Nasdaq paying $10M to settle Facebook disruption

In this May 18, 2012, file photo, provided by Facebook, Facebook founder, Chairman and CEO Mark Zuckerberg, center, rings the opening bell of the Nasdaq stock market, from Facebook headquarters in Menlo Park, Calif. Amid the hype and excitement surrounding Facebook’s initial public offering, there were looming doubts. Potential investors wondered whether the social network could continue growing its advertising revenue without alienating users. One year later, much has changed at Facebook in a year, including the addition of mobile advertisements, the launch of a search feature and the unveiling of a branded smartphone. (AP FILE PHOTO/Nasdaq via Facebook, Zef Nikolla

WASHINGTON — Nasdaq has agreed to pay a $10 million penalty to settle federal civil charges after U.S. regulators said its systems and decisions disrupted Facebook’s public stock offering last year.

The Securities and Exchange Commission said Wednesday that the penalty is the largest ever imposed against an exchange. Nasdaq also has had to pay $62 million in reimbursements to investment firms that lost money because of the problems.

Facebook made its initial public offering on May 18, 2012 amid great fanfare, and it was one of the largest in history. The social network was valued at more than $100 billion when it went public. But computer glitches at Nasdaq delayed the start of trading and threw the launch into chaos. The technical problems kept many investors from buying shares that morning, selling them later in the day or even knowing whether their orders went through. Some said they were left holding shares they didn’t want.

The SEC said a design flaw in Nasdaq’s systems was to blame and Nasdaq officials made a series of “ill-fated decisions.” The SEC said Nasdaq officials believed they had fixed the design flaw by removing a few lines of computer code and chose not to delay the start of trading in Facebook. But they failed to understand the root cause of the problem, the SEC said.

Nasdaq neither admitted nor denied wrongdoing.

Robert Greifeld, the CEO of the exchange’s parent, Nasdaq OMX Group Inc., called the settlement an “important step forward.”

In a letter to customers made public Wednesday, Greifeld said Nasdaq has put new technical safeguards in place. The exchange has taken steps such as creating new executive positions within its technology division and setting up teams to monitor and test trading systems, Greifeld said.

Nasdaq violated market rules by being poorly prepared for the launch, the SEC said. Exchanges have an obligation to ensure that their systems and contingency plans are strong enough to manage an IPO without disrupting the market.

The $10 million penalty had been expected. Nasdaq said last month that it might have to pay that amount to resolve the matter with regulators.

In its administrative order issued Wednesday, the SEC also censured Nasdaq. Censure brings the possibility of a stiffer sanction if the alleged violation is repeated.

On Wednesday, Facebook shares fell 78 cents, or 3.2 percent, to close at $23.32.