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Facebook investors may get refunds

Nasdaq proposes $40M fund to reimburse traders affected by delays, glitches

- The Washington Times - Wednesday, June 6, 2012

The Facebook investors who got burned by delays and computer glitches on a chaotic first day of trading could get refunds for the losses they suffered.

The Nasdaq stock exchange, which was embarrassed by the mishandling of Facebook's initial public offering May 18, announced Wednesday a proposed $40 million fund that would reimburse those early traders who were affected by the company's error.

The boards of the Nasdaq OMX Group and Nasdaq Stock Market have signed off on a plan to pay member traders who qualify with a mix of cash and credit. They would receive about $13.7 million in cash, and the remainder of the funds would come as credits and discounts to reduce future trading costs. The Securities and Exchange Commission still has to approve the plan.

"We are still engaged in a review process with the SEC on this," Eric Noll, executive vice president of transaction services at Nasdaq OMX, told reporters in a webcast. "It will be subject to change based on their position and some of their thoughts around this. It is taking a while, I think, to get everybody comfortable with it."

If the SEC approves the plan, Nasdaq would go through the Financial Industry Regulatory Authority, the industry's independent self-regulatory board, to evaluate the claims submitted by firms and distribute the funds.

Only certain traders affected by Nasdaq's failure will qualify for the refunds, including those whose sells priced at $42 or less did not execute or executed later at inferior prices, and whose buys priced at $42 were executed in the cross but not immediately confirmed.

The Nasdaq says the problem is fixed. To be safe, the nation's second-largest stock exchange has hired IBM to conduct a thorough review of its systems.

This comes as pressure is mounting against Nasdaq. The stock exchange is facing heavy criticism and massive lawsuits for the Facebook problem, and it is hoping this proposal will smooth things over with investors.

Facebook was scheduled to begin trading under the ticker "FB" at 11 a.m., but it stumbled out of the gate and the stock was delayed about a half-hour as Nasdaq dealt with computer issues.

This disrupted the Facebook market. Some traders were stuck buying or selling too late, leading to significant losses in an industry in which every split second matters.

To make matters worse, Facebook's stock is struggling to gain traction with investors. It has dropped about 30 percent from the opening price of $38.

Facebook's stock jumped to $43 in the first few minutes of trading after the market opened. About 82 million were shares reportedly traded in the first 30 seconds.

But that initial burst was much lower than what many analysts had expected. Some predicted it would follow in the footsteps of LinkedIn, which shot up to $122.70 on the first day of trading, far above its IPO price of $45.

From there, it was all downhill for Facebook. Within the hour, it was back down to $38, and in the following days it dropped dramatically.

It closed Wednesday at $26.81.

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