The Securities and Exchange Commission charged the Nasdaq with violating securities laws during the May 2012 IPO of Facebook, hitting it with a $10 million fine, the largest charged to an exchange.
Facebook, the No. 1 social networking site that went public a year ago, was plagued with trading errors and problems at the start. Initial trading was delayed and even once trading began, buyers faced long delays finding out if their orders went through and at what price. More than 30,000 Facebook orders were stuck in the Nasdaq system for more than two hours, when they should have been canceled, the SEC says.
According to the SEC's order against Nasdaq, leaders of the exchange made a series of poor decisions regarding the Facebook IPO and relied on systems that weren't appropriate to handle the anticipated trading volume.
A problem in the design of Nasdaq's systems, and the way it pairs up IPO buy and sell orders, was at the root of the issue, the SEC says. Several members of the Nasdaq leadership team chose to not delay the start of the trading in Facebook because they thought the problem could be fixed by making slight changes to the system's programming. But the problems were deeper, the SEC says, and failure to understand that is a violation of the SEC rules including those governing price and time of order executions.
"This action against NASDAQ tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets," says George Canellos, Co-Director of the SEC's Division of Enforcement.