Dissecting Nasdaq’s Botched Facebook IPO

The WSJ has revealed some key points in the breakdown

   

Today’s Wall Street Journal has an excellent piece on Nasdaq’s (NASDAQ:NDAQ) handling of the Facebook (NASDAQ:FB) IPO. While things remain a bit sketchy, the article has pointed out some key blunders.

While Nasdaq engaged in many simulations of the Facebook IPO, they looked to be flawed. For example, they assumed mostly large jumps in the stock price and much lower volumes. All in all, it did not appear that Nasdaq accounted for worst-case scenarios, especially for the possibility of a surge in cancellations at the time of the offering. Perhaps the exchange was also buying into the hype of the deal as well?

NasdaqOMX185 Dissecting Nasdaq’s Botched Facebook IPO
Beware the Stocks Behind the Exchanges

Another troubling part of the IPO was Nasdaq’s CEO, Robert Greifeld. He was in Silicon Valley at the time offering and handled the initial troubles. Yet, somehow, he didn’t realize the severity of the problems with trade confirmations. So, Greifeld took a noon flight back to New York. Unfortunately, he didn’t have access to the Internet, and his phone didn’t work while he was in transit!

Of course, during this very time, Nasdaq was embroiled in chaos. Even worse, the exchange was providing little useful information to its market makers. Oh, and when Mary Schapiro, the head of the Securities & Exchange Commission, made a call to Greifeld, she got no answer.

What was supposed to be a marquee achievement for Nasdaq turned into the worst IPO in history. Now it looks like the losses may be over $500 million. Nasdaq is setting aside $40 million for compensation, which is mostly in trading discounts. From a legal standout, Nasdaq will likely be shielded from liability. But it probably doesn’t matter. In the end, Nasdaq has taken a big hit to its brand.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.


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