"Retroactive Market Conditions": Nasdaq Says Would Have Called Off FaceBook IPO If It Knew Then What It Knows Now

Tyler Durden's picture


First of all, let's get one thing straight: if instead of about to breach a 20-handle, the Facebook stock price was in the $60, nobody would care about anything that happened in the past 3 days, everyone would be happy and delighted, and increasing the velocity of money with the comfort that some greater fool would be willing to pay even more for ridiculous overvalued ponzi, pardon, portfolio holdings. Alas, we are not there, and as a result, the fingerpointing phase has come and gone. Now come the lawsuits, because people, led to believe in huge short-term profits, are now faced to face with a grim sur-reality in which the tooth fairy was just exposed as the cookie monster. And the latest farcical development: Nasdaq finally pulling market conditions, but not just any market conditions - retroactive ones.

As the WSJ reports: "A senior Nasdaq Stock Market official told customers Tuesday afternoon that it would have pulled the plug on Facebook Inc.'s initial public offering had it known the full extent of the technical problems that plagued its systems. On a conference call with brokers after Tuesday's close, Eric Noll, head of transaction services, said the exchange "by no means would have gone forward" with the much-watched Facebook debut if it had known problems would disrupt a "normal trading day." "In retrospect, it was incorrect," Mr. Noll said of Nasdaq's interpretation of problems." At this point every plaintif's bar attorney eyes just lit up, because what Nasdaq just admitted was liability. And every single retail investor who has lost money, which would be everyone who has bought and held as the stock closed at a fresh all time (read 2.7 day) low, will now demand that had they known what the Nasdaq pretended not to know, but now knows, they would not have put that limit $43 buy order. In the meantime, the actual stock price of Facebook will flounder as the stock becomes a whipping boy if not for investors, then for attorneys everywhere.

More from the WSJ:

Nasdaq said it can't promise customers they will be compensated for losses due to its IPO system failures.


We don't ultimately know whether everyone will get a dollar on the dollar," Mr. Noll said, saying the ultimate payouts will depend on regulatory approval and sign-off from Nasdaq's own board.


The exchange operator has been in touch with Facebook since the IPO blunder last week, according to Mr. Noll, and those conversations were "ongoing," he told brokers on the conference call.


When asked why Nasdaq hadn't tested for the high levels of order cancellations that it said drove the technical problems with Facebook's IPO opening, Mr. Noll said on the conference call that exchange officials believed they had sought to address such potential issues.

We'll give the Nasdaq one thing though: unlike everyone else in this day and age, whose primary recourse is to scapegoat, and to deflect blame, Nasdaq refused to bash that one whipping boy for all things market structure (which Zero Hedge first warned about over 3 years ago): high frequency trading.

High-frequency trading firms, known for the heavy burden they place on exchange systems, played no role in Nasdaq's problems opening up Facebook's shares for trading Friday morning, Mr. Noll said on the conference call. Most such firms do their trading after stocks open on the broader U.S. markets, Mr. Noll told member firms, and there were no signs that any were active as Nasdaq struggled to match up buy and sell orders to form the opening trade in Facebook.

Sadly, something tells us that the final outcome of this debacle will be the end of the Nasdaq which will soon be BATS'ed out of existence, but not due to faulty algos originating on the NYSE or Sigma X, but because the firm will soon be sued to liquidation.

Which a world in which virtually no retail investors are left, is probably very much overdue.

* * *

Still why didn't Nasdaq, or Morgan Stanley, do pull a "market conditions" on Friday? Here is how we laid it out.

In retrospect, the current outcome will likely turn out even worse for investors' faith and sentiment in the farce known as the capital markets.

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Tue, 05/22/2012 - 18:08 | 2452991 CaptFufflePants
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How long before FB sues MS for irreparable harm to the company name after the failed IPO?

Tue, 05/22/2012 - 18:14 | 2453016 jekyll island
jekyll island's picture

This is from the CNBS website:  

“My best guess—and it’s just a guess at this point—is that losses similar to those claimed by that investor may total between $50 and $100 million,” said Rich Repetto, the well-known expert on trading and exchanges at Sandler O’Neill.

