Knight Capital May Sue NASDAQ over Facebook IPO

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Knight Capital May Sue NASDAQ over Facebook IPO

This is an extract from Knight Capital Group Inc. (NYSE:KCG)’s May filing relating to the probable losses it would suffer due to the botched trade execution by the Nasdaq exchange during Facebook Inc (NASDAQ:FB) IPO:

“There are no assurances that the company will be able to recover any of its losses resulting from the numerous issues and problems at NASDAQ, relating to the trading of Facebook,” officials with Knight wrote in the filing. “As a result of this loss, the Company’s second quarter results of operations will be adversely impacted.”

The fears have come true, and Knight Capital, one of the top market makers and providers of market access and trade execution services, says it lost $34.5 million due to Nasdaq’s bungling. As a result, the company’s second quarter results have been hit by an equivalent of 23 cents a share, according to a report in the WSJ.

Knight Chief Executive Tom Joyce, rued the fact that even after a couple of months having passed after the bungling, NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) has failed to file its plan on compensating affected market participants with the regulators.

At the time of the incident, Joyce had been extremely critical of Nasdaq, saying, “The failure was Nasdaq’s. This was arguably the worst performance by an exchange on an IPO ever.”

In a previous report, in June on the WSJ, the Nasdaq had been stated to be considering an offer of discounted trading fees to financial firms hit by the incident. Even at that time, there was considerable frustration with the slow progress made by Nasdaq in resolving the issue, and the filing of its plans with the regulators.

However, Nasdaq may be hamstrung by some legal fine print that limits the compensation it could pay to brokers and traders due to technical glitches, to a maximum of $3 million a month. Apparently the exchange would be paying this ceiling amount, plus another windfall gain of $10.7 million it made on a Facebook position it closed out. That means a total of say $13.7 million, which is hardly likely to satisfy traders and investors who are estimated to have lost over $100 million. Other estimates put the figure at close to $200 million.

Even so, where is the money? Nasdaq is still dragging its feet on the issue, and Knight Capital Group Inc. (NYSE:KCG) is now considering its legal options.

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