NEW YORK: Rival exchanges lashed out at Nasdaq OMX's US$40mil plan to compensate clients for its mishandling of Facebook's initial public offering (IPO) last month, calling the plan “illegal,” “anti-competitive” and saying it was unlikely to be approved by US regulators.

A day after Nasdaq rolled out its plan, which would mostly consist of trading discounts for clients, rival exchanges questioned the legitimacy of the proposal, and one of Nasdaq's biggest customers said the sum offered was not nearly enough.

Total losses by banks and brokerages due to the technical problems that plagued the US$16bil IPO might be as high as US$200mil, said Thomas Joyce, chief executive of Knight Capital Group, a market maker in the deal that said it alone lost US$35mil.

“I think that the scheme that was announced (on Wednesday) is illegal,” Bill O'Brien, chief executive officer of the No. 4 US equities exchange, Direct Edge, said at Sandler O'Neill's brokerage and exchange conference in New York.

“It is also a shameless attempt to basically turn a big investor-confidence-eroding event into a competitive advantage.”

O'Brien, who was visibly upset, said his company would contest the plan and that he did not think it would be approved by the US Securities and Exchange Commission (SEC). NYSE Euronext, the top US stock exchange, also said it strongly objected to the plan.

Direct Edge, NYSE, and BATS Global Markets which in March had to pull its own IPO due to technical problems all denounced the plan as a grab for market share.

“Confusing compensation with a pricing promotion that's a bad way to do it,” said Mark Hemsley, chief executive of BATS ChiX Europe.

Nasdaq's proposed US$40mil compensation figure US$13.7mil in cash and the rest in trading discounts was a big topic at the conference.

Nasdaq has been widely criticised for poor communications during and after the Facebook IPO, the most highly anticipated market debut in recent memory, and for failing to apologise for the technical problems in the first hours of trading of Facebook shares. - Reuters

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