Nasdaq offers $40m compensation for Facebook confusion

The Nasdaq stock exchange in New York is to pay $40m compensation for technical problems that caused confusion on Facebook's first day of share trading.  

The stock exchange plans to pay $14m to its affected member firms, with the balance to be credited to members to reduce their trading costs over the next six months, according to the Guardian.

UBS, Citigroup, Knight Capital and Citadel Securities collectively lost more than $115m due to technical problems that prevented them from knowing if their Facebook share orders had gone through for about two hours after trading started on 18 May.

Knight Capital has slated the compensation as "paltry" and hinted it might take legal action, according to the Los Angeles Times.

However, the planned compensation has caused concern at other exchanges. Nasdaq rivals fear that the plan will force brokers to trade at Nasdaq, thereby taking market share from them. They say the plan is inconsistent with the Exchange Act, discriminatory and unfair.

The operator of rival New York Stock Exchange has vowed to fight the Nasdaq plan, saying it could unfairly siphon away business.

Nasdaq's plan for the $40m "voluntary accommodations fund", which would include $13.7m in cash, with the rest coming from trading discounts, is subject to regulatory approval.

Since the opening of trade, Facebook's share price has been down on eight trading days and up on five, dipping as low as $25.52 at one point.

Facebook shares closed at $26.81 on Wednesday (6 June), down 29% from their float price of $38.