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Nasdaq Revises Compensation Plan

Zacks Equity Research

Acknowledging the grievances of its investors, Nasdaq OMX Group Inc. (NDAQ) decided to increase the compensation for losses incurred due to the failure of Facebook Inc.’s (FB) initial public offering (“IPO”) by $22 million. This will finally take the compensation amount to $62 million, according to a Reuters report.

Even though no reason was disclosed officially, it is expected that with the second quarter earnings release this Wednesday, Nasdaq will substantiate this sudden hike in the compensation amount.

Companies like Knight Capital (a unit of Knight Capital Group, Inc. [KCG]), Citigroup's (C) Automated Trading Desk and UBS AG (UBS), who suffered heavy losses due to the failed IPO of Facebook, await Nasdaq’s stance on paying for the damages, as the current amount of $62 million is not adequate to reimburse the entire loss. The total loss incurred for the $16 billion IPO exceeded $200 million due to a technical glitch that delayed trading for hours.

Last month, the company promised to pay $40 million to the trading firms that incurred losses owing to the blunder on the IPO day. It had decided to make a cash payment of $13.7 million and the balance was to be remitted by subsidizing the trading fees of the concerned investors for the next six months. 

As per the latest announcement, the company plans to make all payments related to the compensation in cash over the next six months to those companies who agree not to take any legal action against Nasdaq.

Even though Nasdaq’s share prices reflect a minor decline of 2% to close at $22.37 per share last Friday, we expect the company to revive from the disaster soon.

With Nasdaq scheduled to disclose its results before the bell on July 25th, the Zacks Consensus Estimate is pegged at 60 cents per share, representing a year-over-year decrease of 3.2%. The company retains a Zacks #3 Rank, which translates into a short-term Hold rating and alongside we maintain a long-term Neutral recommendation on its stock.

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