* Exchanges to strongly contest Nasdaq's plan
* Say plan little more than a pricing promotion
By Herbert Lash and John McCrank
June 7 (Reuters) - Rival exchanges on Thursday lashed out at Nasdaq OMX's $40 million plan to compensate clients for its mishandling of Facebook's initial public offering last month, calling the plan "illegal," "anti-competitive" and saying it was unlikely to be approved by U.S. regulators.
A day after Nasdaq rolled out its plan, which would mostly consist of trading discounts for clients, rival exchanges questioned the legitimacy of the proposal, and one of Nasdaq's biggest customers said the sum offered was not nearly enough.
Total losses by banks and brokerages due to the technical problems that plagued the $16 billion IPO may be as high as $200 million, said Thomas Joyce, chief executive of Knight Capital Group, a market maker in the deal that said it alone lost $35 million.
"I think that the scheme that was announced yesterday is illegal," Bill O'Brien, CEO of the No. 4 U.S. equities exchange, Direct Edge, said at Sandler O'Neill's brokerage and exchange conference in New York. "It is also a shameless attempt to basically turn a big investor-confidence-eroding event into a competitive advantage."
O'Brien, who was visibly upset, said his company would contest the plan and that he did not think it would be approved by the U.S. Securities and Exchange Commission. NYSE Euronext , the top U.S. stock exchange, also said it strongly objected to the plan.
Direct Edge, NYSE, and BATS Global Markets - which in March had to pull its own IPO due to technical problems - all denounced the plan as a grab for market share.
"Confusing compensation with a pricing promotion - that's a bad way to do it," said Mark Hemsley, chief executive of BATS Chi-X Europe.
Nasdaq's proposed $40 million compensation figure - $13.7 million in cash and the rest in trading discounts - was a big topic at the conference.