Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, March 25, 2013

SEC Approves Nasdaq Proposal to Provide $62 Million of Compensation Related to Facebook IPO Claims

By Matthew Garza, J.D.

The SEC has approved a proposal from the NASDAQ stock market that would compensate market participants up to $62 million for claims related to system difficulties in the Nasdaq Halt and Imbalance Cross process (Cross) that occurred during the Facebook IPO on May 18, 2012 (Release No. 34-69216, March 22, 2013). The amendment to Nasdaq Rule 4626(b) allows for Nasdaq to compensate users of the Nasdaq Market Center for losses directly resulting from failure of the system to correctly process orders. The amendment was necessary because the rule currently limits payments made by all claims made by market participants to $500,000 or the amount of the recovery obtained by Nasdaq under its insurance policy.

The SEC said existing rules state that Nasdaq and its affiliates are not liable for any losses arising out of use of the Nasdaq Market Center. "While the accommodation proposal is not designed to, and would not, compensate all claims of loss suffered by market participants relating to Nasdaq’s system difficulties with the Cross, the Commission notes that the accommodation proposal would create a means of providing significantly more compensation for eligible claims, outside of litigation, than would otherwise be available under existing Nasdaq Rule 4626(b)."

Limits to claims. According to the SEC release, the Nasdaq proposal limits claims for compensation from realized or unrealized direct trading losses to four categories of Cross orders: (1) sell Cross orders that were submitted between 11:11 a.m. ET and 11:30 a.m. ET on May 18, 2012, that were priced at $42.00 or less, and that did not execute; (2) sell Cross orders that were submitted between 11:11 a.m. ET and 11:30 a.m. ET on May 18, 2012, that were priced at $42.00 or less, and that executed at a price below $42.00; (2) buy Cross orders priced at exactly $42.00 and that were executed in the Cross, but not immediately confirmed; and (4) buy Cross orders priced above $42.00 and that were executed in the Cross, but not immediately confirmed, but only to the extent entered with respect to a customer that was permitted by the member to cancel its order prior to 1:50 p.m. and for which a request to cancel the order was submitted to Nasdaq by the member, also prior to 1:50 p.m.

Commenters. The SEC said it received seventeen comment letters on the accommodation proposal that raised several concerns. One concern was about the requirement that participants release all other claims as a condition to participation. The SEC said Nasdaq responded to this concern by arguing that the release requirement was fair and reasonable, and this requirement is routine in the context of a payment made to settle a disputed claim. Members who wish to forgo participation in the program and pursue individual claims are free to do so, but removing the release requirement would "subsidize the costs of future litigation against itself," according to Nasdaq.

Other concerns raised by commenters included calculation of the benchmark price of $40.527, the categories of losses eligible for claims, the total amount of the accommodation pool, regulatory immunity from private suits and limitations on liability, and the impact of approval of the accommodation proposal on pending litigation.

Claims deadline. Claims must be submitted in writing by Friday, March 29, 2013, seven days after the date the SEC approved the accommodation order. In order to receive payment under Nasdaq Rule 4626(b)(3), the member must submit to Nasdaq an attestation detailing the amount of customer compensation and covered proprietary losses not later than seven days after the effective date of the proposed rule change setting forth the amount of eligible claims. FINRA will analyze the submitted claims and provide an analysis of the total value of eligible claims to the Nasdaq board of directors and the board of directors of NASDAQ OMX Group, Inc., and Nasdaq will then submit to the SEC another proposal containing the amount of eligible claims and payment amounts. After that proposed rule change becomes final and effective, all payments will be made in cash.

Companies: Facebook, Inc.; NASDAQ OMX Group, Inc.

MainStory: TopStory BrokerDealers ExchangesMarketRegulation SecuritiesOfferings

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.