Nasdaq agrees to pay $10 million for Facebook IPO glitch

Nasdaq OMX Group Inc has agreed to make a $10-million payment to settle Securities and Exchange Commission for its mishandling of the Facebook Inc IPO last year.

Regulators faulted the second-largest operator of US equity markets for its ''poor systems and decision-making'' during the IPO in May last year that was delayed by a computer malfunction. This is the largest settlement for any American exchange, which, thanks to their self-regulating role, enjoy legal protections.

Brokers who handled the Facebook orders in the May 2012 IPO, say they lost hundreds of millions of dollars after a design flaw in Nasdaq's software delayed the stock's opening and left them confused about whether or not they owned shares. The settlement yesterday came in addition to Nasdaq's proposal to pay $62 million to compensate member firms for losses.

The penalty was due to Nasdaq's failure in its obligation to ensure that systems, processes and contingency planning were robust and adequate to manage an IPO with no disruption to the market, the agency said.

''The settlement is another important step forward,'' said Nasdaq chief executive officer Robert Greifeld in an open letter e-mailed to Bloomberg News. ''We have put in place innovative safeguards and taken a number of steps to help ensure that Nasdaq continues to deliver the world's best trading technology.''

According to the SEC, Nasdaq's senior executives were aware of technical problems but went ahead with the Facebook stock for secondary trading without indentifying the root cause of the troubles.

The problems continued after trading had opened to the wider marketplace. The chief economist at the exchange spotted discrepancies in trading volumes, and complaints from market makers started pouring in. The SEC said, the exchange management still did nothing to halt trading, the SEC said.

The result of the poor decisions, was that over 30,000 Facebook orders remained stuck in Nasdaq's system for over two hours when they should have been either executed or canceled and while investors were left in the lurch, market makers suffered an estimated $500 million loss.

According to George Canellos, co-director of the SEC's enforcement division, the action against Nasdaq told the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing markets.