Nasdaq in talks on botched Facebook debut

Discussions with US regulators over potential settlement

Nasdaq OMX is in early-stage talks with US regulators over a potential settlement stemming from the exchange operator’s botched handling of the Facebook public offering, people close to the situation said.

System failures on Nasdaq last May left brokers angry and investors bewildered after the highly anticipated start to the trading of shares in the social networking site was plagued by errors.

The exchange said later that a 20-minute delay in the trading of Facebook’s $16bn offering had been caused by a millisecond systems blip due to the largest IPO auction “in the history of mankind”.

Since then Nasdaq has sought to repair relations with traders and reassure the market on the reliability of its technology.

A potential settlement comes as the Securities and Exchange Commission has stepped up scrutiny of exchanges.

Settlement discussions are at a preliminary stage, the people familiar with the situation said. A possible resolution, which could include a financial penalty, could be months away.

The company is separately seeking approval from the SEC to proceed with $62m in voluntary payments to brokers who suffered losses on specific Facebook trades because of system failures.

The SEC said last month that it would need until the end of March to decide on whether it would approve or deny that move by the exchange.

“We’re working closely with the SEC to resolve issues that arose from the events on May 18,” Nasdaq said. “We continue to believe we acted appropriately and in the best interests of investors.” The SEC declined to comment.

Brokers, including those at banks such as UBS and Citigroup, have claimed a total of $500m in damages related to Nasdaq’s handling of the Facebook debut. Some have also not ruled out legal challenges.

News of the talks was earlier reported by The Wall Street Journal.

The SEC levied its first fine against an exchange last September, when it charged NYSE Euronext $5m to settle allegations that the bourse operator gave certain customers an advance look at trading information.

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