Posts Tagged Nasdaq
WSJ.com’s inside look at the markets
Mark Cuban: High-Frequency Traders Are the Ultimate Hackers
By Scott Patterson
Mark Cuban is best-known for his success as a businessman and pro basketball owner. But in the past few years, he has also gained a reputation as one of the most prolific critics of high-speed computer trading.
Cuban has been following the market for years — and has had a few run-ins with regulators along the way — but only after the flash crash of May 6, 2010, when glitches in computer trading systems helped trigger a heart-wrenching decline in stocks, did he start to worry that something was amiss. Cuban, who made his fortune in the technology industry, says he was concerned by how prominent of a role computer trading had taken in today’s markets. Having seen how technology can easily malfunction, he worried that the market was far more fragile than many realized. He also questioned whether high-frequency traders, which send waves of buy and sell orders into the market, serve a useful purpose in the market.
Concerns about the impact of rapid-fire trading on the markets has ramped up of late, especially after technical glitches at Nasdaq fouled up Facebook’s trading debut. Last Wednesday, market honchos such as NYSE Euronext Chief Executive Duncan Niederauer were grilled by lawmakers in a hearing about the current state of the market. One clear message from the hearing was that a proliferation of computer trading and opaque markets has hurt investor confidence. Niederauer in his written testimony said a big factor in the waning confidence was that “an ever-increasing volume of trading in equities occurs in dark markets.”
The Wall Street Journal recently caught up with Mr. Cuban via email and asked for his views on the state of today’s stock market.
WSJ: When did you start becoming concerned that rapid-fire trading was a problem?
Mark Cuban: When the flash crash hit, that got me looking at algorithmic trading and the state of the market. I came to realize that the stock market no longer knew what business it was in. I wrote a blog that basically said that the markets for equities of all kinds had evolved to a platform for hackers.
That got me looking further into issue of high-frequency traders. They are the ultimate hackers. They’re running software programs that have one goal, and that’s to exploit the trading systems as early and often as possible. As someone who wrote software for eight years and who keeps up very closely with the technology world, that scared the hell out of me. The only certainty in the software world is that there is no such thing as bug-free software. When software programs are trying to outsmart other software programs and hack the world’s trading platforms, that is a recipe for disaster.
WSJ: The Facebook IPO is a recent example of software gone haywire. Is that a sign that things have gotten too complex? It’s certainly hurting investor confidence.
MC: And BATS couldn’t get their software right for their own IPO. Why? It should be easy. They’ve been doing IPOs in electronic markets for years. Why did it fail now? If they can’t get an IPO they completely control right, does anyone really think that the software that controls the hundreds of millions of human-free interactions a minute is really bug free and cannot fail?
How many times an hour are there failures across individual equities around the world because of software running algorithms battling each other for supremacy to make a profitable trade? We have no idea. It’s not a question of if or when we have meltdowns, it’s just a question of how big and where. It’s straight out of War Games. And that’s before we even get to the possibility of nefarious or sovereign hackers getting involved.
WSJ: What do you say to the argument that high-speed traders provide liquidity to markets and narrow spreads? The argument is that those benefits outweigh the negative side effects that you’re talking about. If the HFTs are pushed out of the market, they say, regular investors will wind up paying more to buy and sell stocks.
MC: That’s a bogus argument. By definition they can’t go into an equity unless there already is liquidity. To say they’re adding liquidity is like saying spitting in a thunderstorm is adding liquidity.
As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. So what? Relative to the risk that’s the worst tradeoff in the history of tradeoffs
And the argument is horrible for another reason. If you’re an investor you shouldn’t care if the spread widened by a penny, nickel dime or quarter. If you’re anything but a trader the change is of no impact to whether or not the company will be successful and create returns for investors. In fact, that anyone even considers this a valid argument is a red flag that the exchanges are more interested in traders than investors.
WSJ: What’s the solution? There have been some calls for a transaction tax recently for instance.
MC: Public companies need to figure out what business the exchanges are in. Is the market supposed to be a platform for companies to raise money for growth and to create liquidity and opportunity for shareholders as it has been in the past? Or is the stock market a laissez-faire platform that evolves however it evolves? The missing link in all the discussions is: What is the purpose of the stock market?
- Lawsuit Claims CME Group Favors High-Frequency Trading Machines Over Humans (huffingtonpost.com)
- Are There Too Many Stock Exchanges? (huffingtonpost.com)
- MARK CUBAN: Two Reasons Why Facebook Is The Most Important IPO Ever (businessinsider.com)
- How Facebook’s IPO Got Hijacked by Computers (mbcalyn.com)
- Traders Probed For Buying And Selling To Selves (huffingtonpost.com)
- Facebook IPO seized by post-capitalist High Frequency Tractor Beam (wired.com)
- A High Frequency Trader’s Apologia, Pt.1 (basic mechanics of HFT) (chrisstucchio.com)
- Are Facebook’s retail investors lambs at a slaughter? (om.co)
- The average holding period for the S&P 500 SPDR (SPY) is less than five days, and the ETF trades more than its entire capitalization each and every week. (investmentwatchblog.com)
- The Facebook is the most important IPO to EVER hit the StockMarkets – But not for the reasons you think (blogmaverick.com)
JUNE 21, 2012
As Facebook Seeks Answers, S.E.C. Investigates ExchangesBY BEN PROTESS, EVELYN M. RUSLI AND MICHAEL J. DE LA MERCED
Zef Nikolla/Facebook, via European Pressphoto Agency
Nasdaq has blamed Facebook’s botched debut last month on flawed computers and “technical errors.”
