SEC provides a loophole for additional Nasdaq payouts.

[ by Howard Haykin ]

The SEC ruled in favor of Nasdaq OMX in the long-awaited decision on compensation for the botched Facebook 2012 IPO.  Nasdaq's current plan will provide $62 million as compensation to investors and Wall Street market makers who incurred losses related to the share offering.

While $62 million under the current plan is higher than the $40 million first suggested by Nasdaq CEO Robert Greifeld, it falls short of the reported losses incurred by Nasdaq market-makers.  The combined figured easily exceeds $500 million. 

Many market-makers don't have the 'bottomless pit' of cash reserves maintained by deep-pocketed global bank-broker dealers that have become enured to frequent 8- and 9-figure settlements with regulators and investors. 

Perhaps taking into consideration the concerns expressed by these market makers - many stand ready to sue, or have filed suit against, the exchange for its alleged (gross) negligence - the SEC said it will allow Nasdaq to exceed a previous ceiling for these payments in order to help plug investors' losses.

Wall Street Firms Out a 'Pretty Penny'.   Global banks like Citigroup and Swiss giant UBS sustained steep losses on the IPO.  UBS, where losses reportedly topped $350mn, already filed a lawsuit against the Nasdaq blaming it for the problems.  Firms like Citadel and Knight Capital reportedly lost about $30mn apiece in the debacle.  And that's just the high-profile firms.

One final note.  It's likely the SEC will not issue any fines or sanctions against Nasdaq, based on a statement issued by the Agency saying it is not taking a view on whether Nasdaq broke any laws or violated any regulations. 

[C-I Note:   Yet, UBS and other market makers have a different view on why Nasdaq is responsible and should be held liable for their losses.  And that pertains to Nasdaq's activities as a profit-oriented, publicly-traded company.  Many critics of Nasdaq say the errors and communication failures arose because of Nasdaq's conflicts of interest arising out of its dual roles as regulator/exchange and as a public company trying to maximize profits for its shareholders.

If Nasdaq does not adequately compensate the market-makers for the losses they incurred, then ... LET THE FILING OF LAWSUITS BEGIN.]

[ CNBC, 3/25/13 ]

To contact Howard Haykin:  Howard@compliance-insights.com.