Brokers that have been seeking compensation from the losses that were incurred from Facebook’s IPO on the Nasdaq will have two choices now. Either they will have to accept an amount offered by the Nasdaq exchange or challenge them in an uphill court battle.
Firms that want a slice of the $62 million compensation package will have to waive their right to sue Nasdaq over the Facebook IPO according to regulatory documents. Nasdaq had altered their proposed payback plan as of this Friday from an initial $40 million amount that was discussed in June. Federal regulators will need to approve the proposal.
Knight Capital Group is one of the brokers that is seeking compensation over the Facebook IPO. Knight reported a $35.4 million loss related to trading in the shares that day. Citadel LLC reported a similar hit and Citigroup reported a loss of $20 million. UBS AG saw a $350 million loss.
“If exchanges could be called upon to bear all costs associated with system malfunctions and the varying reactions of market participants taken in their wake, the potential would exist for a single catastrophic event to bankrupt one or multiple exchanges, with attendant consequences for investor confidence and macroeconomic stability,” stated Nasdaq officials as quoted by the Wall Street Journal. “Alternatively, the cost of providing exchange services would have to rise dramatically for all investors to cover this material and new risk,”