U.S. regulators approved Nasdaq OMX Group's $62 million compensation plan for firms that lost money in Facebook Inc's glitch-ridden market debut in May, signaling a victory for exchanges Potentially facing liability for technical foul-ups.
Nasdaq said in a note to traders on Monday morning that the U.S. Securities and Exchange Commission approved the plan, and that firms harmed in Facebook's initial public offering had one week to submit requests for compensation.
Retail market makers, including units of UBS AG, Citigroup Inc, Knight Capital Group and Citadel LLC, said they collectively lost upward of $500 million due to the problematic May 18 IPO.
Some market makers were seeking full compensation.
At stake was the extent to which U.S. stock exchanges, which match hundreds of billions of dollars of transactions daily, can be held liable for technical glitches in an environment dominated by lightening-fast automated trading.
"The SEC passed on making any specific comments about exchange liability other than just to approve Nasdaq's plan," said Rich Repetto, an analyst at Sandler O'Neill.
It is not clear if any market makers will take legal action to try to recover their full losses.
Nasdaq's liabilities for problems that occur when fulfilling its regulatory duties - in this case, handling an IPO - are capped at $3 million a month. Nasdaq has emphasized that it is not obligated to compensate firms for their losses, and that its plan is voluntary. It has given strict guidance on which types of orders will qualify to be reimbursed.
UBS, which said it lost more that $350 million when the lack of timely order confirmations by Nasdaq caused UBS's internal systems to re-enter orders multiple times, wrote a letter to the SEC in August asking it to disapprove the plan, threatening legal actions to recover the losses if necessary.
Citi also asked the SEC to kill the plan, arguing in a letter that Nasdaq "was acting exclusively as a for-profit business, and not as a market regulator, when it made the grossly negligent business decisions that caused market participants hundreds of millions of dollars of losses."
Citi declined to say on Monday if it would take further action to be compensated. UBS did not have an immediate comment.
Nasdaq spokesman Joe Christinat said now that the SEC has approved the plan, the Financial Industry Regulatory Authority can promptly begin processing claims for restitution.
According to the plan, firms that sign on agree not to take legal actions against Nasdaq over the IPO.
Knight, which in August had its own technical glitch that cost it $461 million and nearly bankrupted the company, said in a letter that month to the SEC it supported Nasdaq's efforts but that the condition of having to waive the right to sue would "set a harmful precedent."
Knight had no comment on Monday.
Shares of Nasdaq, which has completed 50 IPOs since the Facebook IPO, were down 0.2 percent at $32.31 on Monday morning.