Regulators suspect it may be something more. The Securities and Exchange Commission has opened an investigation into the exchange for its role in the initial public offering of Facebook, according to people briefed on the inquiry. Regulators are examining whether Nasdaq failed to properly test its trading systems, which broke down during the I.P.O., and whether the exchange violated rules when it rewrote computer code to jump-start trading.
The Facebook investigation comes after a broader inquiry into trading breakdowns and other problems at the nation’s largest exchanges, including two previously undisclosed cases involving Nasdaq’s archrival, the New York Stock Exchange, the people said.
The agency’s enforcement unit, which has opened more than a dozen related cases, is examining whether exchanges lack adequate controls and favor select investors.
As investor confidence in the market wanes, the worry is that missteps by the exchanges are contributing to the dissatisfaction. Since the financial crisis, investors have seen their portfolios erode, prompting them to flee stocks.
“If exchanges have technical problems, that slows capital formation and erodes the confidence,” said Senator Jack Reed, Democrat of Rhode Island, who held a hearing this week on the initial public offering process.
While none of the exchanges has been accused of any wrongdoing and the S.E.C. may never take enforcement action, the crackdown represents a significant shift. Traditionally, the agency has been relatively cozy with the industry, which is increasingly under pressure to produce profits since the exchanges became publicly traded companies.
Along with the threat of enforcement cases, the S.E.C. has stepped up its inspections of exchanges and introduced several measures to improve the safety of the markets. For example, the agency has approved proposals that would help limit volatility in specific stocks, including circuit breakers that would halt trading.
“Cases against exchanges are few and far between, and inevitably a big deal,” said Stephen J. Crimmins, a partner at the law firm K&L Gates and a former enforcement official at the S.E.C.
Facebook’s initial public offering highlights the problems facing exchanges — and how regulators are finding their responses lacking.
On May 18, its first day of trading, Facebook got off to a rocky start. Nasdaq delayed the start of trading and later flooded the market with shares, adding to investor trepidation.
Nasdaq’s lack of communication — and at times, lack of contrition — aggravated the situation, according to documents and executives, bankers and regulators. On a May 31 call with the chairwoman of the S.E.C., Mary L. Schapiro, and other officials, Nasdaq’s chief executive expressed confusion about the S.E.C.’s aggressive approach.
“We’re regulators, too,” said the chief executive, Robert Greifeld, adding “we’re all in this together.”
The Facebook debacle comes after a flurry of trading breakdowns. In March, BATS Global Markets canceled its own I.P.O., after its systems faltered. Nasdaq last year halted trading in dozens of stocks amid technical problems.
Such experiences echo the so-called flash crash. On May 6, 2010, the Dow Jones industrial average plummeted more than 700 points in minutes, before recovering shortly thereafter.
In nearly every case, companies blamed technical malfunctions. But regulators say some breakdowns may point to more fundamental issues.
The S.E.C. is also examining whether some exchanges give undue priority to high-frequency trading firms and big institutional investors through its order types and data disclosure.
The New York Stock Exchange is among the most prominent players facing scrutiny from regulators, who have opened two investigations into the Big Board, according to people briefed on the matter who spoke on the condition of anonymity because the cases are not public.
The S.E.C., the people said, is examining whether the New York exchange violated rules by distributing in-depth stock data to paying clients faster than the public received general information. The issue was first discovered in the rubble of the flash crash.
The exchange declined to comment. But people close to the exchange have attributed the problem to unintended technical shortcomings.
The S.E.C., which has penalized the Direct Edge exchange for having “weak internal controls,” is also pursuing the Chicago Board Options Exchange for not properly policing the markets.
In February, BATS Global Markets acknowledged receiving a request from the S.E.C. The agency, a person briefed on the matter said, is examining whether any collaboration between BATS and high-frequency trading firms could hinder competition.
Nasdaq represents one of the most prominent cases.
On the day of Facebook’s debut, its finance team, led by David A. Ebersman, stood on Morgan Stanley’s trading floor surrounded by scores of traders sporting white baseball caps stamped with “Facebook.” While the mood was initially festive, he was growing anxious.
The chief financial officer turned to the bankers: “Why aren’t we starting?” Nearby, a trader clutched phones to his ears, one with a call to another bank, the other to Nasdaq.
At about 11 a.m., Nasdaq said trading would begin in five minutes. After nothing happened, Nasdaq officials phoned S.E.C. trading experts to explain that everything was under control, according to a person briefed on the call.
Nasdaq’s computers were programmed to accept last-second modifications to orders of Facebook shares. When these trades kept piling in, the system reset the price over and over again. Some orders were not executed — or were placed at prices other than the opening bid of $42. Many traders, who usually receive confirmations in seconds, had no idea how many shares they held. “We were flying blind,” said one person at a market-making firm.
