Business World

Tuesday 21 November 2017

NASDAQ to escape any fallout from Facebook float debacle

Nina Mehta

The Nasdaq Stock Market can escape legal fallout from its role in the debacle over Facebook's stock market flotation.

The IPO left some investors up in arms, with confusion over who owned shares and when, but the exchange can rely on specific legal protections afforded exchange operators.

The technology company-focused Nasdaq is the second biggest stock market in the US.

Its status as a self-regulatory organisation means it will probably be spared liability for technology breakdowns and bad decisions in the May 18 initial public offering, said Neal Wolkoff, a lawyer.

Despite that, parent company of the exchange, Nasdaq OMX Group, has proposed setting aside $40m (€32m) to compensate firms after delayed orders and confirmations left brokers and fund managers unsure of how many shares they owned in the $16bn sale.

"Rules that are specific to the unique regulatory roles played by exchanges may well insulate Nasdaq from significant damages," said Mr Wolkoff.

'Immunity'

The safeguards will withstand arguments that "Nasdaq acted primarily in its corporate interests, or that a for-profit exchange does not deserve the protection of the absolute immunity doctrine that arose when exchanges were not-for-profit, membership-owned organisations", he said.

At least one investor has sued Nasdaq and brokers Knight Capital Group Inc and UBS AG said they are considering lawsuits.

Industry losses tied to delays and in confirmation of trades in the IPO may be close to $200m, Knight chief executive officer Thomas Joyce said recently.

Phillip Goldberg, an investor in Maryland, said in a lawsuit filed in Manhattan federal court that Nasdaq OMX "badly mishandled" orders placed through an online Charles Schwab Corp account.

Robert Madden, a spokesman for Nasdaq OMX, declined to comment, as did Christiaan Brakman, a spokesman for UBS, and Kara Fitzsimmons of Knight.

"The reason for immunity is you don't want a regulator to be worried about getting sued when they make decisions," said Thomas Hazen, a professor at the University of North Carolina at Chapel Hill's School of Law. (Bloomberg)

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