Nasdaq’s might has made it cocky: analysts

Silence, lack of contrition for Facebook foul par for the course

NEW YORK – It’s crisis communications 101 for Corporate America: when a company bungles an event as big as the Facebook IPO, alienates customers and spawns lawsuits and regulatory inquiries, the CEO apologizes and agrees to provide compensation to make things right. Everyone can then move on.

Not so at Nasdaq OMX Group, where technology glitches and a communications breakdown marred Facebook’s $16-billion initial public offering on May 18.

Since then, the exchange has done little to conciliate market clients — a number of which lost tens of millions of dollars each because of the trading problems. There has been no outright apology. And as angry as some customers may be, experts say they have little alternative but to keep trading on the exchange.

And they have. Nasdaq’s trading volume this week is above the monthly average, and its share price is nearly unchanged two weeks after the trading glitch.

Nasdaq, one of only two U.S. exchanges on which companies can list shares, is home to a raft of heavily traded technology names such as Apple and Google, and has challenged the New York Stock Exchange for marquee listings.

Primary and secondary offerings on Nasdaq have raised $22.2 billion in capital so far this year, almost triple the amount this time last year, according to Niamh Alexander, analyst of Keefe, Bruyette & Woods. The New York Stock Exchange has raised $16.1 billion in equity capital year-todate, more than 50 per cent less than a year earlier.

Nasdaq’s strong position is giving confidence to investors and analysts.

“We expect this to blow over with time,” said Chris Allen, an analyst at Evercore Partners, in a note to clients.

Many of Nasdaq’s customers sing a different tune, however. During the first day of Facebook trading, technical glitches left the market makers — who facilitate trades for brokers and are crucial to the smooth operation of stock trading — in the dark for hours as to which trades had gone through.

The result was up to $115 million in losses for the Nasdaq’s top four market makers alone. Two senior executives in the financial industry have said they expect Nasdaq member claims to total $150 million to $200 million.

Nasdaq’s response amounted to a members-only call with one of its executive vice-presidents, a statement that the exchange would set aside a pool of $13.7 million to accommodate losses, and a brief mention of Facebook during the company’s shareholders meeting. CEO Robert Greifeld also hosted Nasdaq’s party at a technology conference this week in California.

A source close to the exchange said it is reaching out to affected clients. Yet some big clients are still unhappy.

“Communication has been about as good as it was on the day of the IPO — minimal,” said Mark Turner, head of trading at New York-based agency broker Instinet.

Nasdaq declined to comment for this article.

A lack of public communication is partly protective — lawsuits against Nasdaq by disgruntled investors are stacking up. But many people who deal with Nasdaq regularly, or are familiar with how it has handled its customer relationships, say even if there were no legal issues, the silence and lack of contrition expressed to market makers is par for the course.

“This is their modus operandi,” said independent trading and market structure consultant William Karsh. “They screw the wholesalers because they can. At the end of the day, the wholesalers have no choice but to use them — they are still a huge liquidity pool.”