Nasdaq rivals call Facebook compensation illegal

Rival exchanges lashed out at Nasdaq OMX's $40 million plan to compensate clients for its mishandling of Facebook's initial public offering last month, calling the plan "illegal," "anti-competitive" and saying it was unlikely to be approved by US regulators.

A day after Nasdaq rolled out its plan, which would mostly consist of trading discounts for clients, rival exchanges questioned the legitimacy of the proposal, and one of Nasdaq's biggest customers said the sum offered was not nearly enough. Total losses by banks and brokerages due to the technical problems that plagued the $16 billion IPO may be as high as $200 million, said Thomas Joyce, chief executive of Knight Capital Group, a market maker in the deal that said it alone lost $35 million.

"I think that the scheme is illegal," Bill O'Brien, CEO of the No. 4 US equities exchange, Direct Edge, said at Sandler O'Neill's brokerage and exchange conference in New York. "It is also a shameless attempt to basically turn a big investor-confidence-eroding event into a competitive advantage."

O'Brien, who was visibly upset, said his company would contest the plan and that he did not think it would be approved by the US Securities and Exchange Commission. NYSE Euronext, the top US stock exchange, also said it strongly objected to the plan.

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