Two questions are dominating the discussion on Facebook today:
1) Did Nasdaq make the right call by not halting the stock once it became clear there was a problem with the order messaging system?
Probably not. "If you can't make a market that is fair and orderly, halt until you can," one veteran trader wrote to me. "When you are in a hole, stop digging."
But imagine this: you have a helicopter flying overhead. Mark Zuckerberg and Nasdaq CEO Bob Greifeld are high-fiving each other; think there's any pressure to open the stock, and keep it open?
2) Would this have happened differently at the NYSE? Possibly. At the NYSE there is one Designated Market Maker (DMM) who is responsible for opening — and halting — the stock. Privately, NYSE officials insist that the DMM would almost certainly have halted or delayed the stock quickly if there was a problem with the order messaging system.
In one sense, this is an old issue. What's better: a system with one person who has principal responsibility, or one with a series of market makers? NYSE partisans insist that it is good to have an "adult" watching the system. "The problem is basic: Nasdaq market architecture is deeply flawed," one partisan wrote to me. "It is fragmented, and nobody has any responsibility whatsoever for its quality and efficiency. It can't be corrected, it's intrinsic to a dealer/ECM system."
Nasdaq partisans insist this is balderdash, that the problem with Facebook had to do with the "process" and not with the trading system. They insist the mistake they made was this: Nasdaq allowed orders — including cancellations — up until the moment the stock began trading; the sheer number of orders (particularly cancellations) overwhelmed the system.
Had they simply frozen the book and not allowed any new orders (including cancellations) for a couple minutes before the stock opened it's possible the problem could have been avoided, they insist.
Which is exactly what the NYSE does with an IPO: at some point they freeze the order book, then determine what the opening price will be based on the orders to buy and sell.
Nasdaq has already announced they will no longer permit orders to be put into the system up until the moment an IPO begins trading.
Regardless: the NYSE seems almost certain to benefit from this. Imagine this: you are an Investor Relations guy at a major tech company that is going public. You are making a presentation to your CEO on where to list. That argument for listing on the Nasdaq is going to be harder to make. I don't think that is a stretch.
On a separate issue: where's the volume in Facebook? If everyone is dying to get out of Facebook, where are they? Volume approaching the close is just a bit above 150 million shares; on Friday the total volume was nearly 600 million. Sounds like a lot of people who wanted out, got out. On Friday.
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