(Image credit: AFP/Getty Images via @daylife)
One of the most vocal critics of Nasdaq?s mishandling of the Facebook IPO is backing the exchange?s plan to cover some of its losses, while urging regulators to take a longer look at exchange liability in the future.
Knight Capital, which lost $30-$35 million on the May 18 Facebook IPO, said it supports Nasdaq?s proposal to increase the accommodation pool to $62 million, from $40 million, and, most importantly, compensate members fully in cash rather than a previously-planned mix of cash and credits for future activity.
As for the discussion of whether exchanges should have limited liability and regulatory immunity for such events, Knight urged the SEC to defer discussion on such topics rather than make decisions based off the singular Facebook incident. From the letter:
We believe these critical issues should be more thoroughly addressed in a broader concept.
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In our view, formal releases from claims of civil liability are more akin to commercial terms which should be negotiated at arms-length between two parties to a contract and should not be part of a rule imposed by a regulatory authority. Setting forth those types of requirements in the context of a rule filing inappropriately mixes commercial issues with regulatory requirements.
Knight?s acceptance of the Nasdaq deal comes a week after Citigroup filed a comment letter ripping the exchange?s handling of the Facebook debut and proposed settlement. UBS meanwhile, which lost more than$350 million on the Facebook IPO, has threatened litigation against the exchange. Hedge fund Citadel fell on Knight?s side of the debate, recommending the SEC approve the deal.
Tom Joyce, Knight?s chairman and chief executive, was sharply critical of Nasdaq in the wake of the Facebook IPO, telling CNBC the following Monday that the issues with the start of trading were not ?in any way, shape or form an industry failure,? but a failure by the exchange. ?This was the worst performance by an exchange on an IPO ever,? Joyce said.
When Nasdaq first announced its proposal June 6, Knight called it ?simply unacceptable.?
It is unclear whether Knight?s decision to support the Nasdaq Facebook settlement was in any way affected by a technology blunder of its own that resulted in a $440 million trading loss in early August and forced the company to raise capital from a consortium of investors. To be fair, the deal it agreed to support this week has been altered from the initial proposal it deemed insufficient.
A Knight spokesperson did not immediately respond to a question of whether or not there was any impact from the firm?s recent challenges.
A Nasdaq spokesman declined to comment on Knight?s letter.
Shares of Knight were down 2% at $2.74 Thursday. Nasdaq OMX Group was 0.9% lower at $22.80, while Facebook, which has been basically cut in half since its IPO at $38, gained 0.9% to $19.27.
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