The NASDAQ stock exchange has been charged by the US Securities and Exchange Commission (SEC) with violating security laws as a result of its "poor systems and decision making" during the initial public offering (IPO) and secondary market trading of Facebook shares.
It has agreed to settle the SEC's charges by paying a $10m penalty - what the SEC states is the largest ever penalty against an exchange.
The SEC said that a design limitation in NASDAQ's system to match IPO buy and sell orders caused disruptions to Facebook's IPO on 18 May 2012, and this was then compounded by a "series of ill-fated decisions" that led to the exchange violating further rules.
The SEC order states that NASDAQ decided not to delay the start of secondary market trading in Facebook because they believed that the initial problem had been fixed by removing a few lines of computer code, without completely understanding the root cause of the problem. This in turn caused about 30,000 Facebook orders to remain stuck in the exchange's system for a couple of hours, rather than being executed or cancelled.
"This action against NASDAQ tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets," said George S Canellos, co-director of the SEC's division of enforcement.
In addition to the fine, NASDAQ is to be censured, meaning that it will incur substantially higher charges if it commits these violations again.
