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Facebook Inc.’s (FB) debut on the Nasdaq Stock Market turned into another setback for American equity exchanges, with the $16 billion initial public offering plagued by delays in trade confirmations, crossed quotes and signs that orders were mishandled.
The pricing of the first transaction took a half hour longer than Nasdaq planned. About 30 minutes later, the second- largest U.S. equities exchange operator reported an issue confirming trades from the opening auction with the brokerages that placed them. Nasdaq later established an appeals process for investors whose instructions weren’t carried out.
Scrutiny of American equity markets intensified in March when Bats Global Markets Inc., the third-largest U.S. stock exchange owner, withdrew its IPO after failing to trade on its own platform. Nasdaq’s mishaps, on a day when the most anticipated IPO of the year eked out a gain of 0.6 percent, disappointed investors hoping to erase the memory of Bats.
“It certainly wasn’t their best day,” Larry Tabb, chief executive officer of research firm Tabb Group LLC in New York, said in a phone interview. “That said, it also wasn’t a complete disaster. Nasdaq really needs to investigate what the challenges are and fix them quickly. There was a lot riding on this IPO and apparently it didn’t go so well.”
The U.S. Securities and Exchange Commission said it will review the trading. Nasdaq spokesman Robert Madden didn’t return calls and e-mails seeking comment. Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment.
Treading Water
Facebook advanced 23 cents to $38.23 after surging as much as 18 percent. It fell as low as the IPO price of $38, which valued the company at $104.2 billion. More than 43 million shares were executed at that level, the second-most changing hands at any price except for $42, the opening auction price, data compiled by Bloomberg show. A total of 583 million Facebook shares traded.
Underwriters purchased shares to keep them from falling below $38, people with knowledge of the matter said. The bankers supported the stock amid Nasdaq’s difficulties delivering trade execution messages, said one of the people, who asked not to be identified because the transactions are private.
Facebook was originally scheduled to open at 11 a.m. At about 11:07 a.m., a Nasdaq official told market participants on a conference call that the exchange was delaying the opening. Aside from assurances that an update was coming, the phone line went silent until just before the first trade at about 11:30, according to two people who were on the call and asked not to be identified because the discussions were private.
Appeals Planned
Buy and sell requests that should have been filled in the opening auction, based on the exchange’s rules, weren’t, while cancellations for other trade requests were ignored, they said. Their employers plan to appeal some of the results they received for orders sent to Nasdaq today.
Nasdaq began experiencing problems with its bid and offer quotes after the opening auction trade. By 11:31 a.m., the exchange’s highest bid, or price at which market participants were willing to purchase shares, was $42.99, and its lowest offer to sell was $42.50, according to data compiled by Bloomberg. The quotes produced a so-called crossed market, where sellers appear to be asking less than buyers are willing to pay.
Other markets continued trading, usually with a difference of a few cents between their best bid and lowest offer. Nasdaq’s quotes were marked as manual and not electronically accessible, which allowed brokers and other exchanges to ignore the venue’s prices. Its offer price later dropped to $38.01 and remained at that level, almost $4 below the highest bid, until 1:49 p.m., according to data compiled by Bloomberg.
‘Don’t Like’
“Clearly investors would hit the ‘don’t like’ button,” Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati, said in a telephone interview.
The IPO price valued the company at 107 times trailing 12- month earnings, more than all Standard & Poor’s 500 Index stocks except Amazon.com Inc. and Equity Residential. The valuation also made Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the U.S.
Nasdaq said in a statement posted to its website at 11:59 a.m. New York time that it was having a problem delivering trade confirmations related to the IPO. “Nasdaq is working to deliver these executions back to customers as soon as possible,” according to the notice. The company said in a message at about 1:57 p.m. that the delayed messages had been sent.
No Confirmations
Customers of London-based Fidessa Group Plc, which helps asset managers track transactions, weren’t receiving confirmation of Facebook trades, according to an e-mailed statement. Michael Cianfrocca, a spokesman for Charles Schwab Corp. in San Francisco, wrote in an e-mail: “There are currently industrywide delays in reporting trade executions. These issues do not appear to be unique to Schwab.”
Uncertainty about whether orders received executions in the opening auction affected some clients of online broker TD Ameritrade Holding Corp. (AMTD), according to Steve Quirk, senior vice president of the trader group at the Omaha, Nebraska-based company. Facebook accounted for 22 percent of today’s equities volume at the firm, he said by e-mail.
