UBS Racks Up to $350 Million in Losses Related to Facebook IPO -Sources
First Published Friday, 8th June 2012 09:35 pm - © 2012 Dow Jones
By Brett Philbin and Aaron Lucchetti
UBS AG (UBS, UBSN.VX) has racked up losses up to $350 million related to botched trading in shares of Facebook Inc. (FB) during the company's tumultuous market debut, according to people familiar with the situation.
The Swiss bank is weighing its legal options against Nasdaq OMX Group Inc. (NDAQ), whose technology glitches caused widespread chaos in Facebook's May 18 initial public offering, these people said. A decision hasn't been made though, over whether the firm would ultimately sue the exchange, one of these people said.
The trading loss and UBS's potential legal action increases the pressure on Nasdaq, which on Wednesday disclosed a proposed $40 million fund to compensate firms who lost money on ill-fated trades during the Facebook offering.
The highly anticipated reimbursement plan has received sharp criticism from industry executives, who questioned whether regulators would approve it. Points of strong contention include the adequacy of the amount Nasdaq proposed as payment and a discounted trading-fee plan to offset Nasdaq member firms' Facebook losses.
CNBC reported news of the UBS trading loss earlier Friday. The UBS loss was fueled by the firm's failure to receive order confirmations from its Facebook trades on May 18. UBS placed an order for 1 million shares of Facebook, but when it didn't receive confirmation of that order, the firm resubmitted the order multiple times, leaving it with a higher-than-expected amount of stock purchased.
Technology glitches at the Nasdaq OMX's Nasdaq Stock Market, postponed the start of trading in the social networking company by 30 minutes that day. The system glitches left clients of firms across Wall Street with improperly processed orders.
A UBS spokeswoman said, "given the size of our U.S. equities business and our role as a major market maker, UBS was affected by these issues, as we believe other market participants may have been."
She added, "consistent with our policy on market comments on our positions or intraquarter performance, we are not disclosing the amount of the loss, which is not material to UBS."
The spokeswoman said, "we are continuing to consider avenues to recover our losses in this matter, but have not yet taken legal action."
UBS, among the major U.S. wholesale market makers--firms that execute orders for individual investors supplied by the investors' brokerages--lost around $30 million in its market-making arm, people familiar with the matter previously told Dow Jones Newswires.
The market makers, which also includes Knight Capital Group Inc. (KCG), Citigroup Inc. (C) and Citadel LLC, are estimated to have lost more than $100 million collectively related to bad Facebook trades, according to people familiar with situation. Some estimates had that collective loss total approaching $200 million.
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