Facebook's weak IPO hurts NASDAQ owners

NASDAQ OMX down 4 per cent following botched opening

Likes it. A billboard at the Facebook campus
Likes it: a billboard at the Facebook campus on IPO day. Photograph: Getty Images

The new, publicly traded, Facebook got off to a very shaky start on Friday, as firstly the volume of orders caused a cascade of errors at NASDAQ which delayed the beginning of trade, and then the company's underwriters had to intervene twice to prevent the price falling below the $38 price set on Tuesday.

Although the value never did fall below that floor, ensuring that Facebook has indeed become a $104bn company, the fact that the highest price all day was in the first few seconds, when the stock opened at $42 before plunging to $38 just 20 minutes later, marks the company out for concerns. Analysts have blamed, variously, the bungled sale, the generally weak stock market, and concerns around Facebook's core advertising business after General Motors announced on Wednesday that it was pulling back from paying for any ads on the site.

In the end, the price hit $38 twice, once shortly after opening, and once for a longer period towards the end of the day. Each time, the company's underwriters, a consortium of 33 banks led by Morgan Stanley, were forced to intervene, buying up extra shares to prevent the price dropping below the floor.

Some, however, see the weak performance as a positive sign for Facebook. The failure of the stock to rise beyond where it began at indicates that the company managed to set the price at the very top of the potential range of valuations, ensuring more money in their coffers and less for the traders hoping to buy low and sell high.

The real losers of the day, however, are NASDAQ themselves. Reports this morning indicate that they may face a $100m lawsuit over their handling of the IPO. Not only did the sale begin 20 minutes late, but the glitch that led to the delay also means that almost 30 million shares may have been allocated at the wrong price, or to the wrong traders. NASDAQ is preparing an investigation into the matter, pending the approval of the Securities and Exchange Commission.

The delay itself was the result of a two millisecond delay in order processing. NASDAQ had run simulations on an IPO of Facebook's size, and specifically the mechanism by which the opening price is set, but the volume of orders meant that there was a tiny delay between that price being fixed and trading opening. In that time, just enough orders were cancelled to change the price, which meant the whole process began again. In the end, the exchange decided to print the opening price manually. NASDAQ OMX, the holding company which owns the exchange, was down 4 per cent by the end of the day.