Knight Capital Accepts Nasdaq’s $62 Million Facebook Payout Plan


Knight Capital Group Inc. (NYSE:KCG) said in a letter, dated August 29, to the SEC that it accepts the $62 million payout plan by NASDAQ OMX Group, Inc. (NASDAQ:NDAQ). However, it objected to Nasdaq’s demand that firms seeking compensation should waive the legal claims against the exchange. Earlier, Knight had openly criticized Nasdaq’s first payout plan of $40 million. NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) has proposed to pay back the traders who lost money due to technical glitches at the exchange during Facebook Inc (NASDAQ:FB)’s IPO on May 18.

Knight Capital Accepts Nasdaq's $62 Million Facebook Payout Plan

The market maker lost approximately $30-35 million during the botched IPO. Talking about the exchanges’ liability and regulatory immunity during system outages, Knight Capital Group Inc. (NYSE:KCG) urged the regulators to thoroughly review the issue, instead of making decisions only on a singular incident. It asked the SEC to focus on the Facebook matter for the time being.

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“We believe these critical issues should be more thoroughly addressed in a broader concept. In our view, formal releases from claims of civil liability are more akin to commercial terms, which should be negotiated at arms-length between two parties to a contract and should not be part of a rule imposed by a regulatory authority. Setting forth those types of requirements in the context of a rule, filing inappropriately mixes commercial issues with regulatory requirements,” Knight wrote in its three-page letter to SEC.

UBS AG (NYSE:UBS) and Citigroup Inc. (NYSE:C) have ripped off Nasdaq for its mishandling of the Facebook Inc (NASDAQ:FB) IPO, and called the payout proposal underwhelming. Last week, UBS threatened to sue the exchange. UBS reportedly lost more than $350 million due to the technical glitches on May 18. Citigroup’s Automated Trading Desk suffered a loss of $35 million. The total losses because of the technical blunder at Nasdaq are estimated to be in excess of $500 million. UBS AG (NYSE:UBS) argued that Nasdaq alone is responsible for all the losses, since it was acting in a for-profit manner during the IPO.

However, Citadel, a hedge fund that lost $20 million, has given its approval. There are speculations that Knight’s decision to support the Nasdaq settlement has been affected by its own technology blunder on August 1. Knight lost $440 million when its new software program erroneously purchased the stocks of hundreds of companies. Knight Capital Group Inc. (NYSE:KCG) was on the verge of bankruptcy before it somehow secured a $400 million rescue plan from a consortium of investors.

The stocks of Knight Capital Group Inc. (NYSE:KCG) fell 2 percent to $2.74 per share on Thursday. Nasdaq was down 0.9 percent at $22.80.

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