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Facebook IPO Cost Citi Millions

Zacks Equity Research

The highly publicised listing of the social networking company, Facebook Inc. (FB), on the Nasdaq Stock Market cost Citigroup Inc. (C) millions, according to a Wall Street Journal report. A technical glitch cropped up with the Facebook IPO and as a result, the market making unit of Citi incurred losses of around $20 million.

Besides Citi, the market-making unit of UBS AG (UBS) also suffered a loss of $30 million. In addition, claims came from Citadel LLC and Knight Capital Group Inc. (KCG) who suffered losses of around $30 million to $35 million each. E-Trade Financial Corp. (ETFC) too is said to have incurred losses but of a smaller amount.

The Glitch

There was a problem with the Nasdaq OMX Group Inc.’s (NDAQ) system while dealing with the Facebook IPO. A flood of order cancellations hindered the procedure of matching of buy and sell interest in the Facebook stock for the initial trade.

This led to a delay of around 20 minutes and during this period the transactions that were attempted were not confirmed for hours. As a result of the delay in orders, significant losses were incurred by investors and traders when the stock price fell.

The Way Out

Firms have demanded compensation for their losses associated with the trading of Facebook stock from Nasdaq. They have been asked to provide their loss estimates. The Financial Industry Regulatory Authority is scrutinising the trades and will make a report on the losses in the coming weeks.

Our Take

We believe that such technical glitches will cost Nasdaq several million dollars. Moreover, such litigation issues will also consume time and the extent to which Citi’s losses will be covered also remains a concern.

Citi currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering its fundamentals, we also have a long-term Neutral recommendation on the stock.

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Read the Full Research Report on UBS

Read the Full Research Report on ETFC

Read the Full Research Report on KCG

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