 Repetto, along with many other traders with first-hand or second hand experience, are among those that believe this alert could have inadvertently caused Monday’s run on the stock. The share price is still below Monday’s low.

The irony is that “the likelihood of (the investor) getting full restitution is very unlikely,” Repetto says.

The reason: Nasdaq’s liability for technical issues is limited to a mere $3 million per month. The exchange itself is pushing regulators to allow it to pay out $10 million more in this particular high-profile case.


Tue, 05/22/2012 - 18:17 | 2453030 jekyll island
Tue, 05/22/2012 - 18:27 | 2453052 The Big Ching-aso
The Big Ching-aso's picture



WTF.  It's like the entire market's rationally unexuberant & now the Greenspans of the world want us 2 go irrationally exuberant again.

Tue, 05/22/2012 - 18:27 | 2453065 Richard Chesler
Richard Chesler's picture

What's a market?

Tue, 05/22/2012 - 18:32 | 2453074 The Big Ching-aso
The Big Ching-aso's picture



I think it's where people meet 2 buy & sell goods & services 2 one another without getting incessantly ripped off.  Oops.

Tue, 05/22/2012 - 18:41 | 2453097 Caviar Emptor
Caviar Emptor's picture

See it's like this: this is the WS 'mea culpa' in exchange for the entire financial crisis, mortgage and securitization debacles, and generally running the country into the ground so that a bunch of guys could do hookers and blow for the next few years aboard their yachts floating on the Mediterranean. "Please blame us for this and make us look bad so that you all people can forget the big stuff we got away with. Let us have it for this one (which will amount to nothing)" It's like pleading guilty to a lesser charge and getting away with a suspended sentence. 

Tue, 05/22/2012 - 18:45 | 2453108 The Big Ching-aso
The Big Ching-aso's picture



".......so that a bunch of guys could do hookers and blow for the next few years aboard their yachts floating on the Mediterranean." 

Ok, so what you're saying is that this is all going to a good criminal cause then.

Tue, 05/22/2012 - 18:52 | 2453143 Caviar Emptor
Caviar Emptor's picture

Shit yeah. I want to make sure that I live in a country where winners get to do hookers and blow for life. Even if what they do hurts the country, it's worth it because it fulfills the pure free market wet dream: fooling all of the people all of time without even using any lube. 

Tue, 05/22/2012 - 18:56 | 2453148 The Big Ching-aso
The Big Ching-aso's picture



It's a beautiful phucking thing man when your illegal wet dreams come true.   What a country.

Tue, 05/22/2012 - 19:03 | 2453174 Caviar Emptor
Caviar Emptor's picture

Faace Boook 'ha been bery bery goood to me

Tue, 05/22/2012 - 19:34 | 2453185 The Big Ching-aso
The Big Ching-aso's picture



Ya hit that one outta the turd world park.

Tue, 05/22/2012 - 19:11 | 2453197 Global Hunter
Global Hunter's picture


"Gona get me a shotgun and shoot all the (fill in the blanks) that I see"

Wed, 05/23/2012 - 20:01 | 2457119 StychoKiller
StychoKiller's picture

My Gawd!  If  I'd only known that stawks could go down after I bought'em, I'd be hirin' me a herd o' liars.  Makes ya wonder just who

got the good prices while Morgan Stanley was proppin' up the FB tape...

Wed, 05/23/2012 - 20:03 | 2457123 StychoKiller
StychoKiller's picture

This is just like the idjuts that buy Windoze OS the minute they go on sale, expecting trouble-free operation -- it don't work that way on my planet! :>D

Tue, 05/22/2012 - 18:42 | 2453107 rocker
rocker's picture

What's a WSJ and who cares what they have to say.

Nothing to do or see about this FB circus.

Maybe the public will now see what we all already know.

The Hedge Funds, the HFTs and Trading Desk at your local bank made a fortune gumming up the system.

Tue, 05/22/2012 - 18:58 | 2453156 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Nothing but a new way to take away people's cash.

