Nasdaq CEO Explains Facebook IPO's Bungle
Nasdaq CEO Bob Griefeld will be on high alert Monday morning when newly public company Facebook gets set to trade after Friday's debacle.
I spoke with Griefeld tonight who explained the specifics of what went wrong for Facebook 's [ FB 38.2318 
0.2318 ( +0.61% ) 
] $20 billion IPO.
"We ran our IPO auction process differently than we run the regular open and close. Typically, we lock the order book two minutes before the auction is to take place."
But for IPOs, especially highly anticipated deals, the chance for investors to modify, cancel or change the order is left open until a millisecond before the auction begins. In this deal, given the sheer volume and size of deal, those modifications and cancelations proved too much for the system and responding in real time meant the execution confirmations did not get out until 1:50 p.m. Friday.
"We designed the system this way. And in theory its the best way to do it because it gives the investor more time to modify orders. But with the volume we were dealing with, there were collisions."
The Nasdaq [ NDAQ 21.99 
-1.01 ( -4.39% ) ] didn't use the 2-minute gate approach here because during earlier testing, it didn't identify that there would be issues. If I am an investor and I put an order in, I was able to modify it — up until a millisecond of when it was about to run. Griefeld says typically this is the better way to do it. But the deal was huge and so were the number of modifications.
On Friday, 570 million shares were traded and 70 million just at the IPO.
Griefeld is expecting another day of huge volume Monday in FB — "historic levels." And says he will focus on that, that Nasdaq does it well.
Sources tell me the next issue in Griefeld's lap is that of accommodation packages that Nasdaq will have to come up with to investors who were impacted and lost money on transactions. The size and expense this will be for Nasdaq is now unclear. As those packages materialize, Nasdaq will be able to better explain what Friday's debacle will truly mean for Nasdaq and Facebook investors. Tuesday, he will face questions from investors at the firm's annual shareholder meeting.
