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The Facebook fiasco continues to unfold, and the damage is yet to be fully known, but in the end it is doing harm to the capital markets and to all of us. The reality is that NASDAQ computers were not properly programmed to handle today’s high speed and complex trading. The NYSE has done a remarkable job in designing and implementing a system that can handle anything with minimal glitches. It is the gold standard. NASDAQ management never really understood the technical issues, and did not spend the capital, the time, nor did it hire the right staff to develop the systems required. Neither the CEO nor the COO seemed to grasp what was really required. Zuckerberg and his CFO and Morgan Stanley were informed of the weakness of the NASDAQ system months before the offering, but chose to reject the admonition. Things played out exactly as they had been warned they would, and they should have stopped the offering at 11:00 that morning when they saw it happening, and they should have known what was coming next, because they had been warned. The system issues at NASDAQ were not a secret, so it is not that various people were unaware, and had not brought it up to Zuckerberg. Just think for a second, a 28 year old kid who knew nothing about the capital markets, was controlling a major capital markets event. Add to that, the fact that the CEO of NASDAQ was in Face Book office with Zuckerberg instead of in New York. The COO of NASDAQ was at home taking the day off that morning. There was no top manager in the office that day to handle the crisis on the spot. The IT people who had created the bad program were also not equipped to deal with it. Morgan Stanley, to its defense, was not able to properly perform its support role because it was unable to get any accurate trading information to know what was required to provide good support. The offering should never have been allowed to go forward given what a number of people knew and how it was unfolding. Now we have what some estimate is $250 million of trading losses, and all sorts of investigations, when the issue was right there and known from the start by several people. Now it is out of control and the stock may go to $27, or who knows where it settles out. The screw up was avoidable.

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