06/06/2012 05:49 pm ET

Nasdaq's Facebook IPO Compensation Plan Draws Quick Fire

The ink may still be drying on Nasdaq's $40 million proposal to compensate traders for losses in the botched Facebook IPO, but opponents of the plan have already come out of the woodwork.

Nasdaq's plan, announced on Wednesday, calls for $13.7 million to be paid directly to firms affected by the trading glitches that plagued the Nasdaq exchange on May 18, the day of the Facebook IPO, according to Reuters. The rest of the roughly $26 million would be paid out in the form of trading discounts -- similar to store credit at a retail store.

Shortly after the plan was announced, the New York Stock Exchange, a competitor to Nasdaq, issued a statement calling the scheme unfair because the discounts would give traders an incentive to bring their business to Nasdaq rather than other exchanges.

"Such a tactic would potentially strongly incent customers to divert order flow to NASDAQ in order to receive compensation to which they are entitled, and allow NASDAQ to reap a benefit from market share gains they would not have otherwise received," the statement said.

"This is tantamount to forcing the industry to subsidize NASDAQ’s missteps and would establish a harmful precedent that could have far reaching implications for the markets, investors and the public interest," it continued. "We intend to strongly press our views that Nasdaq’s proposal cannot be allowed to permit an unjust and anti-competitive situation.”

The New York Stock Exchange's statement was first reported by Fox Business Network.

The Nasdaq proposal must be approved by the Securities and Exchange Commission before it can be implemented.

A spokesman for the Nasdaq declined to comment.

Technical glitches on the day of Facebook's much-anticipated initial public offering last month led to widespread delays in trade order confirmations. As a result, the firms that were executing the trades on the exchange lost millions of dollars as they waited to hear back from Nasdaq about whether their buy and sell orders had been processed. The four biggest firms involved in Facebook trading that day -- UBS , Citigroup, Knight Capital and Citadel Securities -- lost as much as $115 million combined, according to Reuters.

Sources familiar with the matter told The Huffington Post that the New York Stock Exchange plans to file a comment with the SEC objecting to the plan more formally.

DirectEdge, an electronic exchange that competes with Nasdaq, expressed reservations about the Nasdaq plan as well, though in less strident terms than the NYSE. “We have several significant concerns with the Nasdaq remedy and plan to aggressively voice them throughout the process,” DirectEdge spokesman Jim Gorman said in a statement emailed to The Huffington Post.

Representatives for Citigroup, UBS and Citadel declined to comment.

While the New York Stock Exchange took issue with Nasdaq's plan as a chief competitor, one of the firms who would be on the receiving end of Nasdaq's proposed compensation objected, too.

"Nasdaq’s compensation fund does not come close to covering reported losses from broker-dealers like Knight who traded Facebook shares on behalf of average investors the day of the IPO, and who suffered losses as a result of Nasdaq’s failures in connection with this IPO," Knight Capital said in a statement, according to CNBC. Knight reportedly described the plan as "simply unacceptable."