It was a tense 40 minutes whilst the world’s investors watched and waited for Facebook stock to finally splutter into life and become tradable. But even though the share price stayed relatively stable in the first day’s trading (it didn’t dip below the opening price of $38), the little fiasco is about to cost Nasdaq $40m.
The technical balls-up meant that tens of thousands of trading requests backed up and were not properly processed, meaning many investors could not respond in real time to market changes and found themselves out of pocket. So Nasdaq has agreed to pay out millions to its member firms, with many companies having the balance credited to their accounts to offset future trading costs.
Nasdaq is the stock exchange of choice for technology and internet companies in the US, but the Facebook embarrassment has caused a global stir, partly because it was accompanied with a disappointing start for the social network’s valuation. The $110bn figure that was touted ahead of the float now looks like the guesswork of lunatics, given that the market capitalisation of the company is now a much more modest $57.3bn. Hardly a piddly figure, but nonetheless tens of billions shy of early estimations.
Meanwhile, the situation isn’t getting any better for Facebook’s founder and CEO, Mark Zuckerberg (although he remains one of the richest people in the world). He is being accused of misleading would-be investors and of having known that the stock price would plummet shortly after the float. He cashed in on 30.2 million of his shares worth around $1.1bn ahead of the slump in the share price, which some angry investors are using as a case for a lawsuit against him.
Partial reimbursements by Nasdaq are expected to be complete within the next six months, and the stock exchange will no doubt be glad to see the back of this episode. But several major clients, including UBS, Citigroup and Knight Capital were shafted to the tune of $115m by the cock-up and will not be fully refunded for the error: not good for the long-term reputation of the exchange. Lucky there’s no ‘dislike this’ button on Facebook. The folks at Nasdaq would be swamped…