The S.E.C. is examining why Nasdaq lacked an action plan for navigating such a crisis, including plans to abort the I.P.O., and whether it failed to follow federal guidelines in running system tests. Nasdaq did run some 400 tests ahead of the Facebook I.P.O., and the company used the system in question for more than five years. Mr. Greifeld has publicly blamed “design flaws” in the system.
Ultimately, Nasdaq overrode the system manually, switching to a backup server. That move, too, has drawn scrutiny. Exchanges must follow their own strict trading procedures. In this case, Nasdaq changed its procedure on the fly without amending its rules. While the exchange may not have followed the letter of the law, a person close to Nasdaq said that the company had previously used the backup system with approval from regulators.
The exchange declined to comment.
Shares started trading at 11:30 a.m., sending brief applause through Morgan Stanley’s trading floor. The Facebook team, which had been hoping for a 5 to 10 percent jump from the offering price of $38, was relieved when it rose. The team headed to Teterboro Airport to fly back to California.
Then at 1:50 p.m., a second wave of confusion ripped through Wall Street. Traders saw an unexpected sell order of roughly 11 million shares. Some wondered whether a big hedge fund had dumped shares. Investors, on the fence about buying, backed off. Others sold. Within minutes, Facebook slipped $2, to roughly $40.
There was no mystery hedge fund seller. As Nasdaq started processing trades backed up in the system, those shares were dumped on the market, according to people with knowledge of the matter. About the same time, some Facebook shares that had ended up in an account at Nasdaq were also sold without warning. The move may have violated Nasdaq’s own rules, which do not explicitly allow the exchange to take a position in the shares of an I.P.O., according to one of the people.
While some analysts have pinned Facebook’s woes on Nasdaq, others have blamed the company and its bankers for being too aggressive on the size and price of the offering.
Facebook shares ended that first day at $38.23, roughly where they started.
Two days later, Mr. Greifeld called the I.P.O. “quite successful” over all and said that technical issues had not affected the price.
Facebook’s management team, which was beginning to grasp the extent of the problems, was livid. Some wondered why Nasdaq had made little effort to keep them apprised on Friday and kept them out of decision-making.
Mr. Greifeld called a senior executive, asking how the exchange could get back into its good graces. The executive erupted. “Bob,” the executive said, “You don’t understand what a hole you’re in.”
Nasdaq soon aggravated the trading woes. The exchange informed traders it might offer “financial accommodation” for claims filed on Monday. Some investors dumped shares, to prove a loss.
In the first hour of Monday trading, Facebook plunged from $38 to less than $34, swiftly wiping out billions of dollars in market value.
- As Facebook Seeks Answers, S.E.C. Investigates Exchanges (dealbook.nytimes.com)
- Is Insider Trading Part of the Fabric on Wall Street? – NYTimes.com (mbcalyn.com)
- S.E.C. sues SinoTech Energy, another China-based accounting fraud (dealbook.nytimes.com)
- Money Market Funds Still At Risk, S.E.C. Chief Warns (nytimes.com)
- S.E.C. Opens Investigation Into JPMorgan’s $2 Billion Loss (dealbook.nytimes.com)
- S.E.C. Pursuing More Cases Tied to Financial Crisis (dealbook.blogs.nytimes.com)
- What the S.E.C. Is Doing About Executive Pay (nytimes.com)
- F.B.I. Begins Preliminary Inquiry Into JPMorgan – NYTimes.com (mbcalyn.com)
- Facebook Fiasco: Don’t Leave It To the Lawyers (newyorker.com)
- S.E.C. May Add 800 New Positions as Part Of Reform (dealbook.blogs.nytimes.com)
Why Mark Zuckerberg Should Resign from Facebook
Posted: June 15, 2012
That is an attention grabbing headline. And Mark Zuckerberg should leave Facebook (NASDAQ: FB). He will not be pushed out, though, like Steve Jobs was at Apple (NASDAQ: AAPL) in 1985 when he was 30. Zuckerberg has voting control over Facebook’s shares. He cannot be forced out. And it would not work if he becomes nonexecutive chairman the way the Microsoft (NASDAQ: MSFT) founder Bill Gates did in 2000. Zuckerberg lacks Gates’s interest in charity. Zuckerberg would need to exit for the good of Facebook, because he understands he is hurting the company.
Zuckerberg has done a great deal recently to undermine Facebook’s success. Some of it cannot be undone, only repaired — maybe. The decision, or lack of one, not to press Facebook into the mobile advertising market was as significant a mistake as the company could have made. Facebook could not afford to stumble in the mobile space. As many as half of Facebook’s users access the social network on mobile devices. Facebook acknowledged in its public filings that, without significant revenue for non-PC platforms, it is in trouble. And Facebook’s admission that it was behind in this part of its business evolution was part of the reason its IPO went so badly.
The other tremendous mistake that Zuckerberg and his management have made rests in their inability to attract and hold large advertisers. Adoption by the country’s largest marketers is essential to the company’s revenue. The new Facebook Exchange is meant to make it easier for advertisers to target members of the social network. Facebook’s case to large marketers that it is a powerful platform for advertising campaigns was bolstered by a study by comScore that showed the social network is an effective ad medium. But many investors believe what General Motors (NYSE: GM) said just before the Facebook IPO. Facebook is not an effective marketing medium, the car company said as it withdrew its advertising.
