Facebook Initial Public Offering (IPO) Fiasco
Facebook had agreed that NASDAQ would be in charge of their Initial Public Offering (IPO) not knowing that NASDAQ did not have the adequate capacity to take on the IPO. This was due to a technological glitch that resulted in a loss for Facebook.
National Association of Securities Dealers Automated Quotations (NASDAQ) started trading 40 years ago. The objective of NASDAQ was to create a way for investors tobuy and sell stocks on a computerized, transparent, and fast system. This would eliminate the burden and inefficiency of in-person stock transactions, which had been the prevalent model for nearly a century. The NASDAQ believed that investors could make more money by closing the price gaps between buyers and sellers, and technology had evolved enough at that point to make it happen. Given NASDAQs’ experience, they were in charge of Facebook IPO. It was a debut for the social network company. The IPO went horribly wrong because of the hasty decisions made by NASDAQ.
What went wrong and the outcome
There was a widespread anticipation that the Facebook IPO would be among the largest in history with huge numbers of investors participating, a design limitation in Nasdaq’s system to match IPO buy and sell orders caused disruptions to the Facebook IPO.
The issue was that about 30,000 Facebook orders became stuck in Nasdaq system. Investors were unsure whether purchases went through as Nasdaq tried to work through the glitches and delays in their system. This issue caused by NASDAQ shows how poorly their designed systems were and the hasty decision making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing the stock markets NASDAQ had made a series of ill-fated decisions that led to the rules violations. They didn’t do a proper check of their systems. NASDAQ took a decision to proceed, thereby allowing Facebook shares to change hands in secondary-market trading despite the exchange’s lack of full understanding of a system limitation caused more than 30,000 Facebook orders to remain stuck in NASDAQ’s system, preventing their proper execution. The aftermath of this event was that Facebook, which went public onMay 18, 2012, saw its share price tank right off the bat, with investors unclear on whether their trades had gone through. The shares that had opened on a high note of $42 a share on May 18, the stock closed at $38.23 in its first full day as a public company, and went on to decline in value for several sessions after that, closing at a low of $17.73 by September. Shares of the $57 billion company were reduced to about $23.60 a share. NASDAQ was eventually fined $10m by SEC.
The decisions to have been taken
Decisions NASDAQ could have taken NASDAQ should have taken the game theory approach, taking into cognizant the views of other parties involved before taking such a rational decision. They should have ensured that their systems and processes could handle an IPO adequately, without causing any disruption to the market. If their systems were not ready, they should have postponed the Facebook IPO. NASDAQ should have added safeguards, worked on the improvement of their trading technology and performing their legal obligations before undergoing the Facebook IPO. NASDAQ should work on the safety and soundness of their market.
Given Facebook’s presence in social media, and being a big company, they should have done their market research very well before going through with the IPO. Technological glitch caused them a huge loss. This would have been prevented with proper Internet marketing analysis to determine the marketing performance of NASDAQ, which would have made their Return on Investment better off.