Citi says Nasdaq Facebook compensation plan should be much bigger

Citigroup slammed Nasdaq OMX Group’s plan to compensate firms harmed by Facebook’s botched market debut to the tune of US$62 million, saying in a regulatory filing that the exchange should be liable for hundreds of millions more, according to a letter seen by Reuters.

Citi said Nasdaq’s actions in the May 18 initial public offering amounted to “gross negligence,” according to the people, who asked to remain anonymous because of the sensitivity of the 12-page letter to the U.S. Securities and Exchange Commission, which had not yet been made public.

Citi’s market-making arm, Automated Trading Desk, lost around US$20 million in the May 18 IPO, a source told Reuters in May. That is just a sliver of the upwards of US$500 million that market-making firms - which facilitate trades, backing them with their own capital - and brokers lost in the US$16 billion IPO.

Liabilities at US exchanges, which have some regulatory duties, are capped in most instances. Nasdaq’s cap in most instances is US$3 million a month.

But the New York-based exchange should be fully liable for all of the IPO losses, Citi argued, because it was operating in the capacity of a for-profit company during the IPO, and as such it should not have regulatory immunity.

“Nasdaq cannot cloak its actions in immunity because it was acting exclusively as a for-profit business, and not as a market regulator, when it made the grossly negligent business decisions that caused market participants hundreds of millions of dollars of losses,” Citgroup said in the letter.