Is Nasdaq Lying About What It Knew On FaceBook IPO Day?

Tyler Durden's picture

Any investor who can get shares of the Facebook IPO should purchase as many shares as possible, Jim Cramer said on CNBC’s “Mad Money.”

 

                 -Mad Money, CNBC

 

Minutes ago we reported that as the WSJ broke an hour ago, the Nasdaq has pronounced a retroactive mea culpa, claiming that had it known back then what it knows now, namely the plethora of technical glitches plaguing its systems, that it would have simply called the whose FaceBook IPO off. Yet we wonder: is the NASDAQ lying? The reason why we are suspicious that the exchange knew all too well just how badly it was overloaded, is the following stunning report from, who else, Nanex, which shows that for a period of 17 seconds, just around the time the FaceBook IPO launched for trade, all "quotes and trades from reporting exchange NASDAQ for all NYSE, AMEX, ARCA and Nasdaq listed stocks completely stopped." In other words: full radio silence. Or, as Nanex wonders, did "Nasdaq panic and reboot major systems to gain control over High Frequency Trading, just before the FB open of trading?" If so, not only was Nasdaq fully aware of the fully technical glitchiness of its systems, but it may well have precipitated even more confusion and more trading errors, resulting in the two hour trade confirm delays first reported on Zero Hedge, all in a mad dash and epic scramble to avoid reputational and monetary damage at the expense of investors.

From Nanex:

Nanex ~ 22-May-2012 ~ Nasdaq Radio Silence

On May 18, 2012 beginning at 11:29:52 and continuing for almost 17 seconds until 11:30:09, quotes and trades from reporting exchange Nasdaq for all NYSE, AMEX, ARCA, and Nasdaq listed stocks completely stopped. In exchange-speak, 17 seconds is 17,000,000 microseconds - an eternity by HFT standards. It's amazing no one noticed.

This was immediately before Facebook began trading.

The charts below show traffic rates for quotes and trades by reporting exchange for all listed stocks in the U.S. carried on the CQS, CTA, UQDF and  UTDF. CQS carries quote traffic and CTA carries trade reports for NYSE, AMEX, and ARCA listed stocks. UQDF carries quote traffic and UTDF carries trade reports for all Nasdaq listed stocks. Facebook (and Apple) quotes would have been carried on UQDF, and trades on UTDF.

Chart 1. CQS (100 ms) showing quote rate from reporting exchange Nasdaq only.

Note how often Nasdaq sends 100,000 quotes per second. Going to zero for even 1 second during trading hours would indicate a problem.

e Nasdaq only.

Chart 3. CQS (100 ms) showing quote rate from all reporting exchanges.

Chart 4. UQDF (100 ms) showing quote rate from all reporting exchanges.

Chart 5. CQS (25 ms) showing quote rate from reporting exchange Nasdaq only. (Zoom of Chart 1)

Chart 6. UQDF (25 ms) showing quote rate from reporting exchange Nasdaq only. (Zoom of Chart 2)

Chart 7. CTA (100 ms) showing trade rate from reporting exchange Nasdaq only.

Chart 8. UTDF (100 ms) showing trade rate from reporting exchange Nasdaq only.

 

The question: did Nasdaq, in its scramble for bragging rights, and of course, exchange fees, rush out and stumble in order to get Facebook out of the gate as soon as possible, without regard for a properly functioning post-IPO market, just to avoid the reptuational (and monetary) damage associated with pulling a "market conditions?"

We don't know - but we are 100% certain that many lawyers will be asking just that question in the days and weeks to come.