Citadel Backs Nasdaq on Compensation for Facebook IPO Losses

   By Jacob Bunge 
 

Citadel LLC urged U.S. regulators to approve a controversial plan by Nasdaq OMX Group Inc. (NDAQ) to make good on some losses sustained by trading firms in the stock market debut of Facebook Inc. (FB)

The $62 million proposal, which Nasdaq OMX retooled last month following outcry from brokers and rival exchanges, is "objective and fair," according to a letter submitted Tuesday by Citadel to the Securities and Exchange Commission.

Citadel, known for its hedge funds, ranks among the biggest handlers of stock and options orders flowing out of retail brokerage firms. Such wholesale market-makers, which trade on some individual investors' orders and pass others on to rival firms or exchanges, were among the hardest hit by the glitch-ridden debut of Facebook shares May 18.

On an average day, Citadel estimates that it accounts for about 10% of all trading in U.S. listed stocks, and more than 20% of the volume in domestic stock options.

Citadel lost $30 million to $35 million trading the newly minted shares, according to persons with knowledge of the transactions. Rival Knight Capital Group Inc. (KCG) disclosed that it lost $35.4 million, while banking group UBS AG (UBS) lost more than $350 million.

The Chicago-based firm's letter on the Nasdaq OMX compensation plan represents Citadel's first public comments on the Facebook IPO.

-Write to Jacob Bunge at [e-mail]

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