

UBS sues Nasdaq over $357 million IPO loss - cubicle
http://www.marketwatch.com/story/ubs-profits-disappoint-amid-loss-on-facebook-ipo-2012-07-31-14854710

======
rotskoff
If you take a look at the UBS quarterly report, you can read the specifics of
their claim (quoted below and available in full on the UBS website).
Essentially, the bank asserts that NASDAQ initiated buy requests multiple
times. Had Facebook stock sky-rocketed, as anticipated, I wonder if we would
have ever heard a word of this?

"Due to multiple operational failures by NASDAQ, UBS’s pre-market orders were
not confirmed for several hours after the stock had commenced trading. As a
result of system protocols that we had designed to ensure our clients' orders
were filled consistent with regulatory guidelines and our own standards,
orders were entered multiple times before the necessary confirmations from
NASDAQ were received and our systems were able to process them. NASDAQ
ultimately filled all of these orders, exposing UBS to far more shares than
our clients had ordered. UBS's loss resulted from NASDAQ's multiple failures
to carry out its obligations, including both opening the Facebook stock for
trading and not halting trading in the stock during the day. We will take
appropriate legal action against NASDAQ to address its gross mishandling of
the offering and its substantial failures to perform its duties."

~~~
andr
The order workflow is generally like so:

1) Client sends order to market.

2) Market acknowledges it has received the order, sending back the market-
generated order ID.

3) The market tries to fill the order (takes from 1ms to a day, depending on
the type of order). When the order is filled, the client is informed.

4) At any time before the order is filled, the client can cancel it.

Perhaps during NASDAQ's issues the acknowledgements (step 2) were not sent and
UBS didn't have the IDs of the orders they wanted to cancel.

~~~
veyron
The real problem, according to UBS, is that in absence of an acknowledgement
they sent extra orders. UBS improperly acted. The first rule when you set up
risk limits is to consider both actual position (acknowledged) and theoretical
position (assuming all orders are filled). Standard risk controls would have
prevented this.

~~~
pdovy
Yeah this seems like a baseless claim to me. I work on these kinds of
applications and we always assume that an order is eligible to execute from
when it's sent until the exchange confirms it has been canceled/deleted. This
is pretty standard and it's surprising that a big bank would have such an
obvious hole in their risk system, and disappointing that they would then fail
to take responsibility for their own mistake.

~~~
cube13
I think the standard IPO buying strategy for a large institution like UBS is
to make many large buy requests to make absolutely sure that all the brokers
that want stock get it, then cancel when enough orders are fulfilled.

Since interest was very high on the FB IPO, the assumption would be that it
would be fairly hard to actually get stock. So the bank would make a lot of
requests, on the hope that a certain percentage would be fulfilled
immediately(say 30-40%), after which they could cancel the remaining orders.

Unfortunately, this turned out not to be the case, because a LOT of FB stock
was released to the market. Add to that that NASDAQ(as UBS contends) did not
give a confirmation ID to UBS, and it's pretty easy to see why this happened.

------
mootothemax
_UBS sues Nasdaq and Facebook over $357 million IPO loss_

The article doesn't mention anything about UBS suing Facebook, only Nasdaq.
Can you update the title to take this into account?

Edit: title now updated, thanks! :)

~~~
its_so_on
right, specifically "to address its gross mishandling of the offering and its
substantial failures to perform its duties".

does anyone know what they could possibly have in mind?

~~~
nandemo
There were severe technical problems in Nasdaq's trading system during the
IPO:

[http://abcnews.go.com/blogs/business/2012/06/nasdaq-
outlines...](http://abcnews.go.com/blogs/business/2012/06/nasdaq-
outlines-40m-fund-for-facebook-ipo-glitches/)

~~~
kamaal
Aren't these sort of things covered in 'I have read and understood the Term
and conditions' & then click on 'I agree'.

~~~
kitsune_
No, these are the things covered by the litigation specialists at corporate
law firms.

------
quantgenius
What they should actually do is fire the bozos handling client orders in their
wealth management group.

Having built multiple systems for automated trading and traded manually, it's
really trading systems 101 to know that unacknowledged orders should be
treated as live until you know otherwise and should never be repeated. Second,
when you connect to Nasdaq via FIX or their proprietary protocol, one of the
parameters you are allowed to specify is and ACK timeout. So if the exchange
was getting around to acknowledging an order with a client timestamp that is
more than ACK timeout old it is auto-cancelled. It seems from talking to
multiple people that multiple firms including UBS hadn't set an ack timeout at
all.

~~~
vtry
Oh and that will get 357 million back?

------
smoyer
Until a few weeks before the offering, FB was going to price at $28 per share.
Why is anyone surprised that the $38 price had no support?

~~~
kitsune_
This isn't about the support level of Facebook's share price. UBS claims that
NASDAQ was de facto dysfunctional. Too many buy orders were triggered,
cancellations not being fulfilled and so on.

~~~
smoyer
True, but the implication was that a lot of their FB activity was executed by
their traders on behalf of their (now unhappy) clients. It's my opinion that
this lawsuit wouldn't be happening if FB's stock was at $50.

~~~
tinco
Ofcourse it wouldn't be happening then, nobody would have had taken any damage
if the FB stock had stayed or risen.

UBS would just have sold off the excess of shares it had received, perhaps at
a profit. Perhaps just warning NASDAQ of their reckless technical situation.

That doesn't mean that there for some reason this lawsuit isn't justified.
NASDAQ made UBS take a risk they did not want to take.

~~~
veyron
UBS was rendered an undue risk when the first order didn't acknowledge.
Sending future orders was UBS mistake, despite the eventual performance.

------
endianswap
Can someone shed some light onto how common of an occurrence this is? It seems
like the world of finance is frequented by trigger-happy lawyers and that this
might be a commonplace occurrence.

~~~
brk
IANAL...

It's pretty common, I can recall lots of these cases around IPOs that didn't
sky rocket as planned.

This one may be a little more unique because NASDAQ seems to have had actual
technical issues with the IPOD. Given the current stock proceed of FB though,
I'm curious how their argument is framed.

------
Tooluka
A bank sues stock marked over some number fluctuation caused by social network
and all that produces millions of profits for the lawyers :) . If I would be
more naive I'd say "Let them all burn down". But since all that translates to
billions of real money and can possibly harm entire countries in some cases
(like the LIBOR scandal) we can only watch and wonder how did we come here...

------
joeblau
They need to fire the employees who thought investing in Facebook was a good
idea in the first place.

~~~
andylei
they were client orders. their clients wanted to buy FB

~~~
joeblau
Yep "including clients of our wealth management businesses."

The people running the UBS wealth management business need to be terminated.
This is most likely the catalyst for why UBS is actually suing. Rest of the
"clients" who did no research and just bought into the hype are just along in
the lawsuit for the ride.

~~~
andylei
>> This is most likely the catalyst for why UBS is actually suing

unlikely. from their quarterly report " NASDAQ ultimately filled all of these
orders, exposing UBS to far more shares than our clients had ordered".

their clients ordered X shares of FB. UBS sent out 5 * X shares (or something
like that). they sent out extra orders because NASDAQ wasn't sending
acknowledgements for the initial orders. so UBS had to liquidate 4 * X shares
at a loss, because the price took a dive. the loss from liquidation is why
they sued.

------
DiabloD3
I'm pretty sure NASDAQ has their asses covered with armor-clad underwear so
thick that a bunker buster penetrator missile will feel impotent.

That said, time to load up the popcorn machine.

