The Wall Street regulator tonight handed Nasdaq, the technology stock exchange, a $10m (£6.6m) penalty – the largest ever imposed on an exchange – over the botched flotation of social network company Facebook.
The $100 billion listing last May, one of the biggest in US history, was dogged by disruptions to first day trading in the shares which quickly fell in value.
Fund managers attacked the decision, a week before the initial public offering (IPO), to increase the number of shares being sold by 25 per cent and to raise the price from a range between $28 and $35 to one between $34 and $38.
In a hugely critical filing of Nasdaq’s systems, the Securities and Exchange Commission (SEC) said “a series of ill-fated decisions” violated the rules during the IPO and secondary market trading of Facebook shares.
Nasdaq agreed to settle the SEC’s charges by paying the penalty. The SEC said that exchanges “have an obligation to ensure that their systems, processes, and contingency planning are robust and adequate to manage an IPO without disruption to the market”.
Problems with Nasdaq’s systems caused more than 30,000 Facebook orders to remain stuck in the exchange’s system for more than two hours when they should have been promptly executed or cancelled.
“This action against Nasdaq tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets,” said George Canellos, co-director of the SEC’s division of enforcement.
Daniel Hawke, chief of the SEC enforcement division’s market abuse unit, added: “Our focus in this investigation was on the design limitation in Nasdaq’s system and the exchange’s decision-making after that limitation came to light.
“Too often in today’s markets, systems disruptions are written off as mere technical ‘glitches’ when it’s the design of the systems and the response of exchange officials that cause us the most concern.”