Nasdaq howler can’t explain Facebook flop for long

May 21, 2012

By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Nasdaq OMX is rightly coming in for a bashing after a systems howler on its U.S. exchange left Facebook’s stock trading in the dark for much of its public market debut on Friday. Chief Executive Bob Greifeld has already fessed up that the stock exchange was at fault. But the blunder has a limited shelf life as an explanation for Facebook’s IPO flop.

The software snafu dinged confidence in the deal last week. It wasn’t just that Nasdaq postponed printing the first trade for almost half an hour – that in itself briefly sent the stock down to its original $38 offer price after initially opening at $42 a share. But the exchange’s systems then failed to confirm trades or cancellations until almost 2 p.m. (1800 GMT), leaving underwriters and investors in the third-largest debut in American history resorting to pad and paper.

Once Nasdaq’s computers got back up to speed, many buyers and sellers found the trades they thought they’d placed didn’t match up with the shares on their books. Knight Capital, for example, one of the largest market makers in U.S. stocks, discovered the net short position it assumed it had built was in fact a larger net long position, as chief executive Thomas Joyce told CNBC. He dubbed the fiasco “the worst performance by an exchange on an IPO, ever.”

All of this leaves Nasdaq on the hook financially – Joyce reckoned $100 million would not be a stretch. And the after-effects were still being felt on Monday as the exchange tried to clean up the mess. It’s hard to imagine Greifeld won’t make heads roll around Nasdaq headquarters. But a technology glitch, even one as painfully embarrassing as this, shouldn’t keep a good, or bad, story down for long.

Facebook already looked expensive at $38 a share – a March Breakingviews analysis suggested anything above $28 a share was a stretch. With the stock now a tenth below its actual offering price, the Facebook IPO officially qualifies as a bona-fide flop. Nasdaq may have helped make it so – but Facebook’s worth will soon stand, or fall, on its own.

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