Nasdaq has agreed to pay $10m to settle the US Securities and Exchange Commission’s (SEC) charges over the unsuccessful Facebook initial public offering (IPO) in May 2012.
SEC said in its administrative proceeding against the stock exchange operator that Nasdaq’s ill-fated decisions on the day of the IPO were responsible for a series of regulatory violations.
SEC Division of Enforcement co-director George S. Canellos said: "This action against NASDAQ tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets."
In addition, the agency reported that the stock exchange operator’s senior executives knew technical problems, while decided to expose Facebook stock for secondary trading without the initial getting to the root cause of the troubles.
Due to poor decisions, more than 30,000 Facebook orders got jammed in Nasdaq’s system for more than two hours during the time when they should have been either executed or negated, leaving investors in the lurch, with market makers losing about $500m.
SEC Enforcement Division Market Abuse Unit chief, Daniel Hawke, said that the agency’s focus in this investigation was on the design limitation in NASDAQ’s system and the exchange’s decision-making after that limitation came to light.
"Too often in today’s markets, systems disruptions are written off as mere technical ‘glitches’ when it’s the design of the systems and the response of exchange officials that cause us the most concern," Hawke said.
Recently, three men who claimed to have privileged access to shares of Facebook ahead of its IPO have been detained for allegedly cheating an investor out of $6.7m.
In March 2013, SEC approved Nasdaq OMX’s proposal to pay $62m to investors who lost money over a technical fault during the IPO.