“When you have a complex market system that gets overwhelmed, it fails in bizarre ways,” James Angel, a finance professor at Georgetown University in Washington, said in a phone interview. “If you don’t know whether you got filled, you don’t know your position. If you’re buying you might buy more shares and then suddenly you’ve got twice as many shares as you wanted. It makes it hard to do your risk management and hard for brokers to know how much credit to extend to customers.”
Nasdaq Shares
Nasdaq OMX (NDAQ) shares fell 4.4 percent, the most since October, to $21.99. NYSE Euronext gained 0.3 percent to $24.61.
Adding to the initial confusion surrounding the opening trade in Facebook was a halt in a company that generated 11 percent of the company’s $1.06 billion in first-quarter revenue. Zynga Inc. (ZNGA) failed to trade for almost an hour after being paused by a single-stock circuit breaker, designed to curb volatility when a price swings at least 10 percent in five minutes.
The stock was paused at 11:37 a.m. New York time after dropping as much as 14 percent to $7.08. Each circuit breaker normally lasts five minutes. It resumed at 12:29 p.m., only to be paused again when it rebounded from the earlier decline. The second halt lasted more than an hour.
Dani Dudeck, a Zynga spokeswoman, declined to comment.
“For many people, Zynga was a proxy for Facebook,”said Angel, a director of Jersey City, New Jersey-based Direct Edge Holdings LLC. “Nobody knew what was going on. Nasdaq may have had their hands full dealing with the Facebook glitches and may have just let it slide. That’s not a good sign.”
Federick’s of Hollywood
Loncor Resources Inc. (LN) and Frederick’s of Hollywood Group Inc. (FOH), both listed by a market owned by NYSE Euronext, and Nasdaq-listed MER Telemanagement Solutions (MTSL) Ltd. were halted between 12:22 p.m. and 12:24 p.m. New York time.
Facebook’s offering came as U.S. equity markets are mired in the worst slump since October. About $1 trillion has been erased from share values this month after speculation Greece will leave the euro region reversed the biggest first-quarter rally since 1998. The S&P 500 fell a sixth straight session, losing 0.7 percent to 1,295.22.
“It should be Nasdaq’s day to shine and instead it’s more questions and bugs in the system,” said Larry Peruzzi, senior equity trader at Cabrera Capital Markets LLC in Boston.
“Poor design” in Nasdaq OMX Group Inc. (NDAQ)’s software driving auctions for initial public offerings delayed Facebook Inc.’s first day of trading, the exchange operator’s chief executive officer said.
Computer systems designed to establish an opening price were overwhelmed by order cancellations and updates as the “biggest IPO cross in the history of mankind” was occurring, Nasdaq CEO Robert Greifeld said today in a conference call with reporters. Nasdaq’s systems fell into a “loop” that prevented the second-largest U.S. stock venue operator from opening the shares on schedule following the $16 billion deal, he said.
The day was another setback for American equity exchanges trying to bounce back from a botched IPO in March by Bats Global Markets Inc., another bourse owner. Nasdaq’s issues contributed to disappointment among investors as Facebook (FB)’s stock closed up 0.6 percent after rising 18 percent earlier.
“This was not our finest hour,” Greifeld said a day after Nasdaq’s board convened to discuss the offering. Asked if his job is secure, he said, “I certainly hope so.”
After 421 million Facebook shares were priced by underwriters on May 17, problems with the open surfaced the next morning when the first transaction took a half hour longer than Nasdaq planned. About 30 minutes later, Nasdaq reported an issue confirming trades from the opening auction with the brokerages that placed them. Nasdaq later established an appeals process for investors whose instructions weren’t carried out.
The U.S. Securities and Exchange Commission said it will review the trading. Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment.
Treading Water
Facebook advanced 23 cents to $38.23 after surging as high as $45. It fell as low as the IPO price of $38, which valued the company at $104.2 billion. More than 43 million shares were executed at that level, the second-most changing hands at any price except for $42, the opening auction price, data compiled by Bloomberg show. A total of 583 million Facebook shares traded.
Underwriters purchased shares to keep them from falling below $38, people with knowledge of the matter said. The bankers supported the stock amid Nasdaq’s difficulties delivering trade execution messages, said one of the people, who asked not to be identified because the transactions are private.
