Nasdaq Chief Optimistic About Facebook Compensation Plan


Nasdaq OMX Group (NASDAQ:NDAQ) Chief Executive Robert Greifeld was optimistic on Wednesday that the exchange operator's $62 million plan to compensate customers for its part in Facebook's (NASDAQ:FB) glitch-ridden market debut would pass muster with firms that were harmed by the IPO.

Greifeld was speaking during a call with analysts after Nasdaq posted better-than-expected second quarter profits. The earnings release made no mention of the botched IPO, and when asked for details about the plan on the call, Greifeld referred to the 73-page filing Nasdaq made with regulators on Friday.

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"That's our definitive word on the topic," he said.

But more details may soon emerge as to what went wrong on May 18 when Nasdaq glitches led to a delay in the highly anticipated $16 billion Facebook offering - and then left many investors in the dark for more than two hours as to how many shares they owned. Greifeld said a report by IBM, which the exchange hired to review the problems, is expected next week.

The all-cash repayment plan is $22 million richer than an earlier proposal, which had drawn intense criticism from market makers and other exchanges for being too narrow and for using trading credits as the main method of payment.

"I would definitely highlight the absence of negative comments with respect to the plan from the members who are directly impacted by it," Greifeld said on Wednesday.

He said the lack of criticism this time around "is seen as a relative positive and I think we in the industry are getting ready to move forward from this issue."

The plan has not yet been posted on the public register by the U.S. Securities and Exchange Commission, but once there, firms will have 21-days to submit formal comments.


Greifeld said the compensation plan, if approved, would likely take effect in the fourth quarter.

Market makers, which facilitate trades for brokers and ensure liquidity, are said to have lost upward of $200 million.

Knight Capital -- one of the top retail market makers in the IPO, along with UBS <UBSN.VX>, Citigroup's <C.N> Automated Trading Desk, and Citadel Securities -- approves of the bigger payout and elimination of trading credits as compensation, a source familiar with the company's thinking said on Tuesday.

But Knight executives are still grappling with the requirement that, in order to receive compensation, firms must waive their right to take legal action against the exchange over the IPO.

UBS has so far declined to comment on the matter. Reports have said that it lost up to $350 million.

During the chaotic hours after Facebook debuted, market makers say they tried in vain to reach contacts at Nasdaq to find out about their positions in Facebook. They were also calling the SEC to make sure the regulator understood the gravity of the situation.

Regulators are investigating the matter.

Greifeld said that Nasdaq would not have to increase its reserves in case of future IPO foul ups. "This is entirely voluntary on our part. We have our legal protections," he said.

Liabilities at U.S. exchanges are capped in most instances. Nasdaq's cap is $3 million and the plan filed with the SEC is meant to increase that in this specific instance. But a customer could possibly sue in the case of gross negligence.


The Facebook market debut troubles have largely overshadowed other aspects of Nasdaq's diversified business.

Profits at the New York-based exchange operator rose on the back of cost controls and growth in the exchange operator's market data business, helping offset sluggish trading volumes.

Shares of the company were up 4.9 percent at $22.89 in Wednesday morning trade.

Nasdaq, which runs U.S. and Nordic markets, earned $93 million, or 53 cents per share in the second quarter, up from $92 million, or 51 cents per share, a year earlier.

Excluding one-time items, including impairment and restructuring charges, it earned 64 cents a share, compared with 62 cents in the year-ago quarter.

Analysts on average expected the New York-based company to earn 60 cents per share, excluding items, according to Thomson Reuters I/B/E/S.

Net revenue at the New York-based company was $424 million, versus $415 million a year earlier. Analysts had expected $407.2 million.

The company's global market data products had an 8 percent uptick in revenue to $90 million.

U.S. cash equity trading revenue fell to $373 million from $387 million.

Operating expenses were $249 million, compared with $257 million in the second quarter of 2011.