Electronic trader Knight Capital Group said it suffered a pre-tax loss of $30 million to $35 million on the botched Nasdaq trading debut of social media giant Facebook and is demanding the exchange compensate that amount.
The loss, which Knight said will be recorded in its second-quarter results, was due to numerous problems related to the Facebook initial public offering.
A technical glitch delayed Facebook's market debut by half an hour on Friday and many orders were delayed subsequently, costing some investors and traders big losses as the stock price dropped after an initial gain.
The Knight announcement may be a sign of things to come as other traders and investors tally up any losses from the trading problems. Already, Nasdaq is facing a lawsuit - seeking class action status - from an investor claiming the exchange was negligent in handling Facebook orders.
Knight said in a regulatory filing on Wednesday it is considering all legal remedies available.
While regulations limit Nasdaq's liability regarding client losses from certain trading issues to $3 million a month, firms will be looking to prove that the actions of the exchange during the IPO opening fall outside limits, said a source with knowledge of Knight's situation.
POOL FOR BAD TRADES
Nasdaq has said it hopes to set aside a pool of $13 million to settle bad trades, but that pales in comparison to the amount Knight is seeking.
"They are certainly facing the specter of some significant lawsuits if this pool is not enough," the source said.
Nasdaq's shares were down 2.3 percent at $21.81 in after-hours trading.
Knight's losses came from a combination of client accommodations and from the firm's own trading losses during a period of around two hours after Facebook shares began trading in which Nasdaq was unable to send order executions or cancellations to clients.
Knight is a leading market maker in U.S. equities, and in that role, had to compensate its clients for losses that occurred when orders originally placed at $42 a Facebook share, for example, were not filled until the price had fallen below that level.
It also lost money on its own trades.
Knight Capital shares were down 1.3 percent at $12.28 in extended trading. They closed at $12.44 on Wednesday on the New York Stock Exchange.
(Reporting by John McCrank in New York and Ashutosh Pandey in Bangalore; Additional reporting by Walden Siew; Editing by Viraj Nair and Muralikumar Anantharaman)