Facebook needs a better way to sell its ad inventory at high prices, to some large extent because it cannot count on high double-digit percentage growth forever as means to increase inventory. Another recent comScore study showed that Facebook’s audience growth in the United States is slowing, and time spent on the site has started to slip. The number of visitors to Facebook rose only 5% in April from a year earlier, down from almost 25% in April of 2011, The combination of weak ad sales with slowing traffic probably means the company will miss many of Wall St.’s earnings and revenue targets. That will be evidence that optimistic long-term projections about the company’s future are flawed.
Zuckerberg ultimately has to take blame for the problems with the Facebook IPO, with the clear exception of technical issues at Nasdaq. Some observers have said that Facebook’s CFO David Ebersman or lead underwriter Morgan Stanley (NYSE: MS) were primarily at fault for a supply of shares that was too large and helped push the stock price down on the first day. Like at every other large public company, however, the CEO is finally responsible for what happens on his or her watch. Zuckerberg got almost all the credit for Facebook’s years of success. Now he must accept blame for a reversal of fortunes, even if it is temporary. Facebook’s shares have dropped from an IPO price of $38 to a low of less than $26. The market has lost faith in Facebook, this shows. That essentially means it has lost faith in Zuckerberg.
Zuckerberg supporters would claim he has to run Facebook because he is the visionary behind its progress and will continue to be. But Facebook is already mature to the extent that its growth has slowed, both in terms of revenue and audience. The social network has about one billion users. It is hard to make a case that the next 100 million will be added with any ease. The solutions to Facebook’s revenue problems have little to do with vision. They are tactical and operational problems. Those, along with Facebook’s mobile challenges will not be resolved by genius. If Zuckerberg’s role is to add features and functions to help cement users to the site or add the next 200 or 300 million users, that role is likely to have been passed to the best of his several hundred engineers and product managers.
Who would replace Zuckerberg? Most would say COO Sheryl Sandberg, who has more experience as an executive than Zuckerberg does. However, she was on the watch as well as he was when Facebook made the missteps that cost investors billions of dollars after the IPO. That leaves the board of directors with a difficult search if Zuckerberg were to decide to step down. And he should. Over the past few months, he has done the company he founded much more harm than good.
Douglas A. McIntyre
- Why Mark Zuckerberg Should Resign from Facebook (247wallst.com)
- ZUCKERBERG SUED: Investors Say He Knew Facebook Was Overvalued (blippitt.com)
- SEC Pressed Facebook On Zynga, Instagram And Zuckerberg’s Control Pre-IPO (forbes.com)
- Facebook, Mark Zuckerberg sued in wake of IPO (wjla.com)
- Facebook (FB) Senior Executive Unexpectedly Resigns (valuewalk.com)
- Facebook’s Cofounder Forgives Zuckerberg: “I Have Only Good Things To Say About Mark” (businessinsider.com)
- Facebook sketches out IPO-mess defense; CTO departs (news.yahoo.com)
- Why Wasn’t Mark Zuckerberg More Involved In The Facebook IPO? (FB) (businessinsider.com)
- What Mark Zuckerberg Can Learn From Ben and Jerry (dailyfinance.com)
- Zuckerberg off Bloomberg rich list as Facebook tanks (theweek.co.uk)
7 More Banks Pay Back TARP Bailout Money
Posted: June 14, 2012
The U.S. Treasury Department is that much closer to winding down the Troubled Asset Relief Program (TARP). Today came word that over the last week it has received some $245 million in proceeds from seven different financial institutions. While none of these are major banks, the argument that the government did not do well here weakens just that much more as this was profitable.
The Treasury Department said, “TARP’s bank programs have already earned a significant profit for taxpayers. Including the expected proceeds from today’s transaction, Treasury has now recovered $264 billion from TARP’s bank programs through repayments, dividends, interest, and other income – compared to the $245 billion initially invested.”
Here are the banks under the repayment which was announced on Thursday:
· Taylor Capital Group, Inc. (NASDAQ: TAYC) of Rosemont, Illinois paid all of its 104,823 shares priced at $893.50 per share (approximately $92 million net proceeds);
· Ameris Bancorp (NASDAQ: ABCB) of Moultrie, Georgia redeemed all of its 52,000 shares priced at $930.60 per share (approximately $48 million net proceeds);
· First Defiance Financial Corp. (NASDAQ: FDEF) of Defiance, Ohio redeemed all of its 37,000 shares priced at $962.66 per share (approximately $35 million net proceeds);
· Farmers Capital Bank Corp. (NASDAQ: FFKT) of Frankfort, Kentucky redeemed all of its 30,000 shares priced at $739.89 per share (approximately $22 million net proceeds);
· LNB Bancorp Inc. (NASDAQ: LNBB) of Lorain, Ohio redeemed all of its 25,223 shares priced at $869.17 per share (approximately $22 million net proceeds);
· First Capital Bancorp Inc. (NASDAQ: FCVA) of Glen Allen, Virginia redeemed all of its 10,958 shares priced at $920.11 per share (approximately $10 million net proceeds);
· United Bancorp Inc. (NASDAQ: UBMI) of Ann Arbor, Michigan repaid all of its 20,600 shares priced at $825.50 per share (approximately $17 million net proceeds).
