"Remember when Facebook
IPOed last May and it was a mess? Today the SEC released its amusing order
fining Nasdaq $10 million for the mess and explaining what happened. Some
computers were having a stressful day at work and so they decided to give up
and hide out in the nap room, is the gist of it. I feel like I’d get along with
those computers.
What started the mess is that Nasdaq opens the trading of a newly IPO’ed stock with an opening cross where it compiles quotes for a while and then crosses them in one big opening cross before continuous trading starts. And it uses the following process to do the opening cross:
1 Get a bunch of orders over a ~20 minute period before trading starts
2 Use a program called the IPO Cross Application to calculate the clearing price and shares crossed based on those orders, which takes a few milliseconds
3 Check if any of the orders were cancelled during those milliseconds
4 If they were, delete those orders and Goto 2
Did you spot the problem? Nasdaq’s systems engineers did not, even after the IPO Cross Application had been running on an infinite loop for twenty minutes."
"So some people who’d submitted marketable orders didn’t get their orders executed, other people whose orders were executed didn’t get confirmations, and general unpleasantness ensued. Also Nasdaq accidentally and illegally shorted 3 million shares of an IPO that it was in the process of (...), which is a great idea except for the “illegally” part: the stock went down and Nasdaq made $10.8 million dollars covering its short."
What started the mess is that Nasdaq opens the trading of a newly IPO’ed stock with an opening cross where it compiles quotes for a while and then crosses them in one big opening cross before continuous trading starts. And it uses the following process to do the opening cross:
1 Get a bunch of orders over a ~20 minute period before trading starts
2 Use a program called the IPO Cross Application to calculate the clearing price and shares crossed based on those orders, which takes a few milliseconds
3 Check if any of the orders were cancelled during those milliseconds
4 If they were, delete those orders and Goto 2
Did you spot the problem? Nasdaq’s systems engineers did not, even after the IPO Cross Application had been running on an infinite loop for twenty minutes."
"So some people who’d submitted marketable orders didn’t get their orders executed, other people whose orders were executed didn’t get confirmations, and general unpleasantness ensued. Also Nasdaq accidentally and illegally shorted 3 million shares of an IPO that it was in the process of (...), which is a great idea except for the “illegally” part: the stock went down and Nasdaq made $10.8 million dollars covering its short."
