As shareholders continue to pick through the rubble of the troubled Facebook IPO, questions still linger about the role -- if any -- high-frequency trading played in the offering on the Nasdaq stock market last week.
"High-frequency traders absolutely caused this," said Eric Hunsader, founder and CEO of market data tracking firm Nanex -- which followed the Facebook IPO closely and has published several analyses of Nasdaq trading activity that day.
Facebook debuted on the exchange May 18 and there was trouble immediately. The debut was delayed for 30 minutes because of technical difficulties. That was followed, according to a source familiar with the matter, with an "overwhelming influx of orders" to buy, sell and cancel trades causing Nasdaq's trading software to go haywire.
What followed, according to Hunsader, was a 17-second blackout in all stock trading at the exchange, causing further panic. The atmosphere surrounding Facebook's IPO became so bleak that according to Reuters, Morgan Stanley, the firm acting as lead underwriter of the offering, reportedly decided to bolster Facebook's share price by spending billions on shares to prop it up.
Given the rapidity with which orders flooded the exchange, and the fact that Nasdaq -- the leading electronic stock exchange in the U.S. -- couldn't handle the volume of these orders, scrutiny immediately fell on high-frequency traders -- firms that use advanced computers to buy and sell securities by the millisecond. "High-frequency traders kept blasting [purchase and sale] orders at Nasdaq," said Hunsader.
When the exchange couldn't handle the orders, he said, chaos ensued.
"HFT had something to do with it," agreed Joseph Saluzzi, a co-founder of Themis Trading and a critic of unregulated high-frequency trading. "There were an excessive number of orders coming in and it's impossible for a human to be doing that."
"Nasdaq's sole job is IPOs," and yet Nasdaq's system still couldn't handle the number of orders, Saluzzi said.
A spokesman for Nasdaq declined to comment for this story.
Suspicion that high-frequency traders played a role was intense enough that on a conference call with brokers Tuesday, Nasdaq CEO Eric Noll addressed the concerns specifically -- telling brokers that high-frequency trading did not play a role in Nasdaq's technical difficulties, according to the Wall Street Journal.
Not surprisingly, some high-frequency traders agree. "I don't see why anyone would think that HFT had anything to do with it," said Mark Gorton, founder of high-frequency trading firm Tower Research Capital, in an email. Facebook "was an overpriced IPO that did not attract the necessary swarm of greater fools to sustain that price."
"I mean, HFT caused ... the financial crisis, JP Morgan's bad derivatives trade, 9/11, and everything else," another high- frequency trader, Manoj Narang, CEO of Tradworx, wrote sarcastically in an email. "So why not Facebook too?"
The glitch on Nasdaq comes only about two months after technical troubles at BATS, another electronic exchange, sent Apple stock into a tailspin and caused BATS to withdraw its own IPO from its own exchange the day of the offering.
Hunsader said he thinks Noll wants to mitigate the ire directed at high-frequency traders for financial reasons. By most estimates, high-frequency trading accounts for the majority of trading activity.
"The exchanges are beholden to high-frequency traders," Hunsader said, because that's where they make "the bulk of their money."
According to Nasdaq's first-quarter earnings presentation this year, Market Services, which includes revenues from trading including high-frequency trading, accounted for 67 percent of the exchange's revenue.
Investors are still feeling the pinch of last week's technical problems. The source familiar with the matter said that a number of investors have reached out to Nasdaq complaining that they still don't know the status of Facebook orders they placed last week.
Fidelity Investments customers' orders were sorted out this week, Steve Austin, a spokesman for the company told The Huffington Post in an email. "Fidelity’s senior management and legal team have been working with the regulators, market makers and NASDAQ to represent all of our customer’s trading issues from May 18. We will continue to do so until we are confident that NASDAQ has done everything it can to mitigate the impact to our customers."