Hot Features
Premium
Register for streaming realtime charts, analysis tools, and prices.
It was 18 May 2012. I remember it well. I wished my daughter a Happy Birthday, then turned my attention to watching what was supposed to be a day of fanfare on the NASDAQ as Facebook was about to open its IPO. Perhaps never before has the entire world been so highly focused on an initial public offering of any other company’s shares. But, instead of a celebration, it became a fiasco. The aftershocks of that day are still being felt today. Yesterday, 29 May 2013, the U.S. Securities and Exchange Commission (SEC) fined the NASDAQ $10 million for what it described as “poorly designed systems and hasty decision-making.” It is the largest fine ever imposed on a stock exchange.
Technical problems with NASDAQ’s matching systems created a debacle of misinformation and delays that affected nearly every buyer that day. The people over at UBS thought that they had been tapped to appear on TV’s “Biggest Loser” only to find out that they were already the biggest loser on the IPO. UBS and the NASDAQ are still in arbitration as part of UBS’ attempt to recover some or all of the $300 million it lost with the Facebook offering.
Wait right here for the other shoe to drop while I take umbrage with George Canellos’ statement (He’s Co-Director of the SEC’s Enforcement Division) that “hasty decision making” was a root cause of the problems that unfolded that day. If we put the events of the day on a timeline, we discover that NASDAQ officials were already aware that they had IT problems before the opening of the exchange for the day. They chose to open, regardless. Not surprisingly, the unresolved matter continued to affect trading so much so that over 30,000 Facebook orders were lost in a black hole in the system – some for over two hours! Other than delaying the offering for about half-an-hour, NASDAQ officials did nothing to rectify the problem other than to modify a few lines of code – a band-aid at best. Mr. Canellos, it was not “hasty decision making” that was the problem. It was really bad decision making. Time was a pressing issue. The decisions had to be made under the pressure of the clock. But the issue of pride was more important for the NASDAQ that day. The decision makers did not want to be embarrassed by having to announce that the Facebook IPO would have to be delayed until a technical problem could be resolved. That, my friend, is more than a bad decision. That is incompetence at the highest levels.
Speaking of incompetence at the highest levels, Nasdaq CEO Robert Greifeld said yesterday that, “As market leaders, we view our experiences as opportunities to learn and improve.” Personally, I think that a man making a comment like that should be transferred to wherever it is that BP executives go after making similar thoughtless statements. I’m trying my best to say this politely, but every sentence I try to type in response to Mr. Greifeld starts with “You idiot!” So here goes:
“You idiot! The people who lost $500 million dollars don’t give a rip how your company views your experiences! They want their money back. Statements like yours only serve to help us understand how you made those incompetent decisions last May 18th. By the way, you might consider that they also don’t like your settlement offer of $62 million for their collective $500 million lost.”
Now it’s time for the other shoe to drop. Thud! Oh, here it is: The other reason for the SEC fine is that “Nasdaq assumed a short position of more than 3 million shares of Facebook in an unauthorized account and covered that short position for a $10.8 million profit.” Ladies and gentlemen of the jury, I submit to you that those two actions by the NASDAQ are not only unethical, but they are also violations of the SEC rules of conduct. I’d call that a couple of really bad decisions also, but I can hardly see how they were “hasty.”
Our story for today ends with Mark Zuckerburg sitting in his office with pen and paper in hand, still trying to figure out, a year later, what to say in his Thank You note to Robert Greifeld and the NASDAQ.