You guys will love this one:



Tue, 05/22/2012 - 20:05 | 2453378 Bobbyrib
Bobbyrib's picture

I'm not surprised.

Tue, 05/22/2012 - 19:00 | 2453161 The Big Ching-aso
The Big Ching-aso's picture



Well on the bright side, things aren't as bad as Japan with their 'Radioactive Market Conditions'.

Tue, 05/22/2012 - 18:34 | 2453087 Manthong
Manthong's picture

So how is it the COMEX in not in the same trick bag after the MF debacle?

Tue, 05/22/2012 - 18:54 | 2453145 Ident 7777 economy
Ident 7777 economy's picture




That's something we ALL want to know ...



Tue, 05/22/2012 - 18:46 | 2453122 ITrustMyGut
ITrustMyGut's picture

I actually believe this is purposful...

.. they are pushing the market towards "Irrationally unexuberant"

creative destruction! Like Greece being purposfully being thrown under the bus, then Gov chaos, to politically assume Greece...

http://www.thecrimson.com/article/2012/5/1/ten-questions-kissinger/    Note HK's response in the 2nd to last paragraph...

Tue, 05/22/2012 - 18:22 | 2453055 SHEEPFUKKER

Oh joy, here we go.  The land of the free and the home of the eternal lawsuits.  Can't wait, banksters litigating other banksters into oblivion. 

Tue, 05/22/2012 - 18:39 | 2453091 vast-dom
vast-dom's picture


Tue, 05/22/2012 - 20:43 | 2453489 PrinceDraxx
PrinceDraxx's picture

I haven't ever made a recommendation here. However, for my debut recommendation, I am going to suggest shorting FB until it is at least down in the mid-teens.


I do not have any trades in place on FB and am not contemplating any trades.

Tue, 05/22/2012 - 19:54 | 2453347 Buck Johnson
Buck Johnson's picture

Nasdaq is going to be sued into liquidation, big time.  Either they sue the HFT companies for screwing up their systems (if they can) or they bite the bullet and go out of business.  Also could someone tell me why did Facebook wait until 11:06 am to start trading for the stock.  I thought that many IPO's love to start at the start of business which is 9:30 am.  I think they wanted it late so that the people who bought  the stock wouldn't swamp the system with sell orders when the problems start and they start to realize the revenue and profit is two different things for the company.

Tue, 05/22/2012 - 18:21 | 2453049 The trend is yo...
The trend is your friend's picture

I wonder what role the squid Goldman had in all this.  i find it hard to believe this was all Morgan Stanley's fault

Tue, 05/22/2012 - 18:44 | 2453111 Unprepared
Unprepared's picture

While we are at finger pointing and eye poking, weren't the technical issues a result of an avenging raid from a known NASDAQ competitor?

Tue, 05/22/2012 - 18:49 | 2453135 francis_sawyer
francis_sawyer's picture


Here is some forensic video of what actually happened...


Tue, 05/22/2012 - 18:09 | 2452995 SilverTree
SilverTree's picture

20/20 Bitches!

Tue, 05/22/2012 - 18:16 | 2453022 CvlDobd
CvlDobd's picture


Tue, 05/22/2012 - 18:18 | 2453033 SilverTree
SilverTree's picture

Well, I tryed.

Tue, 05/22/2012 - 18:20 | 2453042 CvlDobd
CvlDobd's picture



It's bitchez, with a Z, around these parts.

Tue, 05/22/2012 - 18:24 | 2453059 The Big Ching-aso
The Big Ching-aso's picture



Where are they gonna find enough new suckers to get this stock erect again?

Tue, 05/22/2012 - 18:39 | 2453098 CvlDobd
CvlDobd's picture



Think of all the future revenue sources, uh I mean users.


I will say FB is way overvalued here but... They need to leverage their penetration and compete with Visa, PayPal, and JP Morgan/Wells/Citi/BoA and work on payments and online banking. That is where the money could be made. Fuck click through ads. What a waste of potential revenue this company is right now.

