SEC levies biggest penalty ever against exchange after computer glitches delay start of heavily anticipated trading day
Nasdaq has agreed to pay a $10m penalty to settle federal civil charges after regulators said its systems and decisions disrupted Facebook’s public stock offering last year.
The Securities and Exchange Commission said Wednesday that the penalty is the largest ever imposed against an exchange. Nasdaq also has had to pay $62m in reimbursements to investment firms that lost money because of the problems.
Facebook launched its initial public offering on 18 May 2012, amid great fanfare. But computer glitches at Nasdaq delayed the start of trading and threw the launch into chaos. The technical problems kept many investors from buying shares that morning, selling them later in the day or even knowing whether their orders went through. Some said they were left holding shares they didn’t want.
The SEC says a design flaw in Nasdaq’s systems was to blame and Nasdaq officials then made a series of “ill-fated decisions”.
Nasdaq neither admitted nor denied wrongdoing.
The Facebook IPO was widely anticipated and one of the largest in history. The social network was valued at more than $100bn when it went public for $38 a share.
Nasdaq violated market rules by being poorly prepared for the launch, the SEC said. Exchanges have an obligation to ensure that their systems and contingency plans are strong enough to manage an IPO without disrupting the market.
The SEC said Nasdaq officials believed they had fixed the design flaw by removing a few lines of computer code and opted not to delay the start of trading in Facebook. But they failed to understand the root cause of the problem, the SEC said.
The $10m penalty had been expected. Nasdaq said last month that it might have to pay that amount to resolve the matter with regulators.
In its administrative order issued Wednesday, the SEC also censured Nasdaq. Censure brings the possibility of a stiffer sanction if the alleged violation is repeated.
On Wednesday, Facebook shares traded for $23.57 at 2pm ET (1800 GMT).