The exchange that botched trades in the Facebook IPO said Wednesday that it is prepared to cough up $40 million to cover brokerages' losses.
Nasdaq OMX Group, which operates the exchange where Facebook's initial public offering ran into major technical problems, said it will compensate brokerages that lost money because of the glitch.
The announcement didn't have any good news for individuals who lost money in the IPO.
Facebook, the world's No. 1 social-networking site, sold shares in a widely anticipated deal on May 18. But despite the initial hype, the IPO turned out to be more of a horror show. The stock now is down 30% from its initial price. Wednesday's news is no solace for individual investors burned in the stock's slide.
The payment is "a public relations move by the Nasdaq," says Andrew Stoltmann of Stoltmann Law. "The retail (individual) investor, the true victim, gets lost in the shuffle."
Nasdaq plans to pay $13.7 million in cash and provide $26.3 million of trading discounts to affected member firms for select trades.
Even companies that might get some of Nasdaq's compensation aren't happy. Knight Trading, a market maker, said it was disappointed by the size of the compensation (market makers take buy and sell orders from large brokerages and generate trading activity).
For this, "$40 million seems woefully inadequate," Stoltmann says.
The payout leaves small investors wondering how — and if — they will be compensated for erroneous trades, says David Deitch of law firm Ifrah Law.
Several large brokerages say they are already working with market makers to fix errors. Fidelity says it has resolved a number of disputes about Facebook trading and continues to work with market makers. Charles Schwab continues to assess the situation. TradeKing says customer accounts with errors have been corrected.
The Nasdaq's payments only cover faulty trades due to technical glitches, not losses investors suffered betting wrongly on the stock. The stock rose 94 cents to $26.81 on Wednesday. That provides no reprieve for anyone who bought IPO shares at the $38 offering price.
And Nasdaq's payments do nothing to repair the damage in investors' faith in the trading system, says Joseph Saluzzi of Themis Trading. It "doesn't help the retail investor at all," he says.