Nasdaq OMX Group Inc. (NDAQ) on Wednesday outlined plans for a "one-time" payout of around $40 million to compensate some financial firms that lost money after the exchange operator botched their trades during the ill-fated debut of Facebook Inc. (FB) shares.
The plan involves a mix of cash and trading discounts aimed at easing the reputational damage from the technical problems that plagued Facebook's initial public offering last month and left brokers with unwanted trading positions, though Nasdaq has insisted it isn't to blame for the sharp slide in the social media network's valuation.
The planned payouts are subject to approval from the Securities and Exchange Commission and fall well below the $100 million or more that financial firms said they lost because of the technical problems, and will also likely stir objections from rival exchanges, according to people familiar with the situation.
Nasdaq said it would pay $13.7 million in cash to member firms that suffered losses, including the $10.7 million profit it made from first-day trading and the maximum $3 million allowed by regulators to make good for trading snafus.
The rest would come in the form of trading discounts seen vesting over six months, with the push to pay out more than the $3 million cap set by regulators raising concerns among rivals that it would set an unwelcome precedent.
The payout plan will be overseen by the Financial Industry Regulatory Authority, which will evaluate claims, though the agency has said Nasdaq will make the final decision.
Nasdaq said compensation would be limited to claims fitting a number of criteria and will not be extended to "losses that resulted from affirmative decisions by members."
The company outlined three types of transactions that would qualify, including sell orders priced at or below $42 a share that didn't execute.
Sell orders priced at or below $42 that didn't execute and buy orders priced at $42 that were executed but not immediately confirmed would also be considered for what Nasdaq described as "accommodations."
Problems with Nasdaq OMX exchange systems handling the May 18 opening of Facebook shares delayed the hugely anticipated debut by 30 minutes and left brokers with millions of shares' worth of unconfirmed trades. Firms didn't learn the results of their orders until more than two hours after the stock opened, and some were caught by surprise when they were notified by Nasdaq of unexpected positions in the social-networking company's newly listed stock.
Nasdaq said it has hired International Business Machines Corp. (IBM) to review its trading systems.
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