June 11, 2012
Am I the Only One Who Feels A Little Sorry for Nasdaq?
Posted by Usha Rodrigues

One of today's WSJ headlines reads "Nasdaq CEO Lost Touch Amid Facebook Chaos," referring to Robert Greifeld's being on a flight from California to New York from 12:14-5:07 without phone or internet service on the afternoon of the Facebook IPO.  What follows is a tick-tock description of  that day, culminating in SEC Chairman Mary's Schapiro's call to Greifeld to ask for explanations on the offering.  She was "surprised" at not being able to get ahold of him.  (She called at 4:03, and he called her back at about 6.) 

Am I the only one who thinks the fuss over Nasdaq's trading glitches is overblown?  I mean, don't get me wrong, mistakes were made.  Nasdaq tested its system with 53 million shares trading, and apparently 70 million shares traded in the opening, "about a third more than the exchange had run in its test."  Order confirmations were delayed, and released problematically:

At 1:50 p.m., Nasdaq released long-delayed confirmations of earlier trades into the market. Some brokerage firms would later complain that a wave of sell orders on Nasdaq made it look as if investors suddenly were turning against Facebook. About 12 million Facebook shares changed hands around 1:50 p.m., and the stock price fell about $2 in minutes.

It's bad that people couldn't complete trades when they wanted to, especially as it became clear the anticipated IPO pop was not going to happen.  I know that people lost money on these sales, and Nasdaq will spend $40 million compensating them, as it should. Still, it seems like Nasdaq is getting a bum rap on this one.

To me the deeper problem with the IPO was that it was fundamentally mispriced, and that Morgan Stanley let Facebook investors flood the market by upping the IPO size at the last minute.  It was "the wave of sell orders" that made it seem like the market was turning against Facebook--the problem was that the price was too high to start with.  Sure, Nasdaq's technology snafus didn't help matters, but  Facebook is trading down more than $10 from its IPO price. The company sold too much at at too high a price.

So what if Nasdaq's CEO was up in the clouds when the sale went down?  He can't repeal the law of supply and demand.  And if your trading strategy is based on being able to trade into and out of stocks fast--well, live by the sword...

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