Facebook was originally scheduled to open at 11 a.m. At about 11:07 a.m., a Nasdaq official told market participants on a conference call that the exchange was delaying the opening. Aside from assurances that an update was coming, the phone line went silent until just before the first trade at about 11:30, according to two people who were on the call and asked not to be identified because the discussions were private.
Appeals Planned
Buy and sell requests that should have been filled in the opening auction, based on the exchange’s rules, weren’t, while cancellations for other trade requests were ignored, they said. Their employers plan to appeal some of the results they received for orders sent to Nasdaq.
Nasdaq began experiencing problems with its bid and offer quotes after the opening auction trade. By 11:31 a.m., the exchange’s highest bid, or price at which market participants were willing to purchase shares, was $42.99, and its lowest offer to sell was $42.50, according to data compiled by Bloomberg. The quotes produced a so-called crossed market, where sellers appear to be asking less than buyers are willing to pay.
Other markets continued trading, usually with a difference of a few cents between their best bid and lowest offer. Nasdaq’s quotes were marked as manual and not electronically accessible, which allowed brokers and other exchanges to ignore the venue’s prices. Its offer price later dropped to $38.01 and remained at that level, almost $4 below the highest bid, until 1:49 p.m., according to data compiled by Bloomberg.
‘Don’t Like’
“Clearly investors would hit the ‘don’t like’ button,” Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati, said in a telephone interview.
The IPO price valued the company at 107 times trailing 12- month earnings, more than all Standard & Poor’s 500 Index stocks except Amazon.com Inc. and Equity Residential. The valuation also made Facebook, co-founded in 2004 by a then-teenage Mark Zuckerberg, the largest company to go public in the U.S.
Nasdaq said in a statement posted to its website at 11:59 a.m. New York time that it was having a problem delivering trade confirmations related to the IPO. “Nasdaq is working to deliver these executions back to customers as soon as possible,” according to the notice. The company said in a message at about 1:57 p.m. that the delayed messages had been sent.
No Confirmations
Customers of London-based Fidessa Group Plc, which helps asset managers track transactions, weren’t receiving confirmation of Facebook trades, according to an e-mailed statement. Michael Cianfrocca , a spokesman for Charles Schwab Corp. in San Francisco, wrote in an e-mail: “There are currently industrywide delays in reporting trade executions. These issues do not appear to be unique to Schwab.”
Uncertainty about whether orders received executions in the opening auction affected some clients of online broker TD Ameritrade Holding Corp., according to Steve Quirk, senior vice president of the trader group at the Omaha, Nebraska-based company. Facebook accounted for 22 percent of equities volume at the firm, he said by e-mail.
“When you have a complex market system that gets overwhelmed, it fails in bizarre ways,” James Angel, a finance professor at Georgetown University in Washington, said in a phone interview. “If you don’t know whether you got filled, you don’t know your position. If you’re buying you might buy more shares and then suddenly you’ve got twice as many shares as you wanted. It makes it hard to do your risk management and hard for brokers to know how much credit to extend to customers.”
Glitches, delays, and confusion on Facebook's first day of trading reportedly have traders livid, and they're taking their anger out on the NASDAQ.
Charlie Gasparino reports:
Angry traders and investors are bombarding Nasdaq officials with demands that the exchange make good on losses they say were incurred during the messy execution of the Facebook IPO, where Nasdaq systems essentially broke down and failed to execute buy and sell orders for the stock at various times during Friday’s stock sale, according to
people with first-hand knowledge of the matter.
These people say that the demands for money could total $100 million or possibly more, but Nasdaq chief executive officer Bob Greifeld is, at least for now, taking the position that the exchange will not cover the losses.
Our Nicholas Carlson reported on these glitches on Friday:
A theory from a source close to FB's IPO bankers: The volume that caused NASDAQ to delay the IPO for more than a half hour, also prevented Nasdaq from informing big bank trading desks whether or not their trades on Facebook had gone through.
This left trading desks in a position where "you don't know whether you bought it, and you think you did at $42 but you're not sure," says our source.
Anyway, it will be interesting to see if NASDAQ does have to eat losses somehow. We're not sure what the mechanism would be. They have certainly acknowledged issues, and shares in the NASDAQ itself were down 4% on Friday.
