SEC Charges NASDAQ for Failures During Facebook IPO

May 29, 2013

The SEC charged NASDAQ with securities law violations resulting from its poor systems and decision-making during the initial public offering (IPO) and secondary market trading of Facebook shares. NASDAQ agreed to pay a $10 million penalty to settle the charges, which is the largest ever against an exchange. Under the securities laws, exchanges are obligated to ensure that their systems, processes, and contingency planning are robust and adequate to manage an IPO without disruption to the market.  Despite anticipation that the Facebook IPO would be among the largest in history, a design limitation in NASDAQ’s system to match IPO buy and sell orders caused disruptions in the Facebook IPO. According to the order, members of NASDAQ’s senior leadership team decided not to delay the start of secondary market trading in Facebook with the expectation that they had fixed the system limitation by removing a few lines of computer code. NASDAQ’s decision to initiate trading before fully understanding the problem caused violations of several rules, including NASDAQ’s fundamental rule governing the price/time priority for executing trade orders. The problem caused more than 30,000 Facebook orders to remain stuck in NASDAQ’s system for more than two hours when they should have been promptly executed or cancelled. The SEC’s order finds that NASDAQ violated Section 19(g)(1) of the Securities Exchange Act of 1934, among other regulations, by not complying with several of its own rules.
Click here to access the press release and a link to the order.


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