The total came to an overall total of 15 percent above the minimum prices set for the auctions. The TARP is still alive, but it is that much closer to being wound down.
- 7 More Banks Pay Back TARP Bailout Money (TAYC, ABCB, FDEF, FFKT, LNBB, FCVA, UBMI) (247wallst.com)
- Arizona, US banks still struggle with TARP, mortgage fund (bizjournals.com)
- The EuroTARP Cometh (krugman.blogs.nytimes.com)
- Community banks struggling to repay TARP funds (bizjournals.com)
- TARP Profit A Myth, Claims TARP Inspector General Christy Romero (huffingtonpost.com)
- Why the Bailout in Spain Won’t Work (dealbook.nytimes.com)
- EYE-BALL Guru on – The GFC … the right of reply … the right to question … (bleyzie.wordpress.com)
- Former Wells Fargo CEO Kovacevich: TARP was an “unmitigated disaster” (bizjournals.com)
- The government is still trying to say the bailouts made money (finance.fortune.cnn.com)
Facebook’s IPO shows the playing field is permanently tilted
If there was any doubt that Wall Street is a sucker’s game designed to take money from stupid people and put it into the hands of bankers and powerful corporations, Facebook’s initial public offering should clear that up.
Let me recap, for those of you who haven’t yet read Matt Marshall’s detailed story of what went on inside Facebook during its IPO roadshow, or Henry Blodget’s initial expose of these private communications.
As we now know, Facebook revised its earnings estimates downward during the two-week period leading up to its IPO. But while it put general, vague statements about the revenue into its public S-1 filing, it appears to have given much more specific information to its bankers, privately.
The bankers, in turn, communicated the substantially revised revenue figures to select investors. At the same time, key Facebook investors, including Peter Thiel and Jim Breyer, put an extra 83.8 million shares up for sale. The bankers and Facebook also increased the amount of shares they planned to sell to ordinary, “retail” investors to 25 percent, an unusually high number. And when Facebook priced its IPO, it did so at the very top of its range.
At the same time, because the specific revenue downgrades weren’t widely shared, the company continued pumping up demand for its shares. That kept demand high enough on the first day of trading that the IPO clogged up the NASDAQ’s computers, delaying the start of trading by about half an hour (an embarrassment for the NASDAQ). And it ensured that the underwriting banks, led by Morgan Stanley, were able to exercise their “greenshoe” option and sell an additional $2.4 billion worth of stock, bringing Facebook’s total raise to $18.4 billion.
By the end of the day, as the stock slipped dangerously close to the IPO price of $38, it looks like the banks were rapidly buying up more stock in order to level the price out. So they may have taken a bit of a bath in this affair as well, since the stock is now trading at $33.
But what really has taken a beating is the reputation of the banks that led this offering, starting with Morgan Stanley.
Of course, we can’t know why Facebook or its investors and bankers were selling as much stock as possible, at as high of a price as possible, to as many naive investors as possible. But the result is clear: Anyone who bought Facebook stock on the opening day got duped.
Now, from Facebook’s point of view, that just makes good financial sense. While a nice big “pop” in the stock price on its first day of trading makes for good headlines, it’s a sign that the company has mispriced its stock and left money on the table; in Facebook’s case, it maximized its return.
And if you’re buying an IPO stock on its first day of trading in hopes of a quick one-day profit, you’re presumably smart enough to know that you’re basically gambling with your money. So the onus is on you if it doesn’t pan out the first day — or has a terrible first week. Give up your dreams of a quick return and hold onto the stock; maybe it’ll go back into the 40s. Some day.
But what really irks me is the revelation that Morgan Stanley and Facebook may not have actually broken any SEC rules. It appears that it’s allowable for analysts to communicate different information verbally with select investors than they reveal in the publicly-filed documents. That’s a ridiculous situation that seems to run directly counter to the purpose of a public, and transparent, IPO.
Aswath Damodaran at CNN writes that he thinks this was a case of ineptitude on the part of the bankers more than a conspiracy to make as much money as possible. He bases his argument on the fact that the damage to Morgan Stanley’s reputation was far greater than the extra millions it got from the deal.
Indeed, there is a cost to pay for all this mess. Facebook has, yet again, broken the already-fragile trust it has with ordinary Main Street users. It will have a series of subpoenas and investigations to deal with in multiple states and perhaps in Congress. There’s a shareholder lawsuit against Facebook. Morgan Stanley has taken a hit to its reputation. (At a time when almost no one in this country particularly like banks, that can’t be good — although it’s not clear that bankers spend much time worrying about popular opinion.)
But in the long run, will it make a big difference? Probably not. The allegations, if true, will result in various fines, which Facebook and Morgan Stanley will pay. And then they will carry on doing business as before.
