Knight nears compromise in Nasdaq-Facebook repayment plan-source
NEW YORK |
NEW YORK (Reuters) - Knight Capital Group (KCG.N) is closer to accepting Nasdaq OMX Group's (NDAQ.O) repayment plan for firms that lost money due to Facebook's (FB.O) bungled initial public offering, but still has some concerns, a source familiar with the company's thinking said on Tuesday.
Nasdaq on Friday boosted the amount of its payback fund to $62 million in cash from an earlier $40 million proposal made up mostly of trading rebates. It also said it would reimburse a broader range of investor losses.
"Nasdaq has moved in the right direction with this," the source said.
Market makers, which facilitate trades for brokers and ensure liquidity, lost upward of $200 million in the $16 billion IPO on May 18, as technical glitches on Nasdaq's systems delayed the offering. Many investors were then left in the dark for more than two hours as to whether their orders had gone through.
Knight is one of the top four retail market makers in the Facebook IPO, along with UBS (UBSN.VX), Citigroup's (C.N) Automated Trading Desk and Citadel Securities.
Knight would rather see a larger payout, but accepts the need to compromise and supports the idea of an all-cash payment, the source said.
But the company is still grappling with another aspect of the plan, filed with the U.S. Securities and Exchange Commission late Friday, which would require firms that sign on to waive their right to take legal action against the exchange over the IPO, the source added.
Knight Chief Executive Tom Joyce had been a vocal critic of the earlier proposal, calling it "underwhelming at best."
Knight reported its earnings on July 18, detailing its $35.4 million in losses associated with the Facebook IPO problems.
A Knight spokeswoman declined to comment on Tuesday.
Liabilities at U.S. exchanges are capped in most instances. Nasdaq's cap is $3 million and the plan filed with the SEC is meant to increase that in this specific instance. But a legal source told Reuters a firm could sue in the case of gross negligence.
Nasdaq, which reports its second-quarter results on Wednesday, had no comment.
Representatives for Citadel and Citi also had no comment.
Unconfirmed reports have said that UBS may have lost much more than earlier thought due to the IPO, up to $350 million. A spokeswoman for UBS was not immediately available.
During the chaotic hours after Facebook debuted, market makers say they tried in vain to reach contacts at Nasdaq to find out about their positions in Facebook. They were also calling the SEC to make sure the regulator understood the gravity of the situation.
Regulators are now investigating the matter.
In its SEC filing, Nasdaq stood by its decision not to halt the most anticipated IPO in years.
The source said Knight would likely file a comment letter with the SEC at some point in the next several days.
The rule has not yet been published by the SEC. Once it is filed, there is a 21-day comment period.
(Reporting by John McCrank; Editing by Lisa Shumaker)
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