Swiss banking giant UBS AG (UBS) is said to have lost up to $350 million when Facebook, Inc. (FB) went public due to the technical glitches on the Nasdaq, and is now priming to take legal action against the stock exchange.
UBS incurred the trading loss during Facebook's initial public offering on May 18 amid the widespread chaos on the Nasdaq when UBS failed to receive order confirmations for its Facebook trades.
UBS is said to have placed an order for one million shares of Facebook. However, the company resubmitted the order multiple times when it failed to receive confirmation of the order. This saw multiple orders getting logged in, leading to a higher-than-expected volume of stock being purchased.
The technical glitches at the Nasdaq stock exchange that marred the blockbuster offering saw the first trade of the social network getting postponed by 30 minutes, and also leaving investors with improperly processed orders.
Nasdaq confirmed that matching up the buy and sell orders to arrive at the price for the first trade took five milliseconds instead of the normal three milliseconds. Amid this delay, the exchange's systems were flooded with messages to adjust orders or cancel trades.
Many of the clients who invested in Facebook on its debut suffered huge losses as the share fell in the following days. The stock is down nearly 29 percent from its May 18 listing price. The company, the exchange and the underwriters are now facing lawsuits and regulatory reviews.
While Nasdaq has taken the service of IBM Corp. (IBM) to review its operating systems and fix the trading issues, the exchange has set aside a $40 million fund to compensate traders for the technical glitches. The compensation amount is seen as inadequate as about 30 million shares worth of trading were reportedly affected by this glitch.
Facebook chose the Nasdaq for listing instead of the New York Stock Exchange, as Nasdaq was a fully electronic exchange, while the NYSE has the hybrid model that uses both floor and electronic methods. While the NYSE has more global recognition, it is more expensive compared to Nasdaq.
Facebook's IPO, the largest ever for an Internet company, at $38 per share, raised $16 billion, giving the Menlo Park, California-based firm a market valuation of $104 billion, higher than that of Yahoo, Dell, Cisco, Visa, Amazon.com and HP.
The IPO flop and doubts about the firm's revenue model have hurt its stock price. The stock opened at $42.05 on May 18, about 11 percent higher than the listing price of $38, and moved in a range of $38.00 to $45.00 before closing at $38.23.
UBS closed Friday's regular trading session at $11.71, down $0.06 or 0.51% on a volume of 3.59 million shares, while FB closed at $27.10, up $0.79 or 3.00% on a volume of 38.03 million shares.
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