It's crisis communications 101 for Corporate America: when a company bungles an event as big as the Facebook IPO, alienates customers, and spawns lawsuits and regulatory inquiries, the CEO apologizes and agrees to provide compensation to make things right. Everyone can then move on.
Not so at Nasdaq OMX Group, where technology glitches and a communications breakdown marred Facebook's $16 billion initial public offering on May 18.
Since then, the exchange has done little to conciliate market making clients - a number of which lost tens of millions of dollars each due to the trading problems. There has been no outright apology. And as angry as some customers may be, experts say they have little alternative but to keep trading on the exchange.
And they have. Nasdaq's trading volume this week is above the monthly average, and its share price is nearly unchanged two weeks after the trading glitch.
Nasdaq, one of only two U.S. exchanges on which companies can list their shares, is home to a raft of heavily traded household technology names such as Apple and Google, and has challenged the New York Stock Exchange for marquee listings. The Facebook IPO was seen as a major coup.
With so few options for traders, Nasdaq's strong position is giving confidence to investors and analysts.
"We expect this to blow over with time," said Chris Allen, an analyst at Evercore Partners, in a note to clients.
Many of Nasdaq's customers sing a different tune, however. During the first day of Facebook trading, technical glitches left the market makers - who facilitate trades for brokers and are crucial to the smooth operation of stock trading - in the dark for hours as to which trades had gone through.
The result was up to $115 million in losses for the Nasdaq's top four market makers alone. Two senior executives in the financial industry have said they expect Nasdaq member claims to total $150 million to $200 million.
Nasdaq's response amounted to a members-only call with one of its executive vice presidents, a statement that the exchange would set aside a pool of $13.7 million to accommodate losses, and a brief mention of Facebook during the company's shareholders meeting. Greifeld also hosted Nasdaq's party at a technology conference this week in California.
A source close to the exchange said it is reaching out to affected clients. Yet some big clients are still unhappy.
"Communication has been about as good as it was on the day of the IPO - minimal," said Mark Turner, head of trading at New York-based market maker Instinet.
Turner declined to say how much his firm lost but said it paled in comparison with losses suffered by larger counterparts like UBS, Citigroup, Knight Capital, and Citadel Securities, which lost between $20 million and $35 million.
THROWING OUT THE CRISIS PR PLAYBOOK
In most corners of Corporate America, such a situation would have driven executives into crisis communications overload.
Regular communication, not necessarily more, is the best way to handle a crisis situation, said John McInerney, a global vice president at public relations firm Makovsky and Co.
"Just saying 'we are going to talk to you at 4:00 or at a certain point and we are going to tell you where things are right now,' I think people can live with that kind of uncertainty as long as they know they are going to hear something," he said. "And that didn't happen."
On a call with select reporters the Sunday after the Facebook IPO, Greifeld said Nasdaq was "humbly embarrassed" over the trading glitch, but he stopped short of a public apology.
"They have failed in executing a comprehensive or cohesive communications strategy," said Michael Robinson, a former U.S. Securities and Exchange Commission public affairs and policy chief who also spent three years in media relations at Nasdaq.
"Here we are a couple of weeks later and I'm still not entirely sure what it is they said went wrong," said Robinson, who is now an executive vice president at Levick Strategic Communications.
It's a sharp contrast to the way rival exchange BATS Global Markets handled a major crisis - the withdrawal of its own IPO on its own exchange in March after a technological glitch disrupted trading. Joe Ratterman, chief executive of BATS, was on television the next day taking the blame and explaining why the company pulled the plug.
The incident was an embarrassment at the time, but now market participants say BATS' swift response looks like a brilliant move compared with Nasdaq's inaction.
"Although they were highly criticized, guess what, no one lost any money, other than maybe the BATS guys. But ... investors didn't lose," said a financial industry executive who declined to be named because of the sensitivity of the issue.
"MODUS OPERANDI"
A lack of public communication is partly protective - lawsuits against Nasdaq by disgruntled investors are stacking up. But many people who deal with Nasdaq regularly, or are familiar with how it has handled its customer relationships, say even if there were no legal issues, the silence and lack of contrition expressed to market makers is par for the course.
"This is their modus operandi," said independent trading and market structure consultant William Karsh, a former chief operating officer of rival electronic exchange Direct Edge. "They screw the wholesalers because they can. At the end of the day, the wholesalers have no choice but to use them - they are still a huge liquidity pool."
Nasdaq declined to comment for this article.
Nasdaq's liabilities for a trading glitch are limited through regulation and a contract with its customers to $3 million per month. The exchange has applied to the SEC to increase the amount to $13.7 million to include a gain of $10.7 million it made from the Facebook IPO through the sale of shares it was left holding due to the technology glitches.
"They are certainly facing the specter of some significant lawsuits if this pool is not enough," said an attorney who is familiar with the situation.
The customers are arguing that the limit on liabilities should not apply because the Facebook problems were the result of gross negligence.
While its trading customers have little option but to stick with Nasdaq to do their business, the longer-term risk for the exchange is not landing the next Facebook.
"The Nasdaq has just handed the New York Stock Exchange the best marketing bonanza they could ever hope for," said Robinson.
