UBS sues Nasdaq over $357 million IPO loss

http://www.marketwatch.com/story/ubs-profits-disappoint-amid-loss-on-facebook-ipo-2012-07-31-14854710

by cubicle • 14 years ago

79 37 14 years ago

UBS sues Nasdaq and Facebook over $357 million IPO loss

The article doesn't mention anything about UBS suing Facebook, only Nasdaq. Can you update the title to take this into account?

Edit: title now updated, thanks! :)

its_so_on• 14 years ago

right, specifically "to address its gross mishandling of the offering and its substantial failures to perform its duties".

does anyone know what they could possibly have in mind?

austenallred• 14 years ago

I was confused the whole time I was reading the article because I was thinking "Facebook." Facebook was not mentioned.

nandemo• 14 years ago

There were severe technical problems in Nasdaq's trading system during the IPO:

http://abcnews.go.com/blogs/business/2012/06/nasdaq-outlines...

endianswap• 14 years ago

Can someone shed some light onto how common of an occurrence this is? It seems like the world of finance is frequented by trigger-happy lawyers and that this might be a commonplace occurrence.

brk• 14 years ago

IANAL...

It's pretty common, I can recall lots of these cases around IPOs that didn't sky rocket as planned.

This one may be a little more unique because NASDAQ seems to have had actual technical issues with the IPOD. Given the current stock proceed of FB though, I'm curious how their argument is framed.

smoyer2• 14 years ago

Until a few weeks before the offering, FB was going to price at $28 per share. Why is anyone surprised that the $38 price had no support?

kitsune_2• 14 years ago

This isn't about the support level of Facebook's share price. UBS claims that NASDAQ was de facto dysfunctional. Too many buy orders were triggered, cancellations not being fulfilled and so on.

smoyer2• 14 years ago

True, but the implication was that a lot of their FB activity was executed by their traders on behalf of their (now unhappy) clients. It's my opinion that this lawsuit wouldn't be happening if FB's stock was at $50.

DiabloD3• 14 years ago

I'm pretty sure NASDAQ has their asses covered with armor-clad underwear so thick that a bunker buster penetrator missile will feel impotent.

That said, time to load up the popcorn machine.

rotskoff• 14 years ago

If you take a look at the UBS quarterly report, you can read the specifics of their claim (quoted below and available in full on the UBS website). Essentially, the bank asserts that NASDAQ initiated buy requests multiple times. Had Facebook stock sky-rocketed, as anticipated, I wonder if we would have ever heard a word of this?

"Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were not confirmed for several hours after the stock had commenced trading. As a result of system protocols that we had designed to ensure our clients' orders were filled consistent with regulatory guidelines and our own standards, orders were entered multiple times before the necessary confirmations from NASDAQ were received and our systems were able to process them. NASDAQ ultimately filled all of these orders, exposing UBS to far more shares than our clients had ordered. UBS's loss resulted from NASDAQ's multiple failures to carry out its obligations, including both opening the Facebook stock for trading and not halting trading in the stock during the day. We will take appropriate legal action against NASDAQ to address its gross mishandling of the offering and its substantial failures to perform its duties."

Camillo• 14 years ago

Shouldn't their "system protocol" have a way for the the server to recognize resends of orders it has already received, and ignore them?

veyron3• 14 years ago

You may actually want to send multiple orders, which is why pretrade duplicate checks usually assume a fixed window (2 orders of the same price/quantity/side in a 50 msec window)

For example, sending a large order to the market looks different from many smaller orders.

andr• 14 years ago

The order workflow is generally like so:

1) Client sends order to market.

2) Market acknowledges it has received the order, sending back the market-generated order ID.

3) The market tries to fill the order (takes from 1ms to a day, depending on the type of order). When the order is filled, the client is informed.

4) At any time before the order is filled, the client can cancel it.

Perhaps during NASDAQ's issues the acknowledgements (step 2) were not sent and UBS didn't have the IDs of the orders they wanted to cancel.

lambda• 14 years ago

So, shouldn't the protocol involve the client generating the order ID, so that they can cancel the order without having yet gotten confirmation of it? Or at least, the client being able to include a "client handle" for this purpose, that is independent of the order ID but which they can use to refer to it before they've gotten the ID?

veyron3• 14 years ago

The real problem, according to UBS, is that in absence of an acknowledgement they sent extra orders. UBS improperly acted. The first rule when you set up risk limits is to consider both actual position (acknowledged) and theoretical position (assuming all orders are filled). Standard risk controls would have prevented this.

cgmorton• 14 years ago

"Thank you for your placing an order with NASDAQ. Please do not hit the back button or refresh this page, or your order may be registered more than once."

Tooluka• 14 years ago

A bank sues stock marked over some number fluctuation caused by social network and all that produces millions of profits for the lawyers :) . If I would be more naive I'd say "Let them all burn down". But since all that translates to billions of real money and can possibly harm entire countries in some cases (like the LIBOR scandal) we can only watch and wonder how did we come here...

joeblau2• 14 years ago

They need to fire the employees who thought investing in Facebook was a good idea in the first place.

andylei3• 14 years ago

they were client orders. their clients wanted to buy FB

joeblau2• 14 years ago

Yep "including clients of our wealth management businesses."

The people running the UBS wealth management business need to be terminated. This is most likely the catalyst for why UBS is actually suing. Rest of the "clients" who did no research and just bought into the hype are just along in the lawsuit for the ride.

quantgenius• 14 years ago

What they should actually do is fire the bozos handling client orders in their wealth management group.

Having built multiple systems for automated trading and traded manually, it's really trading systems 101 to know that unacknowledged orders should be treated as live until you know otherwise and should never be repeated. Second, when you connect to Nasdaq via FIX or their proprietary protocol, one of the parameters you are allowed to specify is and ACK timeout. So if the exchange was getting around to acknowledging an order with a client timestamp that is more than ACK timeout old it is auto-cancelled. It seems from talking to multiple people that multiple firms including UBS hadn't set an ack timeout at all.

vtry• 14 years ago

Oh and that will get 357 million back?

UBS sues Nasdaq over $357 million IPO loss

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