was not immediately available.
Knight and UBS have separately hinted that they could bring
legal action against Nasdaq if the compensation does not cover
Unconfirmed news reports have said UBS may have lost
considerably more that earlier thought, perhaps $350 million.
Nasdaq also faces regulatory investigations into its systems
and actions on May 18.
During the chaotic hours after Facebook debuted, market
makers say they tried in vain to reach contacts at Nasdaq to
find out about their positions in Facebook. They were also
calling the SEC to make sure the regulator understood the
gravity of the situation.
In its filing, Nasdaq stood by its decision not to halt the
most anticipated IPO in years.
There "was an orderly, liquid, and deep market in FB stock,
with active trading on all markets. Halting trading on a
market-wide basis in these circumstances would have been
unprecedented, and, in Nasdaq's view, unjustified," it said in