Nasdaq has tripled the compensation pool for investors who lost out during the botched flotation of Facebook and admitted that it was “humbly embarrassed” by the mistakes.
The stock exchange said that its fund would rise from $13.7 million (£8.9 million) to $40 million, still far short of the $115 million-plus that angry brokers and investors believe the debacle has cost them.
Nasdaq built its reputation as the home to America’s leading technology companies and the Facebook listing was its biggest in years. However, trading on the opening day — May 18 — was delayed by 30 minutes because of computer glitches and many transactions failed to complete or did so late and at the wrong price.
The bad feeling towards Nasdaq has been exacerbated by Facebook’s poor share price performance since the float, with shares closing yesterday at $26.81, down about 30 per cent on the $38 opening price. Robert Greifeld, the chief executive of Nasdaq OMX, said yesterday that the exchange “owed the industry an apology”.
“Clearly we didn’t succeed here,” he said. Mr Greifeld added that the flotation day had not been “perfect”.
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The exchange will pay $13.7 million in cash compensation, and a further $26 million will be given to brokers in the form of reduce future transaction fees. Nasdaq is understood to believe that its offer of compensation is more than adequate because its rules require it only to pay up to $3 million.
The prospect of lower fees sparked unease among rival exchanges, which are concerned that the plan could prompt brokers to trade at Nasdaq and improve its market share. NYSE Euronext said: “We intend to strongly press our views that Nasdaq’s proposal cannot be allowed to permit an unjust and anti-competitive situation.”
The four largest brokers involved in the flotation — UBS, Citigroup, Knight Capital and Citadel — collectively lost $115 million. Knight said that Nasdaq’s proposal was “simply unacceptable”.
The fallout has been felt across all markets with companies including Formula One and Graff Diamonds pulling their listings in response to weak investor demand.
Technology companies have been particularly badly affected by the negative sentiment caused by the flotation and a leading entrepreneur has warned that it will become much harder for start-ups to raise money.
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Paul Graham, the founder of Y Combinator, an advisory firm that has helped companies such as Dropbox and Airbnb, said in a letter to start-ups that they should “lower their expectations for fundraising.” He added that investors might put lower valuations on start-up business in future.