- Dylan’s Desk: Facebook’s IPO shows the playing field is permanently tilted (venturebeat.com)
- Facebook hits new low, falls below $30 – The Washington Post (mbcalyn.com)
- Facebook shareholders sue company and its bankers over fishy IPO (venturebeat.com)
- Facebook $20 (247wallst.com)
- Facebook I.P.O. Raises Regulatory Concerns – NYTimes.com (mbcalyn.com)
- The inside story: How Facebook panicked and botched its IPO (venturebeat.com)
- Facebook shares fall below $30 as US authorities begin investigation into IPO (guardian.co.uk)
- Silicon Alley Insider: Okay, Here’s How To Fix The Ridiculous Rules That Enabled The Facebook IPO Scandal… (businessinsider.com)
- Facebook IPO Bombshell! (thedailybeast.com)
- Jon Friedman’s Media Web: Facebook IPO fiasco: Blame Zuckerberg (marketwatch.com)
Facebook hits new low, falls below $30
By , 12:18 PM
Of the top 10 largest U.S. IPOs in the past decade, according to Bloomberg, Facebook has delivered the worst performance for its first five days of trading.
There’s no doubt that Facebook’s bad debut has been disappointing for investors who had gone into the IPO with such high hopes about its possible performance. Nearly everything about the offering has failed to meet expectations, from the stock’s performance to its glitch-plagued opening hours on the Nasdaq to the reports that the debut’s underwriters may have given more information to select investors.
But even aside from the issues surrounding its IPO, the main concern about Facebook is that it can’t generate the same kind of revenue on mobile devices as it can on traditional computers. The company is moving to address this, with its acquisition of Instagram, and attempts to innovate on mobile ad formats. There were reports over the weekend and on Tuesday that the company may be trying to fix its problems with mobile revenue with acquisitions or by working on its own mobile device.
Stumbling out of the gate doesn’t necessarily spell disaster for a company — take a look at Amazon, which broke its IPO price and stayed below its initial price for months, as Benchmark Capital’s Bill Gurley noted.
But Facebook will have to move beyond the problems with its debut and show that it’s a company that knows what it’s doing and how it will move forward — something not all analysts are convinced the company can do.
Technology analyst Rob Enderle said that Facebook should be wary of doing anything as far out of their core business as making a phone.
“Facebook needs to shore up their foundation,” said Enderle in an interview with The Washington Post. The company’s revenue stream, he said, is not secure. “They haven’t locked up revenue,” Enderle said. “Until they do, wandering off is probably a mistake.”
- Facebook shares fall below $30 as US authorities begin investigation into IPO (guardian.co.uk)
- Facebook’s Failed IPO: Who’s to Blame (socialmediatoday.com)
- Facebook’s stock falls below $30 for first time (abclocal.go.com)
- Facebook shares fall, down almost 20% since IPO (marketwatch.com)
- Facebook’s Stock Falls Below $30 for First Time (business.time.com)
- Facebook Stock Dips Below $30 Today (webpronews.com)
- Facebook IPO Hype and Detractors (smileysteve.net)
- Facebook stock crashes to sub-$30 (slashgear.com)
- Facebook stock falls below $30 on mobile deal rumors (fox6now.com)
- Facebook’s Stock Falls Below $30 for First Time (kstp.com)
After Facebook, More Fear of Stock Market
By NATHANIEL POPPER
Published: May 28, 2012
The excitement surrounding Facebook’s initial public offering was enough for Alex Tsesis, a law professor, to give the stock market one more try. But after the company’s stock encountered technical problems then sputtered for three days, he sold his few hundred shares for a $2,200 loss and vowed to end his equity gambles for good.
Spectators waited outside the Nasdaq stock exchange for Facebook’s share price to be posted during its debut on May 18.
Bebeto Matthews/Associated Press
Monitors in Times Square on May 18 showed the news of Facebook trading on the Nasdaq.
“I’m just extremely skeptical about the ability of a retail purchaser to be able to play on a level field in the market,” said Mr. Tsesis, who is 45 and lives in Chicago. “I’m just trying to get out of stocks.”
Mr. Tsesis is part of a growing retreat from the stock market, a trend that began before the Facebook debut. The portion of Americans invested in the stock market dropped this year to its lowest level since Gallup started asking, every two years, in 1998 — 53 percent said they were in the market in April, compared with a high of 67 percent in 2002 and 65 percent as recently as 2007, before the financial crisis. A Bankrate poll in April found that only 17 percent of respondents were more likely to invest in the stock market, even with the small amount of interest they earn on bank deposits.
The financial industry had hoped that Facebook, the highly anticipated and biggest-ever tech offering, would rekindle ordinary investors’ excitement in stocks. Instead, first-day trading snags, a 16 percent decline in the new stock’s price and suggestions that warnings were exchanged among professional investors about Facebook’s prospects have stoked fears that the stock market may not be safe for everyone.
“This added gasoline to a fire that was already burning,” said Craig Ferrantino, the president of the financial advisory Craig James Financial Services in Melville, N.Y. .
Mr. Ferrantino recounted a breakfast for his clients shortly after the offering in which the biggest topic of discussion was what the Facebook deal had revealed and the sense that “the deck is stacked against them.”
