Nasdaq to Cover Facebook Inc. (FB) Losses, MS Hit by Unexecuted Trades


Nasdaq to Cover Facebook Inc. (FB) Losses, MS Hit by Unexecuted Trades

After causing the delay of Facebook Inc (NASDAQ:FB)’s trading last Friday, Nasdaq OMX Group (NASDAQ:NDAQ) said on Monday that it will put aside at least $13 million to make traders and investors whole after their trades were affected by the exchange’s order-cancellation issues.

Monday morning kicked off with Fox Business reporting that “technical snafus” contributed to the failure of Nasdaq systems to execute buy and sell orders for Facebook Inc (NASDAQ:FB)’s stock at different times on Friday; this initially led to a 30-minute delay for the start of trading.

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Sources said that Nasdaq’s Chief Executive Officer Bob Greifeld had thought about halting the trading in the social media giant’s shares on Friday to fix the problem, but declined to do so. At that time, Greifeld allegedly said losses would not be covered.

He said to The Wall Street Journal that the exchange thought about stopping the IPO and admitted that the order-cancellation issues had affected trading; Nasdaq had conducted pre-IPO testing but it didn’t find any problems.

He said, “This was not our finest hour.” Greifeld added that Nasdaq was “humbly embarrassed” by the issues, and that on Saturday, the exchange’s board met and reviewed improvements for the IPO process.

By Monday, The Wall Street Journal reported that Greifeld had a change of heart to cover the losses.

Financial Industry Regulatory Authority (FINRA) will watch over the arbitration and distribution of funds to the firms.

But will $13 million be enough?

Many on Wall Street don’t think it is. Knight Capital Group Chief Executive Officer Tom Joyce said to the Journal that total losses from the order-cancellation issues could hit $100 million and added, “Dozens of firms lost money.”

Nasdaq to Cover Facebook Inc. (FB) Losses, MS Hit by Unexecuted Trades

Morgan Stanley Hit with Unexecuted Trades

One firm especially hit hard with Nasdaq’s snag was lead underwriter, Morgan Stanley (NYSE:MS). On Friday, the firm had a number of Facebook orders entered by its financial advisers that “remain unexecuted,” according to MarketWatch.

On Monday, Morgan Stanley sent out an internal memo to its advisers of Morgan Stanley Smith Barney and said that it expects to “be able to obtain and process execution for those trades today.” These trades had been market orders.

For some firms, they were able to execute their market orders at prices from Friday but Morgan Stanley said a review of unexecuted limit orders was underway to “determine whether they should have been executed.” After the review is concluded and its results are out, the firm said it will “process any price adjustments and execution those firms provide.”

Morgan Stanley’s brokers also received instructions for the Facebook orders that included the moving of duplicate Facebook trades to the “branch error account;” those will “be covered by the office” reported MarketWatch. In addition, brokers were also told by the firm not to submit either challenges to prices or requests for the firm look at unexecuted limit orders.

Morgan Stanley said, “We will notify you once our trading partners complete their evaluation.”

The firm did not comment on Friday’s trades.

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