Behind the Huge Facebook Loss at UBS

Perhaps the most glaring aspect of UBS‘ poor quarterly earnings announcement was the $356 million loss tied to Facebook‘s initial public offering.

It's notable because it's roughly 10 times bigger than what other market-making firms suffered from the social network's botched market debut.

Since Facebook's I.P.O. on May 18 - when the company's stock rose, only to plummet and nearly fall below the $38-a-share offer price - the blame has come fast and furious from all corners.

Still, while many market-making firms have confirmed that they lost money from the technical issues that plagued trading of Facebook shares on the first day, UBS' loss was far and away above what its peers have experienced.

The Knight Capital Group, for instance, has said that it lost about $30 million to $35 million. The Citadel Investment Group reportedly lost close to the same amount. And Citigroup has lost around $20 million, according to a person briefed on the matter.< /p>

When reports about UBS' big loss first began swirling about earlier this summer, traders at other firms expressed surprise that the Swiss bank could suffer such an enormous blow, disproportionate compared to the market-making community as a whole.

In a letter to shareholders on Tuesday, UBS put the blame squarely on the Nasdaq stock market, which it claimed committed “multiple operational failures.” The gist of UBS' complaint is this:

• Nasdaq's systems ran into trouble processing first-day orders, leading to a delay in confirming orders
• UBS' own systems mandated that clients' orders be entered multiple times until confirmations were received
• All of UBS' orders were eventually filled, meaning that the firm was stuck with a glut of excess orders

In essence, because UBS did not receive confirmations of its orders, it repeatedly hit the metaphorical button until its submissions were cleared.

What Nasdaq should have done , according to UBS, was not open Facebook's stock for trading and not halting trading when trouble appeared later in the day. And the Swiss bank said it will demand compensation.

“We will take appropriate legal action against Nasdaq to address its gross mishandling of the offering and its substantial failures to perform its duties,” UBS wrote in its letter to shareholders. “Although as in all such matters there can be no assurance as to the amount of any recovery we may obtain, we intend to pursue compensation for the full extent of our losses.”

A Nasdaq spokesman declined to comment.