NASDAQ Botched Facebook IPO Trading

Recently, the IPO for BATS was a spectacular failure.  Reviewing, BATS is the third largest stock exchange in the USA.  They listed their IPO on their own exchange.  Their software couldn’t handle the volume.  BATS had to rescind their IPO, a major embarrassment.

NASDAQ had the exact same problem with the Facebook IPO.  Their software couldn’t handle the volume.

Even one day later, some customers still don’t know if they managed to buy or sell their shares!  As a retail customer, you should STAY AWAY FROM IPOs.  Even better, stick to gold and silver, taking physical delivery.

If only NASDAQ or BATS had hired me, they might have avoided their disaster!

Superficially, you would say “This software handles billions of dollars a day in volume!  It must be awesome!”  That would be wrong.  Large financial institutions have the worst software out there.

Why would a financial institution need good software, when they can get the government to give them a bailout?  Why would large stock exchanges need good software?  Regulation protects them from competition.  Inflation forces retail investors to use the stock market instead of leaving their money in a checking account.

Those financial institutions are a real software sweatshop environment.  They have 100+ programmers and multiple layers of management.

Even though BATS and NASDAQ have lousy software, no single employee is responsible for the disaster!  Some low-ranking employee may have been scapegoated.  The management structure at large financial institutions is carefully structured so that nobody is ever responsible for anything.

A fool would think “100+ mediocre programmers will always get the job done!”  Actually, they will always *SEVERELY* underperform a team of 5-10 people who really know what they’re doing.  A large group of mediocre programmers guarantees something that sort of mostly works, but isn’t really reliable.

NASDAQ’s software couldn’t handle the Facebook IPO volume.  Large financial institutions don’t need good software.  It’s easier to get a bailout and favorable regulations, than to invest in good software.  The stock exchanges are indirect beneficiaries of the huge State subsidy of the financial industry.

6 Responses to NASDAQ Botched Facebook IPO Trading

  1. Anonymous Coward May 22, 2012 at 2:26 pm

    A long, long time ago I had been unemployed for a while. There was a recession. In my part of the world very few companies where hiring. In fact one recruiter told me only one hedge fund and one online gambling company were hiring in the whole city we were in.

    The only job I could get was at a company that serviced banks, government related business, financial institutions and the like.

    I was shocked at the state of their software. They had got a vast amount of money to write the software. They decided to re-implement the wheel, but the wheel could be purchased for very small amounts of money. Obviously their re-implementation, just to save a few hundred dollars, didn’t work.

    The software built on top of it was appalling. Nothing worked. Nothing was finished. You couldn’t even find one nugget of code that worked or was finished.

    It was even impossible to finish what code had been written as it was designed by idiots. There was so many cases it wouldn’t cater for.

    I had to rewrite 95% or more of it from scratch. My design worked wonderfully. What I did was concise and elegant and easy to understand and modular. Within seconds you could go to exactly the right bit of code for a certain task.

    I did in 2 – 3 months, what a bunch of clowns could not do in over a year.

    Instead of being thanked for saving the company, the clown manager hurled abuse at me because I had done what he could not do with a whole team!

    Just to spite me, the clown decided to start pissing off the client in order that my good work would be somewhat wasted.

    This clown would prefer to sabotage the company that allow my hard work to benefit the company and everyone else.

  2. Anonymous Courageous Man May 23, 2012 at 1:38 pm

    Actually, it is clear that the IPO WAS NOT BOTCHED by NASDAQ!

    How do you spin a failed IPO? Make up a story: “It was so successful that the world’s biggest computers exploded!”

    The scenario described implies a large number of bidders unable to place their bids fast enough. There is no way that the price would go down, even if a small number of them were able to successfully place their bids.

    Even in this distortion of the free market that we call ‘Wall Street’ the only time prices go down is when the seller accept lower bids. The fact that the stock is trading at 20% below the IPO “fixed” price means just that – people think that the fair price for Facebook is 20% less than gazillion dollar. Look at the trading volume for confirmation.

    NASDAQ handled the IPO craze of the dot-com era without any major problems. Can one stupid IPO bring it down? Really.

    This way, Facebook wins, and NASDAQ will just say “We need to borrow another trillion dollars to upgrade to software. The economy is so hot and we are so popular that we need to expand to meet customer demand!”

    Otherwise, the headlines would be “Facebook IPO fails to meet targeted prices; stock sinks on low demand as consumers are still trying to sell their real-estate ‘investments’.”

    I think you got too invested in the “NASDAQ programmers are idiots – they should’ve hired me” meme and are missing the obvious truth (which is generally the simplest explanation). Remember that what you read in the paper is just marketing hype.

    • The “20% drop” didn’t happen until Monday, one trading day later.

      Some bankster is probably naked short selling Facebook, knowing that $38/share is a ridiculous price. I have a draft queued for that.

