UBS sues Nasdaq over $357 million IPO loss(marketwatch.com) |
UBS sues Nasdaq over $357 million IPO loss(marketwatch.com) |
"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."
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.
For example, sending a large order to the market looks different from many smaller orders.
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! :)
does anyone know what they could possibly have in mind?
http://abcnews.go.com/blogs/business/2012/06/nasdaq-outlines...
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.
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.
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.
That said, time to load up the popcorn machine.
They are claiming losses resulting directly from NASDAQ's mishandling of the IPO.
unlikely. from their quarterly report " NASDAQ ultimately filled all of these orders, exposing UBS to far more shares than our clients had ordered".
their clients ordered X shares of FB. UBS sent out 5 * X shares (or something like that). they sent out extra orders because NASDAQ wasn't sending acknowledgements for the initial orders. so UBS had to liquidate 4 * X shares at a loss, because the price took a dive. the loss from liquidation is why they sued.
UBS would just have sold off the excess of shares it had received, perhaps at a profit. Perhaps just warning NASDAQ of their reckless technical situation.
That doesn't mean that there for some reason this lawsuit isn't justified. NASDAQ made UBS take a risk they did not want to take.
maybe not from UBS, but probably from somebody else. if you were putting in excess short sell orders at the open an FB had gone up, you'd be in the same position UBS is in right now.
Since interest was very high on the FB IPO, the assumption would be that it would be fairly hard to actually get stock. So the bank would make a lot of requests, on the hope that a certain percentage would be fulfilled immediately(say 30-40%), after which they could cancel the remaining orders.
Unfortunately, this turned out not to be the case, because a LOT of FB stock was released to the market. Add to that that NASDAQ(as UBS contends) did not give a confirmation ID to UBS, and it's pretty easy to see why this happened.
I can see the temptation to just forge ahead on a one time only event like an IPO, but if you do so then I think you need to be prepared for the consequences. I also imagine that part of the usage terms for direct access include something that limit Nasdaq's liability in the event of a system error, so I'm not sure how UBS thinks they will get around that.