Citadel Securities Burned On Facebook IPO Fiasco

May 25 2012 | 3:32am ET

Citadel Investment Group's broker-dealer unit lost between $30 million and $35 million due to problems with Facebook's Friday initial public offering.

That IPO, the third-largest in U.S. history, was marred by technical glitches and backing from its underwriters to keep Facebook's share price from plummeting. Citadel Securities' Execution Services unit suffered its losses when it honored trades that were cancelled or modified during the two hours after Facebook's shares debuted on the Nasdaq Stock Market.

Technical problems prevented some orders from being confirmed. Nasdaq has asked market-makers to provide loss estimates by Monday evening. The Financial Industry Regulatory Authority will then review those estimates and offer a report in about a month.

Citadel's hedge funds were not affected by the Facebook fiasco at its broker-dealer.

It is unclear whether Citadel plans to sue Nasdaq, although at least one of its rivals, Knight Capital Group, has already threatened to do so if the exchange does not cover its losses, which were about the same as Citadel's. Nasdaq has already been hit with a class-action lawsuit, and its CEO said this week, "clearly we had mistakes in the Facebook listing."

One hedge fund manager gave the New York Post an idea of the mess that faced investors on Friday.

"I tried to short 15,000 shares on the opening," the anonymous money manager said. "I wanted to short 50,000, but 15 was all I could get."

He didn't even get that much. Despite a verbal confirmation of the 15,000 share short interest, he got only 5,000 of the shares he hoped to short. In the interim, he bought 15,000 shares to cover his short.

"I ended up losing money," he told the tabloid.

While demand to borrow Facebook stock—and short it—remains high, many hedge fund managers are wary of a short squeeze on the stock. "The usual Wall Street game is to shake out the weak hands and get them to puke it up," Rocker Partners founder David Rocker told the Post.

Others are still predicting a dramatic fall from grace for Facebook, which priced at $38 but is now trading in the low $30s. Some put options on the stock have it falling below $22.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.