      I am 99.9% convinced that the problems at the IPO on Friday were caused by defective software at NASDAQ, which could have been fixed by hiring a couple of competent people to do QA. There’s a lot of other propaganda regarding the IPO, but NASDAQ did have a legitimate-and-avoidable technical problem on Friday.

      However, I don’t work for NASDAQ in their tech department, so I can’t be perfectly sure. It sounds like technical problems I’ve seen before.

      For example, the day of the big tobacco settlement, the NYSE had an amusing bug for Philip Morris (Philip Morris was a tobacco manufacturer.) Due to the settlement, the NYSE was *SWAMPED* with orders for Philip Morris, eclipsing the previous single-day volume record by 5x-10x or more. The NYSE allocated a FIXED BUFFER SIZE for “orders today”. The buffer overflowed, AND EVERY EXTRA ORDER WAS TREATED AS AN ERROR, SENT DO THE PRINTER. The specialist couldn’t use the display book software anymore, because every single order was sent to the printer! This was at 2pm, but the specialist still had to close the stock and pick a closing price. The specialist sorted through the PRINTOUTS of the orders, looking only at large orders, and estimated a closing price, taking responsibility for any imbalance.

      I am 99.9% convinced that NASDAQ had a similar problem. There was a record high volume of orders for Facebook, causing a previously-unnoticed bug to crash their system.

      My father watches CNBC. Allegedly, they were saying “The Facebook IPO was a success, because the investment banks made a lot of money and retail investors lost money!” They couldn’t even get their lies straight, not realizing that most of their viewers are retail investors.

      I’ve worked with exchanges enough to know that they have a large number of barely competent programmers.

      At my last financial job, I did some QA, finding bugs that the production programmers should have fixed. They did no unit testing! They gave obviously out-of-range values. They calculated negative “accrued interest” and accrued interest greater than one coupon. They gave negative answers when a negative answer was obviously wrong (i.e. negative VaR, which is impossible).

      So, I half-agree with you. Most large financial institutions have barely-working software. There is a lot of propaganda regarding the Facebook IPO, in addition to the computer problem NASDAQ had.

      For example, Google’s software has much more reliability and uptime than most financial institutions.

      • Anonymous whatever May 23, 2012 at 9:26 pm

        Any way you look at it – the price is sitting at around 20% below IPO. That means that the IPO was not well priced – that is the banksters made up a number out of thin air instead of auctioning the initial blocks in the open market. The idea of setting the price is ludicrous. That is what the market is for. Technically an auction cannot fail – you get whatever price people are willing to pay! If it’s lower than you hoped, too bad.

        On another note, of course you are always right, buddy. We know, you are a f***ing genius, and if you were on board the stock would be flying sky high! :) Too bad the management is stupid because they did not hire a guy struggling to keep out of the bin! Whatever makes you happy.

        Anyway, try not to be so belligerent – it makes you look stupid. You are not the only smart guy around, and you may learn something if you don’t assume everyone is an idiot.

        • I had mentioned that elsewhere, that a dutch auction IPO would be best (like what Google did).

          There are two separate issues you are confusing. There is the technical issues of NASDAQ opening the stock. Another question is “What is the fair valuation for Facebook?” I already said that a $100B valuation was ridiculous. However, in the short-term (1 day), the stock closed near the IPO price, which shows that it was somewhat reasonably priced.

          I am pretty confident that I’m on the top end of the talent scale. If I were employed at NASDAQ, I would have a problem getting backstabbed by evil coworkers. A pro-State troll would say “FSK is an idiot, because he isn’t able to figure out how to avoid getting cheated by abusive coworkers.” That’s a symptom of the collapsing State economy.

          I’m getting pretty annoyed interviewing, because I no longer fit into any of the standard slave patterns. I’m not someone who’s intelligent but a wimp. I’m not an abusive jerk. There’s no place in a corrupt economy for someone who’s intelligent, not a wimp, and not an abusive jerk.

          I’m pretty confident that it wouldn’t have been a disaster, if I was working at NASDAQ and in a position to fix things. Most of my programs actually worked.

          As I said elsewhere, if you think I’m a twit with an exaggerated sense of his own intelligence and ability, then what kind of loser are you for wasting time reading and commenting?

          • Also regarding Facebook, this link is interesting. Normally, investment bankers intentionally underprice an IPO, so it pops on the first day of trading. Allegedly, this time, the investment bankers intentionally overpriced the IPO, tricking people into buying at the IPO and on the first day of trading.

            Retail investors should stay away from IPOs. (Actually, stay away from the stock market completely, and invest in gold and silver, taking physical delivery.) If you bought Facebook shares at a valuation of $100B, you’re an idiot who deserved to be robbed.

            That is a separate issue from the technical glitch at the NASDAQ on the first day of trading.

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