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Nasdaq, Facebook the Buzz of Exchange Conference


The Sandler O’Neill Global Brokerage and Exchange Conference started at the top of Thursday morning — an annual gathering of executives from the top executives in the financial transaction world presenting to analysts, investors and media.

A sign outside of the Nasdaq Marketsite in Times Square welcomes Facebook which is set to debut on the Nasdaq Stock Market.
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But before the presentations even started, attendees were abuzz in the hallways with their respective takes on Nasdaq’s $40 million proposal to address damages mounted by brokers during the initial public offering of Facebook .

The general takeaway: It’s not enough. And it’s only a proposal.

“The SEC hasn’t approved the plan just yet,” Fred Tomzyck, CEO of TD Ameritrade, told CNBC. “There will be a lot of noise around that process. It’s my view an independent review should take place.”

Nasdaq has proposed to pay $13.7 million in cash to market-makers who were left on the hook by making retail investors — like TD Ameritrade — whole as Nasdaq confirmations were unclear. The remainder of the fees would come through Nasdaq trading discounts.

No doubt, each piece of that plan will provide a tough line of questioning for Nasdaq CEO Bob Greifeld, addressing the conference at 10 a.m.

One market maker attending the conference said, “We were told that the way we make enough money to give back to individual investors is by trading with Nasdaq and giving investors the difference we earn — it’s a big boon to [the exchange’s] volume.”

Attendees were quick to offer both criticism and suggestions for the situation.

A bank executive, who requested to remain anonymous, said Nasdaq could have handled the situation much differently. “This could have been their ‘Tylenol’ moment,” he said, referring to the infamous 1982 debacle where Johnson & Johnson spent $100 million in an immediate recall of the drug before a flawless re-launch.

A New York Times headline on the situation, 20 years later, read: “Tylenol made a hero of Johnson & Johnson.”

Another attendee suggested Nasdaq — with $525 million in cash as of the first quarter, and Facebook losses estimated up to $200 million — raise equity to pay for the damages. “Shareholders would be diluted once, but the reputational damage by doing only what’s legally required could be immense,” this attendee noted.

The Securities & Exchange Commission places a cap on liabilities in these situations at $3 million, and Nasdaq’s proposal includes one-time change to that rule.

In Tomsyck’s presentation, he coupled the Facebook IPO with the 2010 “Flash Crash” as two similar events instilling fear in the operation of the market.

“You have three years of hope in a row, and it keeps disappearing on you,” Tomzsyck said of the effect of these blips on the recovery. “It’s going to take a bit of work for the retail investor to come back.”

-By CNBC's Kayla Tausche
Follow Kayla Tausche on Twitter: @KaylaTausche