Company loses millions in NASDAQ glitch

(CBS News) At the end of the first week of trading, Facebook has made very few new friends. Investors who got in on the initial stock offering saw the stock fall from its debut price of $38 to just under $32 on Friday. The only thing that rose was anger over the handling of the debut offering by the NASDAQ stock exchange.

For one company, the technical glitches that marred Facebook's market debut resulted in a huge loss.

"Knight Capital Group lost $30 million," said Tom Joyce, the company's CEO.

Joyce said the NASDAQ, knowing it had problems, never should have opened trading on the stock. "It was a trading debacle," he said.

For nearly two-and-a-half hours -- from when Facebook began trading about 11:30, to shortly before 2 p.m. -- traders everywhere could not get electronic confirmation that they'd bought or sold the stock.

Asked if NASDAQ was telling him nothing, Joyce replied, "Nothing."

Knight Capital, which facilitates trades for big and small investors, believed it had sold millions of Facebook shares at about $42.

"When the information came back from NASDAQ, they told us in point of fact we had bought at the issue price," said Joyce.

By then, Facebook's stock price was falling, and Knight's traders scrambled to dump its shares. That's how they racked up more than $30 million in losses.

"I've heard rumors in the industry that the loss is in the neighborhood of $100 to $200 million," Joyce said.

Citadel Securities lost up to $35 million, and UBS and Citigroup between them reportedly lost another $50 million.

When asked about his clients' reaction, Joyce said, "Well, as you might imagine, the reaction was somewhere between frustrated and angry."

He said his company has never had a loss like this: "It was, I would say, the worst performance by an exchange regarding an IPO that I've ever seen."

Knight Capital is considering legal action. NASDAQ officials said this week they can't promise customers they'll be fully compensated for losses due to its system failures.

[kevcl6750]

Nasdaq should be liable for every cent lost due to their system failures !

[ttipbc]

That would be CLOUD, not crowd.

[endrepubs]

Love it!

[maJag]

" I purchased numerous shares through my broker and yet did not have a clue what the price was. "

Smart move.

[hypnotoad72]

People who use the services of brokers have a tendency to trust them.

So, if people cannot trust those they deal in business with, what should they do?

Anyhow, let's not forget the two main rules regarding the paradigm of investing:

1. "You will be a millionaire if you invest $x for y number of years, assuming percentage rate is constant at z% - this is a far better way to save for retirement than a pension and it saves them money too"

2. "Don't invest what you cannot afford to lose"

[antoniof123]

Remmeber for the losers there are winners. I wonder who won and who lost? LOL.......Glad I didn't get involved in this mess.

Facebook has had nothing but trouble stolen ideas law suits and you some were thinking it would turn out different.

If it sounds too good to be true: IT IS!

If it sounds scary be war: IT IS A LIE!

[Mathion]

If there's a technical glitch, all trading should cease. If it started at the time the IPO started, then the IPO should have been cancelled and all monies thought to have been invested should have been refunded.

IPO's can be rebooted, even if there's a good idea what the stock would do. Knowing what the reaction was to Facebook's IPO, the opening price price could be changed to make it more in-line with what its perceived value actually might be. People could then make money with it.

Why no one thought to do this is beyond me.

[WakeUpPeople001]

Do you really think it was a "glitch"?

Many stock markets with only a few owners--easy to control and manipulate.

[skeptus]

Sorry Tom, You didn't lose $30 million,; you simply failed to make it . The "greater fool" theory failed you this time.

[Mathion]

No, based on what he said, by the time he discovered that his sell orders hadn't gone through, the price of the stock was below the opening, buy price. Then he did an amazingly stupid thing and started dumping stock at below opening price value, thus compounding the NASDAQ error with one of his own.

He should have stood pat and waited it out until the price was back above his buy price THEN sold it. It may take a while, but investments aren't always for short-term gain. He's rather stupid for a broker not to have thought of that. I don't think you can sue for that level of stupidity.

[hypnotoad72]

The "greater fool" theory could mean far more than what you suggest...

[smittyc]

check your accounts folks. Good chance some brokers were using there customers money.

[venusvegasvada]

What's everybody whining about?

When you buy a stock, you're gambling.

Everybody wants to win. Nobody want's to lose.

Too bad Wall Street didn't set IPO's up so if they lose money, the loss is dumped on the taxpayers.

Maybe they should call some Congressmen and get the laws changed again to stick it to the Taxpayer. It's what they do.

[jechaucer]

Venus, you are right and wrong. Yes, buying stock is like gambling, but at least your gambling with the lights on. What happened with FB stock was you were gambling in the dark. I purchased numerous shares through my broker and yet did not have a clue what the price was. There was no way I could sell the same day. In fact, my broker could not even tell me if my order went through. I buy stocks for the short term, typically only a day. There was no way I could buy and sell and make a quick buck on opening day. Turns out, I did buy the stock and ended up losing on it. Thank God it was only a few thousand dollars. I'll keep it now until it goes back up.

[Jaylah54]

jechaucer, as you well know, that's what's known as "day trading" and it is probably the most risky form of playing the market. It's not illegal. Not even technically unethical. But very risky and -- as such -- probably not real smart.

Given the fact that you're almost undoubtedly using a margin account, it's not totally unlike kiting checks to play the market and then hoping the checks don't clear until you've sold the stock for a profit and deposited the money.

About the only difference is that kiting checks is illegal and day trading on margin isn't.

So I seriously doubt you're going to get much pity from anybody here about your "losses." In fact, I feel a genuine sense of satisfaction that you lost.

[hypnotoad72]

What you say is the microprint. People are sold on this rigged casino with assurances of being able to retire off of it. And have been for a long time. Especially as companies used to encourage 401ks as being more prosperous than pensions, and note how pensions no longer exist... but at least this paradigm shift allowed corporations to prosper. So what's trickled down?

Sadly, despite 2007, people still don't get it.

And if people did, the brokers (too blinded by the system, as the alternative - conscious manipulation - is too vile to contemplate) would merely "reassure" people that the system is sound.

And it's in no way a "free market" if we have to pay for their losses while they hoard all the successes (which are also built upon thanks to us>)

You bet people are unhappy.