Facebook IPO mishandling hurt investor confidence: TD Ameritrade

Trading glitches on Nasdaq OMX Group Inc's exchange led to a 30-minute delay in Facebook's highly anticipated market debut on May 18, after which market makers - who facilitate trades for brokers - failed to receive confirmations of their opening orders for about two hours, leading to more than $100 million of losses.

In early trading on Thursday, shares were down 0.8 percent at $26.56, significantly lower than its $38 a share IPO pricing and the $42 it opened at on its debut trading day. The steep drop in the company's share price has triggered questions over its lofty IPO pricing.

Tomczyk said TD Ameritrade came out of the Facebook IPO "pretty clean" because the firm's market maker, which he would not name, covered the trades. However, he said the IPO was clearly mishandled.

"It's another one of those things that destroys confidence versus helping it," he said on the sidelines of Sandler O'Neill's brokerage and exchanges conference in New York.

As stocks began to recover following the financial crisis, the "flash crash" in May 2010, when $1 trillion in shareholder equity was temporarily wiped out in a matter of minutes, shook investor confidence in the equity markets, where trading is largely computer-driven.

Add to that the debt problems of the United States and ongoing fiscal crisis in Europe, and it's no wonder investors are cautious, Tomczyk said.

TD Ameritrade is the No. 1 U.S. retail brokerage by trading volumes and is often considered a proxy for retail investor sentiment.

The Omaha, Nebraska-based firm said on Thursday its daily average revenue trades in May were down around 4 percent from a year earlier, at 370,000. Tomczyk has said in the past that the firm would like to see average daily trading levels at around 400,000.

JMP Securities analyst David Trone said he was expecting 430,000 trades a day for the month.

"May's soft results follow April's disappointing number and with increasing macro uncertainty and the summer doldrums, we see little reason for activity to surge near-term," he said in a note to clients.

Nasdaq said on Wednesday it will offer $40 million in cash and rebates to clients harmed by its mishandling of Facebook's market debut.

The proposed compensation, subject to approval by regulators, was criticized by rival exchanges for its use of rebates, and by clients claiming losses far bigger than the amount offered by Nasdaq.

The top four market makers in the $16 billion Facebook IPO - UBS , Citigroup , Knight Capital , and Citadel Securities - together lost more than $115 million due to the technical problems, sources have told Reuters.

(Reporting by John McCrank. Editing by Bernadette Baum)

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