June 1, 2012

How Facebook IPO Imploded: NBBO for FB

How Facebook IPO imploded: NBBO for FB stock.
 
Nanex analyzes Facebook trades – 
How could a broker prove that a customer received the best price when the only available (and official) audit trail (UQDF) doesn't include Nasdaq quotes for over 2 hours?

Their conclusion - the National Best Bid or Offer (NBBO) system is broken. Instead of all investors seeing a single data feed (SIP) for quotes, each investor sees a slightly different data feed.

And, the disparate data feeds change faster than the audit tools which are supposed to verify compliance. So the Facebook stock price quote will be different for each investor. 
The feed breakdown in Facebook tells us that the 10 other exchanges could not have been using Nasdaq's quote from the SIP when making order routing decisions. They had to be relying on direct feeds. Which is fine if speed is the only concern. If the concern includes auditing and fair play, well, you many need to adjust your expectations accordingly.

NBBO, SIP, HFT feeds are showcase examples of a poorly designed system – the system does not do what it is intended to do.

Meanwhile Facebook has its own problems – the Facebook data problems continue.


Tags: facebook ipo implosion, facebook ipo fiasco, facebook ipo trades, nbbo for FB, SIP for FB, quote data feed FB, facebook data problems