Tue, 05/22/2012 - 18:48 | 2453132 The Big Ching-aso
The Big Ching-aso's picture



WTF.   I thought FB was all about people connecting with other people and not connecting with their bank?

Tue, 05/22/2012 - 19:11 | 2453198 CvlDobd
CvlDobd's picture

I'm just talking about making money.

GE used to be an industrial company.

Tue, 05/22/2012 - 19:14 | 2453211 The Big Ching-aso
The Big Ching-aso's picture



Oh.   So like FB could evolve into another giant faceless conglomerate disconnecting people from one another to make a buck.   Makes sense.

Tue, 05/22/2012 - 19:20 | 2453234 CvlDobd
CvlDobd's picture


I'm not saying it's right. I am saying that most financial firms would KILL for facebook type penetration and data to maximize the cross sell. If they are serious about maximizing shareholder value they would at least attempt to compete with Visa or PayPal.

People talk about not trusting Facebook. Is it any worse to trust Facebook with financial info than say JP Morgan? I would argue it isn't.


The market penetration could be incredibly valuable.

Tue, 05/22/2012 - 20:12 | 2453403 CClarity
CClarity's picture

Here's how they'll do it . . . and it's genius.  Through their authentication program.  That how you can sign into many other sites via FB now, without having to have lots of user IDs and passwords, just gotta remember FBs. Can do with Twitter and Linkin and others too.   Users doing it all the time already, so they "trust" the FB authentication process of knowing who is on board and driving actions.  Afterall, FB knows more about its user (for fraud purposes and user authentication or verification) than VISA or Mastercard or Safeway or any of those others that are merely a 16 digit number.  

If they start to use a further improved authentication process for payments . . . and they have nearly 1 Billion users/customers . . . they could be a gigantic financial machine, payment service, supermarket - many things.  This model, more than the advertising monetization, is what the believers in FB whisper about.  And, people talk of FB as a product, a service, a communication vehicle, and a community center.  Can't recall people speaking of BAC or JPM or VISA or NETFLIX or COMCAST or TARGET in similar terms.  

Yes, privacy concerns and issues remain, but FB is further ahead on this than most.

Tue, 05/22/2012 - 20:23 | 2453433 CvlDobd
CvlDobd's picture

CClarity,  you hit the nail on the head.

Tue, 05/22/2012 - 22:06 | 2453706 ITrustMyGut
ITrustMyGut's picture

wow.. Great insight! I concur with this idea as its real motive! +1

Tue, 05/22/2012 - 19:21 | 2453233 hack3434
hack3434's picture

Half the users are under 25. Those that are over 25 only got there to a) Stalk old gfs/bfs b) Find an affair c) Family (least popular). Monetize that!

Tue, 05/22/2012 - 20:34 | 2453465 PrinceDraxx
PrinceDraxx's picture

Actually, I'd be surprised if Facebook has half of the users they claim they do. I know a crapload of users who play games with multiple accounts. After all, you don't have to produce ID to sign up, just a user name and an email account.

Tue, 05/22/2012 - 18:56 | 2453149 NumberNone
NumberNone's picture

Who knew the market was run by Captain Hindsight?  My hero...jump to 1 minute in the video.



Tue, 05/22/2012 - 18:10 | 2453001 EscapeKey
EscapeKey's picture

"We're incompetent, but really sorry".

Gee I'm sure that makes Zuckerberg's suckers feel better about the situation.

Tue, 05/22/2012 - 18:30 | 2453076 Bollixed
Bollixed's picture

Looks like Madoff is still running the joint...

Tue, 05/22/2012 - 20:08 | 2453388 Bobbyrib
Bobbyrib's picture

They're not sorry.

Wed, 05/23/2012 - 00:33 | 2453964 Kiwi Pete
Kiwi Pete's picture

Maybe Mr Zuckerberg will give some of the money back to his new shareholders. He seems like a nice guy.



Tue, 05/22/2012 - 18:13 | 2453004 francis_sawyer
francis_sawyer's picture

If I knew then what I know now, I would have never let (H.R. 7837, 1913) go through either... 

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