Perhaps the best indicator of the broader movement away from stocks is an annual survey done by the Investment Company Institute, which has shown that the percentage of American households invested in domestic stocks, including directly or through any other vehicle whether through mutual funds orexchange-traded funds, has fallen every year since the financial crisis to a low in 2011 of 46.4 percent, down from a high of 53 percent in 2001.
Stocks remain favored by millions of Americans who invest big parts of their retirement savings in them, and investors who have held the course have benefited from the 29 percent rise in the benchmark Standard & Poor’s 500-stock index since the beginning of 2009. This does not include the dividends that would have been earned.
For decades, participation in the stock markets increased as 401(k) retirement plans grew in popularity and retail brokers created easier access for small traders. The Dow Jones industrial average rose an average of 8.4 percent each year from 1950 to 2000, with some extended periods of little to no growth.
Since then, though, the bursting of the Internet bubble in 2001 followed by the financial crisis in 2008 have created a so-called lost decade in which broad stock indexes wound up not that far beyond where they started.
Small investors are part of a bigger flight from American stocks. Institutional investors like high-frequency traders have been drawn to other assets like currencies, and pension funds have shifted more money into alternatives, like private equity investments. This has led to a steady decline in the volume of trading in the American stock market and a drop in revenue for New York financial firms. But it has also raised broader questions about the prospects of a market that has long been the central cog for American companies raising money to grow and create jobs.
“If investors lose confidence then capital formation doesn’t function as well,” said David Weild, a former vice chairman of Nasdaq, and the founder of Capital Markets Advisory Partners.
Among the ordinary investors who are helping drive this shift, the motivations are varied. Some are retiring and making a conservative move to less risky assets like bonds. Others are put off by the economic uncertainty as Europe fails to find solutions to its debt problems. But there has also been a growing din of complaints about the flaws in the structure of the markets — as displayed by the Facebook debut.
Robert Diepersloot, a dairy farmer in Madera, Calif., said that watching the Facebook offering confirmed all the fears and suspicions that led him earlier this year to take out the savings, in the five figures, that he and his wife had invested in stocks and stock mutual funds and move it into real estate investments.
“We just pulled out completely,” Mr. Diepersloot said. “We’ve lost trust in the whole scenario.”
Mr. Diepersloot’s wife, Willemina, said that there was no one event that drove the family out of stocks, just a disappointment with recent returns and a slow erosion of faith in the reliability of the market.
Finance industry professionals are wondering what might persuade Mr. Diepersloot and others like him to change their minds, given that the stock market’s rise over the last three years has not done the job. Many insiders say that may happen only if interest rates begin to rise, after years of falling, and drive down the value of bonds, which is where investors have shifted.
Facebook’s stock offering appeared to be doing the job of drumming up interest before it went awry. At one discount broker, ShareBuilder, the number of new accounts opened was 20 times the average and trading activity was up about 50 percent on May 18 across all discount brokers, according to Richard Repetto, a Sandler O’Neill analyst who researches brokers.
Fuad Ahmed, the chief executive of the discount broker Just2Trade, said that by the end of Friday about 80 percent of the customers who had bought Facebook dumped it.
By Mr. Repetto’s analysis, trading activity at the retail brokers on the Monday after the I.P.O. was back where it had been before Facebook began trading.
- Facebook: A Possible Beginning Of The End On The Stock Market (worldfinancialmatters.wordpress.com)
- Why we’re right to worry about the Facebook IPO (blogs.reuters.com)
- A Kid’s Education in the Stock Market! (optionsanimal.com)
- To invest or not to invest? The stock market gamble (blogs.abc.net.au)
- Reports: UBS and Citi lost £32m due to NASDAQ glitch during Facebook IPO (computerworld.co.nz)
- Great Guide When It Comes To The Stock Market (pro2sell.com)
- The Facebook is the most important IPO to EVER hit the StockMarkets – But not for the reasons you think (odetocapitalism.com)
- What Not To Do When Investing In The Stock Market (blogsire.com)
- Facebook Stock Price Takes A Tumble (inquisitr.com)
- Top Financial Newsletter Profit Confidential Welcomes Market Correction as a Buying Opportunity (prweb.com)
Small Investors Seek Answers to the Confusion of Facebook Trading
By Nathaniel Popper
Published: May 24, 2012
John Hoag thought he had dodged the botched initial public offering of Facebook stock when he canceled his order last week for 100 of the company’s shares. This week, Mr. Hoag, 63, a property manager in Tennessee, learned from his Scottrade broker that he was being charged $3,805 for the shares anyway, plus a commission fee.
Scott Eisen/Bloomberg News
When he made a complaint, he was told by e-mail that he would have to go through the compliance office, which typically takes seven to 10 days to respond. These are the days of the runaround for thousands of ordinary investors who were snagged when the much ballyhooed initial offering had problems on Friday.
By Nasdaq’s own admission, 30 million Facebook shares were executed improperly because of technical flaws on the exchange, the largest such problem the exchange has experienced. On a normal day, most of the trading would be done by big financial institutions and trading firms, but on Friday an unusually large proportion of the trading was done by ordinary investors, hungry for riches from the biggest Internet initial offering ever, through brokers like Scottrade, Charles Schwab and Fidelity.
