[ by Howard Haykin ] Immediately following Nasdaq OMX Group's mishandling of Facebook’s IPO on Friday, 5/18/12, all we read in online media were reports of $100 million in losses by Nasdaq market makers - principally the 4 largest firms.  Little, if any, mention was given to other, smaller market makers, whose accounts apparently were "roughed up" in that day's trading session. Well, reports on several fronts paint a different picture - that industry trading losses may be close to $200 million, a figure confirmed by Thomas Joyce, Knight Capital Group Chief Executive. Knight said last month its losses ranged between $30 million and $35 million.  Taking that into consideration, Nasdaq’s $40 million plan to compensate brokers for losses is “underwhelming at best," Mr. Joyce said today at the Sandler O’Neill & Partners LP Global Exchange and Brokerage Conference in New York. Joyce went on to say: "Nasdaq made decisions that created this problem that the industry suffered through, and it’s up to Nasdaq to create a solution.  Nasdaq has got to go back to the drawing board and come back with something sensible."

Nasdaq OMX’s computer systems that were used to establish the opening price for Facebook were overwhelmed on FB IPO Day - by order cancellations and updates for the IPO.  After the exchange repaired the problem, order updates for 30 million shares didn’t participate in the auction because of an error, Nasdaq reported the following day.

Role of Market Makers. Knight is one of the largest wholesalers, a category of market makers that executes orders for individual investors sent to the firm from retail brokers.  These firms may guarantee customers executions in the auctions at the start and end of trading each day at the resulting price, assuming they can manage their financial risks by buying and selling in the market.  Other large wholesalers include UBS AG, Citigroup Inc., Citadel LLC, and E*Trade Financial Corp. On Friday, 6/8/12, Facebook traded in a range, from $26.44 to $27.76, and closed at $27.10 - up 79¢ (3%) over the prior day's closing price. [Bloomberg, 6/7/12]