- Posted by Frank Zorrilla
- on May 23rd, 2012
By now we are all probably sick of hearing of Facebook and its disaster IPO, but the story is very intriguing. Today I heard story about a broker who took a mid 5 figure hit due to the Nasdaq not being able to execute orders. This is how it went down;
- The Broker puts in an order to buy let’s say 10k shares for his clients of Facebook at 42.50 after the stock opens.
- Broker then sits and waits for a confirm which you normally get within seconds.
- Minutes go by and the broker is yet to get a confirmation that he purchased Facebook, which is now tanking.
- Broker says; what the fuck is going on, where is my print, the stock is tanking, I’m cancelling my order.
- The Broker hits the cancel button and proceeds to put the same order (10k shares) at a lower price $39 where the stock is trading.
- The same thing happens, the broker gets no confirmation that he bought the stock at 39.
- Market closes, the broker goes home to enjoy his weekend without any confirmation that he bought Facebook.
- Broker walks in Monday morning and notices that he is now the proud owner of 20k shares of Facebook, 10k at $42.50 which were orders he mustered up from his clients which he thought he cancelled. The other 10k at $39 is the same $42.50 order that he assumed was cancelled because he never received a confirmation that he bought it.
- Pre market Monday morning Facebook is tanking, the broker is furiously trying to find out what is going and why he owns 20k shares of facebook. By the time he gets the answer that it was a Nasdaq glitch the stock is down $5. With the stock down $5 there is no way he can find a home for this stock in client accounts and at this point he realizes that he is the actual owner of the additional 10k shares of Facebook and is forced to sell at the market taking a huge hit.
- This probably happened to many investors, brokers, traders, etc…and maybe part of the reason why Facebook was under so much pressure Monday morning.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC.He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. More »
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