Shock and Schadenfreude: Tech Woes Plague Exchanges

If there's ever been a poisoned chalice for nearly everyone involved, it's been Facebook's initial public offering (IPO). From a technical glitch at the beginning of trading, its artificial stimulation by underwriters, through to its freefall curve since then, it seems that the only people benefiting from it have been, well, who?

Certainly not Nasdaq OMX, which suffered a scathingly hot cauldron of scorn being dumped on it at Sandler O'Neill's brokerage and exchange conference in New York yesterday. It's funny how quickly things can turn, starting with the ill-disguised Schadenfreude from some industry figures at the technology hiccup and the inevitable look toward Nasdaq's contingency fund for quick cash, to the shock and anger as the exchange attempts to capitalize on the situation.

Indeed, many questions remain about Nasdaq's behavior during and after the botched IPO, from its initial silence over what happened, to the $10 million in phantom Facebook shares it reportedly held and profited on, to its plans to give discounts to affected participants on its markets far in excess of what other exchanges are offering. That isn't the problem, although exchanges would naturally be reticent to see the ballpark figure for compensation rise. It is what they see as the anti-competitive nature of it that raises such vociferous ire.

"'I think the scheme that was announced yesterday is illegal," said William OBrien, CEO at rival exchange Direct Edge, according to press reports. "It is also a shameless attempt to basically turn a big investor-confidence-eroding event into a competitive advantage." O'Brien added that he didn't believe that the US Securities and Exchange Commission (SEC) would approve the plan.

Tech Tantrums
It is hard to see how Nasdaq could have handled the situation worse than it did. But the exchange is not the only one that has managed to screw up of late, lest we forget Bats and its attempt to launch its own IPO on its own exchange. In the UK, Plus Markets continues its battle to wind down or sell to Icap, with news reports suggesting that a reasonable proportion of shareholders were unhappy with the nominal sale of Plus SX.

It's also a fairly remarkable situation. Nasdaq's technology is used all over the world in local markets, and they've been trumpeting the implementation of their platform in Nigeria and elsewhere of late with marked volume.

But Nasdaq’s situation is also a fairly remarkable one. The exchange’s technology is used all over the world in local markets, and it has been trumpeting the use of its platform in Nigeria and elsewhere of late with marked volume. To have such a high-profile IPO fail so spectacularly on a technical level should be embarrassing to any top-tier exchange, although Nasdaq's attempt to spin the situation and roll with the punches, coming up in a crisp suit and beaming smile, seems to have gotten many market participants’ backs up rather than assuaged their concerns. Most will be looking to see what the SEC does about this situation, and the SEC itself can't be relishing the prospect of having to rule against more money to affected parties in favor of maintaining a competitive industry.

Do you have thoughts on the recent tech problems at various stock exchanges? Feel free to let me know at james.rundle@incisivemedia.com.