These retail investors have spent much of this week looking for someone to address their losses, or even just to answer questions about where they can take their complaints. The stockbrokers have generally said the problems were caused by Nasdaq, where technical issues delayed the start of trading by 30 minutes and mishandled large numbers of orders to execute or cancel shares.
But retail investors are not members of Nasdaq and cannot file complaints with the exchange, as large financial institutions can do. Brokers like Scottrade have almost universally declined to take direct responsibility for the losses their customers suffered. The frustration of these customers has played into a broader sense that small investors got the short end of the stick in the bungled Facebook offering.
“They are just spitting in the face of the retail investor and protecting the people that are responsible for this I.P.O.,” said Mr. Hoag.
Whitney Ellis, a Scottrade spokesman, said the “issues were industrywide and beyond our control.”
“Clients who have shares of Facebook stock in their accounts can trade their shares at any time,” Mr. Ellis said. “We have tried to address every client’s concerns on an individual basis and will continue to do so until everything has been resolved.”
Not all financial institutions have treated their customers the same. On Thursday, the bank that led the offering, Morgan Stanley, held a conference call for its employees in which it detailed a plan to take losses on behalf of customers who lost money because of to first-day errors, even when the problems were caused by Nasdaq. This provided some positive attention for Morgan Stanley, which has been the subject of intense scrutiny for how it handled the public offering.
Knight Capital, a major trading firm, said late Wednesday that it had incurred around $30 million of losses as a result of the issues at Nasdaq. The firm later said that some of those losses were the result of absorbing hits that it could have passed along to its institutional customers.
Javier Paz, a brokerage analyst at the Aite Group, said that the liability for the losses suffered during the bungled I.P.O. were in a murky legal territory and would probably “be decided in the courts.”
Mr. Paz said that at a minimum brokers should take responsibility for situations like the one Mr. Hoag encountered, where he was forced to take shares after his broker had led him to believe that his order had not been filled.
“If they have said one thing, they cannot turn around and do another,” Mr. Paz said.
At the end of Friday, Scott Grusky, a California retail investor, received a message from Fidelity saying an order he placed for 100 shares earlier in the day had been “canceled verified.”
On Monday, he opened his account to find that message gone. In its place, he was told that his order had been filled, not at the $34 price where Facebook was trading on Monday, but instead at the $40.50 where it had been trading when he initially placed his order.
Mr. Grusky said that when he complained to Fidelity, the customer service representative told him that the same thing had happened to many other customers, and blamed Nasdaq for the problem.
“Once a transaction is complete, I’m pretty sure the legal precedent is that you can’t change your mind,” Mr. Grusky said.
A Fidelity spokesman, Stephen Austin, said that all the problems customers had encountered “were a result of Nasdaq reporting issues.”
Mr. Austin said Fidelity was seeking compensation for its customers from Nasdaq and would “continue to do so until we are confident that Nasdaq has done everything it can to mitigate the impact to our customers.”
Nasdaq executives have said that the exchange’s legal liability will be limited to the $3 million cap set by regulations. Nasdaq is putting aside another $10 million to cover customer losses. It has asked its members, including brokerage and trading firms, to submit any complaints before Monday.
Nasdaq’s pool is likely to be overwhelmed by the scale of claims against it. Citadel, which executes trades for retail brokers, has sustained losses on the same scale as the $30 million to $35 million at Knight, according to people familiar with the matter. The two firms handle about half of all retail orders, so the total losses are expected to be well over $100 million.
There were many opportunities for investors to ponder whether Facebook was worth a $38 offering price, and even if the trades had gone flawlessly they might have lost money. The shares, which started trading on Friday at $42.05 and closed that day at $38, ended Thursday’s session at $33.03. That is up about 3 percent for the day but down 13 percent from the offering price.
Regulators including the Securities and Exchange Commission are examining several irregularities around the offering, including the technical problems on Nasdaq. One Maryland investor, Phillip Goldberg, has filed a lawsuit against Nasdaq in federal court in Manhattan, seeking to create a class-action case. Mr. Hoag said he was considering legal action against Scottrade, which tapped his account for a trade he thought had been canceled. When he was told Wednesday of the charge, Mr. Hoag said he asked the broker not to put the order through. He said he was met with silence.
“I said, ‘You can’t do that,’ ” Hoag said later. “To me, it’s tantamount to theft.”
- Facebook I.P.O. Raises Regulatory Concerns – NYTimes.com (mbcalyn.com)
- As Facebook’s Stock Struggles, Fingers Start Pointing – NYTimes.com (mbcalyn.com)
- Bankers Under Fire as Facebook Slips 11% – WSJ.com (mbcalyn.com)
- For Average Investors, Long Odds on a Big Facebook Payday – NYTimes.com (mbcalyn.com)
- Scottrade working to address Facebook trade issues (marketwatch.com)
- Facebook IPO Concern Grows as Morgan Stanley Defends Role – Bloomberg (mbcalyn.com)
- Financial Stocks: Nasdaq, Morgan Stanley speed financials’ drop (marketwatch.com)
- Facebook investor sues Nasdaq over IPO (sfgate.com)
- Facebook investor sues Nasdaq over IPO (sfgate.com)
- Facebook IPO investor sues Nasdaq over trading delays (news.cnet.com)