Massive demand for the social networking giant's initial public offering, which set a trading volume record for U.S. market debuts, led to a 45-minute delay in the start of trading in the stock. But it was what happened after trading started that had some on Wall Street fuming.
The Nasdaq Stock Market, where Facebook is listed, had problems sending electronic messages back to the brokerages that handle orders from individual, or "retail," investors, according to people with direct knowledge of the situation.
Because the electronic acknowledgements didn't come back from the exchange, the brokers were unable to tell their clients that trades had been executed. Such acknowledgements usually occur almost instantaneously. The delay meant that, in one of the most anticipated stock offerings ever, frustrated brokers and investors didn't know if orders had actually gone through.
"Nasdaq's delay in passing back executions is causing a lot of heartburn on the Street," said one source. "We had to tell clients we didn't get the print back," said another.
Nasdaq officials did not return repeated calls for comment. In a note to traders, the exchange operator, Nasdaq OMX Group, said at 1:57 p.m. Eastern Daylight Time that trade execution messages were finally delivered to brokers and market makers. The stock started trading about 11:30 a.m.
Later the exchange said it intended to reach a resolution on orders entered from 11 a.m. to 11:30 p.m. ET through an "offline matching process."
Some traders said they were still not getting confirmations toward the end of the trading day.
"We're flying completely blind," said an East Coast-based Morgan Stanley Smith Barney broker who had put in more than 30 orders for clients over the course of the day, including a few before the opening bell.
As of 3:15 p.m., Nasdaq had only confirmed that just a few very small trades had gone through, said the broker, who asked not to be named because he was not authorized to speak, under Morgan Stanley's rules.
Around the same time, some brokers at Raymond James & Associates, the brokerage arm of Raymond James Financial, still had not received confirmations on all of their pre-IPO orders that were at or above $42 a share, said one broker, who declined to be identified because he was not permitted to speak to the press.
"We have seen these kinds of things happen in crazy markets, but not when it's just crazy with one individual security," the broker said.
A Bank of America Merrill Lynch broker, however, said he had no problems whatsoever in the process.
The end result was confusion that lingered after the close of trading.
"There are massive problems here that are going to require the Street to spend a significant amount of time to clean up, particularly the market makers and the order-sending firms," said one of the sources, who requested anonymity.
After the market closed, the U.S. Securities and Exchange Commission said it would review the trading glitches surrounding Facebook's debut.
Investor confidence in the equity markets, where trading is largely computer-driven, has wavered since the "flash crash" in May 2010 when $1 trillion in shareholder equity was temporarily wiped out in a matter of minutes.
In March, the botched IPO of BATS Global Markets, the third-largest U.S. stock exchange, refocused attention on the potential for marketplace mishaps. A series of unforeseen glitches hit the company's market debut on its own exchange and caused it to take the extremely rare step of withdrawing its IPO.
The debacle also led to a fouled trade in shares of Apple Inc and caused a temporary halt in the stock.
When data-mining software maker Splunk went public on Nasdaq on April 19, it was very well-received and its shares soared, tripping a circuit breaker that temporarily halted the stock, but its shares continued trading on NYSE Arca during the halt, and those trades had to be canceled.
Just last Thursday, the IPO of Andina Acquisition Corp, a small Nasdaq-listed company, went awry and a batch of trades had to be canceled.
The next day, Nasdaq ran the first of four days of tests on its IPO systems in the week leading up to the Facebook's debut.
"They were trying to beef up their equipment in anticipation of this so they need to continue to invest in their equipment because it's a little unsettling when market structure doesn't function correctly," said Stephen Massocca, managing director at Wedbush Morgan, a broker in San Francisco.
STOCK ENDS NEARLY FLAT
The day started with a burst of activity, with 83 million Facebook shares crossing the tape in the first minute of trading. After that, volume naturally declined, but investors said some traders might have backed away due to the lack of news on executions from Nasdaq.
As the share price dipped to $38, where Facebook was initially priced, volume ticked up. Traders cited support from underwriters, including lead underwriter Morgan Stanley, as the stock neared the floor.
It was possible that the Nasdaq's problems were behind the price movement, said one of the sources. "There was definitely some uncertainty around the open because people didn't have their positions," the source said.
Facebook shares did not fall below the IPO price of $38 and closed at $38.23.
(Additional reporting by David Gaffen, Jennifer Cummings, Jessica Toonkel, and Chuck Mikolajczak; Editing by Steve Orlofsky and Alwyn Scott, Gary Hill)
By John McCrank and Jonathan Spicer