From time to time, IPOs will suffer trading glitches, usually minor. In the case of the Facebook (NASDAQ:FB) IPO, however, the trading system broke down big-time. And that’s likely to be an expensive faux pas for Nasdaq (NASDAQ:NDAQ).
Actually, it’s still not clear what happened last Friday. Perhaps the last-minute cancellations overloaded Nasdaq’s computer systems and made it impossible to accurately match orders. The result was that many trades had delays of a couple hours.
Now, the four largest market makers — Knight Capital (NYSE:KCG), Citadel Securities, UBS (NYSE:UBS) and Citi’s (NYSE:C) Automated Trading Desk — say they’ve suffered losses of over $100 million. There have also been losses at various brokerages that distributed the IPO, such as Fidelity. It all adds up as a big problem for Nasdaq, which has reserved only $13 million for its exposure.
But the out-of-pocket costs may not be the biggest blow. Instead, Nasdaq is going to have a tougher time getting new listings. Consider that the NYSE (NYSE:NYX) has been making inroads in snagging tech deals, such as Yelp (NYSE:YELP) and LinkedIn (NYSE:LNKD). This trend is now likely to accelerate as tech companies are likely to see the NYSE as a more stable exchange.
Since Friday, the shares of Nasdaq are only off by 3.6%. But in light of the Facebook fiasco’s potential fallout — which is likely to mean offering lower fees to new issuers — NDAQ could see more pressure going forward.
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.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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