The SEC has issued a rule-making notice which effectively buys the commission more time to examine Nasdaq’s OMX $62 million plan to compensate brokers who incurred losses in the wake of the exchange operators mishandling of Facebook’s IPO.
The commission is taking a second look at the Nasdaq plan in light of what it terms as “legal and policy issues.”
Under the SEC release, No. 34-68115, a decision on the NASDAQ plan could be delayed by as much as 240 days, spokesman Florence Harmon says.
The formal review, launched with its October 26 posting of its notice, could last 180 days, until January 28, 2013, Harmon said.
The commission could extend its review another 60 days, until March 29, 2013.
The SEC is seeking more feedback on the plan, she indicated. Only about a dozen responses were received in August, when the Nasdaq plan was first put up for comment.
According to a Nasdaq filing with the SEC, glitches in Nasdaq’s IPO Cross system failed to work properly on May 18, when it tried to process orders for the first shares in Facebook, the social networking giant, being offered to public investors.
Glitches delayed the dissemination of IPO Cross transaction reports for over two hours.
Due to problems with the Cross itself, the opening trade was delayed from 11:05 a.m. to 11:30 a.m.
Nasdaq fixed the initial problems, the stock opened at $42 and continuous trading began.
But not all eligible orders had participated in the cross and confirmations on orders did not go out until 1:50 p.m.
From the public comments received so far, the SEC finds itself responding to concerns on the limited types of claims Nasdaq is declaring eligible for compensation, as well as the method of determining losses for certain categories of eligible claims. Under the Nasdaq proposal, the exchange would also be immune from private suits and limitations on liability.
The SEC is specifically focused on whether NASDAQ’s proposal would promote” just and equitable principles of trade, protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.”
Nasdaq had no comment at this time on the SEC review, spokesman Wayne Lee said.
The Nasdaq plan accommodates four kinds of orders that were placed during the IPO Cross:
1. Sells priced at $42 or less that did not execute
2. Sells priced at $42 or less that executed at an inferior price
3. Buys priced at $42 that were executed in the cross but not immediately confirmed
4. Buys priced above $42 that were executed in the cross but not immediately confirmed and were attempted to be cancelled.
In calculating trading losses, the loss will be the lesser of
1. The difference between the expected execution price in the cross at opening of $42 and the actual execution price received; or
2. The difference between the expected execution price in the cross at opening of $42 and a benchmark price of $40.527 (the volume-weighted average price of Facebook stock on May 18, 2012, between 1:50 pm and 2:35 pm).
3. All claims under category 4 above will be reduced by 30 percent.
