UBS has revealed that it lost £227 million during the botched Facebook IPO and that it intends to take legal action against Nasdaq to recoup its financial losses.
The investment bank division of UBS reported losses of £85 million in its second quarter results, where it largely placed blame on Nasdaq’s “gross mishandling of Facebook’s market debut”.
The IPO was riddled with technical problems, which led to a delay of 30 minutes on share trades being processed. The problem stemmed from Nasdaq’s IPO Cross - a pre-IPO auction process that the exchange put in place in 2006 that allows traders to place orders and agree on an IPO price before the stock is officially launched - which couldn’t handle the trading demand.
This led to a number of brokerages suffering financial losses after losing out on half an hour of trading and not receiving up-to-date information.
UBS said to investors: “As a market maker in one of the largest IPOs in US history, we received significant orders from clients, including clients of our wealth management businesses. Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were not confirmed for several hours after the stock had commenced trading.”
“As a result of system protocols that we had designed to ensure our clients' orders were filled consistent with regulatory guidelines and our own standards, orders were entered multiple times before the necessary confirmations from NASDAQ were received and our systems were able to process them.”
Because of this Nasdaq filled all of the orders entered by UBS, exposing the bank to far more shares than its clients had ordered.
“UBS's loss resulted from NASDAQ's multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day. We will take appropriate legal action against NASDAQ to address its gross mishandling of the offering and its substantial failures to perform its duties,” the bank said.
“Although as in all such matters there can be no assurance as to the amount of any recovery we may obtain, we intend to pursue compensation for the full extent of our losses.”
Nasdaq originally revealed that it had earmarked $13.7 million (£8.8 million) for compensation, but later said that it would add to its $13.7 million compensation by offering brokerages reduced trading costs, to bring compensation fees up to $40 million.
However, these initial plans were not well received within the financial industry. Knight Capital, one of Wall Street’s largest trading firms that suffered losses during the IPO debacle, has blasted the compensation as paltry and has also hinted that it might also take legal action.
The boards of the Nasdaq OMX Group and the Nasdaq Stock Market are yet to unveil a full compensation plan for brokerages that suffered losses during the Facebook IPO glitch.
Sources recently revealed that it is planning compensation as high as $100 million (£64 million), more than the $40 million (£26 million) that was originally put forward by the exchange, but is still significantly short of the market losses.