By Sarah N. Lynch
WASHINGTON, Oct 29 (Reuters) - U.S. securities regulators
are taking a closer look at Nasdaq OMX's $62 million plan to
compensate brokers who suffered losses from the exchange
operator's botched handling of Facebook's initial public
The U.S. Securities and Exchange Commission said it was
instituting proceedings to more closely review the plan in light
of the "legal and policy issues raised" by other market players.
"The Commission believes that questions are raised as to
whether Nasdaq's accommodation 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,"
the SEC wrote in a notice posted online on Monday.
A Nasdaq spokesman declined to comment on the SEC's decision
to extend the timeframe for reviewing the proposal. However, on
the company's earnings call earlier this month, Nasdaq Chief
Executive Bob Greifeld said he anticipated such a move by the
"To the extent the SEC requires more time, then we would
agree to that, so I'm not here to predict what they may do, but
end of the year is a reasonable guess," Greifeld said at the
Market-makers like Knight Capital Group Inc, UBS AG,
Citigroup Inc, and others, say they collectively lost around
$500 million on May 18 when Facebook first debuted on public
markets. A technology issue delayed the IPO for 30 minutes and
in the interim, many orders were not included in the opening
That led to delays in many clients' orders being put through
and hours-long waits for confirmations.
Some orders were lost all together, while others were
entered repeatedly when market-makers did not receive the
electronic confirmations they expected. Those usually arrive
Nasdaq has since disclosed that the SEC's enforcement
division is investigating the series of events leading up to the
$16 billion IPO.
Nasdaq had originally drafted a $40 million compensation
plan for brokers who lost money, but later raised it to $62
million amid criticism that the amount was too low.
Since then, some market-makers and brokers have said they
would back the amended proposal. But other market participants
have continued to balk at the sum being offered.
The SEC's latest announcement that it will "institute
proceedings" to determine whether or not to approve or
disapprove Nasdaq's proposal is a new, procedural change created
by the 2010 Dodd-Frank financial reform law.
The law aimed to streamline the process for the commission
to review rule changes filed by exchanges, which act as
It requires the SEC to either approve, disapprove or
institute such proceedings for proposed rule changes no more
than 45 days after an exchange submits it for consideration.
If the SEC does not act within the 45 days, the rule
automatically gets approved. In this case, the deadline for the
SEC to act was Oct. 30.
Typically the SEC will institute proceedings to more closely
review rule changes if they are novel, complicated or somewhat
A decision to institute proceedings "does not indicate that
the Commission has reached any conclusions," the SEC said in its
The SEC will seek additional public comments to help it
reach a final decision on whether to accept Nasdaq's
compensation plan proposal.
The agency said among the main complaints it has already
received from commenters include concerns about the "limited
categories" of claims eligible for compensation, Nasdaq's method
for determining losses and a requirement for member firms to
waive all claims against the exchange operator for their losses.
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