With a weekend to figure things out, we've got a few suspects to blame for the mess that was Facebook's IPO debut on Friday. After a late start due to glitches on NASDAQ and a possible scandal in which Morgan Stanley upheld the price of the stock, Facebook's stock ended the day just where it started. It had a mini-pop, but it didn't soar, as expected. That was not supposed to happen. Since, NASDAQ has taken some of the blame, the trading index has admitted it had some issues that morning, according to The Wall Street Journal's Jenny Strasburg, Jacob Bunge, and Gina Chon. But, it's not the only player here and it's not really taking the full blame.
The Computers Did It
That's the excuse NASDAQ CEO Robert Greifeld had during a weekend conference call, blaming "poor design," reports Bloomberg's Nina Mehta. Though the exchange had done test runs before the big day, the system encountered a new technical snafu it hadn't anticipated."Nasdaq’s systems fell into a 'loop' that prevented the second-largest U.S. stock venue operator from opening the shares on schedule following the $16 billion deal, he said," writes Mehta. “It’s amazing that both Bats and Nasdaq unfortunately failed in an inglorious way,” William Karsh, the former chief operating officer at Direct Edge Holdings LLC, an exchange operator that competes with Nasdaq, told Mehta, referencing the Apple flash crash earlier this year. “It proves that technology isn’t infallible. There are so many moving parts that things can go wrong. That’s the lesson we learn," he said.
No, But Really It Was NASDAQ's Fault
NASDAQ's blame-the-computers excuse isn't very convincing. It says it encountered a problem it didn't anticipate, which occurred because of high trade volume. "Because of the size of the Facebook IPO and the level of investor interest, the process of matching up buy and sell orders to pinpoint the price of the first trade took slightly longer than normal—five milliseconds instead of three, according to Mr. Greifeld," write Strasburg, Bunge, and Chon. NASDAQ didn't prepare for huge volume on the most anticipated IPO since Google? Okay!
Plus, when things got really messy, the exchange didn't handle it so well. Certain requests were never filed; certain orders were never processed and certain cancellations were ignored. As part of its fix, NASDAQ intervened manually, explaining it couldn't handle all these requests. "We then manually intercepted this cross,"Grefield continued. "That manual intervention said we had to ignore the cancels that came in between the raindrops as we were processing the trade," he continues. During all of this NASDAQ had an open line of communication, but, as Strasburg, Bunge and Chon explain, communication wasn't so open, with traders getting updates every once in awhile.
NASDAQ knows it screwed up. "This was not our finest hour," said Grefield. And the exchange will use what Grefield called an accommodation pool to compensate losses, which could total $13 million.
Glitch or Not, Facebook Was Overvalued
Another theory: Facebook's underwriters overvalued the social network. And that Morgan Stanley stepped in to keep the price from dipping below the initial $38 doesn't help that fear. Morgan Stanley called itself a stabilization agent, notes WSJ. But, other sources told Strausberg, Bunge and Chon the bank had no plans of doing that before Friday.
Fault? There's Nobody to Blame. This Was a Great Thing!
At least one trader, profiled by The Wall Street Journal's Jenny Strausberg, is relieved after Friday. "I seriously got struck by lightning and survived," trader Jared White told Strausberg. He planned to buy 30,000 shares of Facebook at $43 per share. Then the glitch happened. "I spent much of the day thinking that I was going to lose $120,000 or more," he continued, describing the chaos at his firm. But in the end, the trade didn't go through because of the morning's delay. Though, if he were to blame something or someone. He's going with the computers. "I personally want to see floor brokers back," he said. "I just think the humans are better at this."
Like we said NASDAQ's taking at least some of the blame. As for Facebook's stock price, we'll see how it does during its first week. As of this morning, it's trading below that $38 mark.
This article is from the archive of our partner The Wire.