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I don't fully understand why NASDAQ ends up taking a position on stocks ("It just so happened that Nasdaq was shorting shares of Facebook at that time."). If it

by akozak 13y ago

I don't fully understand why NASDAQ ends up taking a position on stocks ("It just so happened that Nasdaq was shorting shares of Facebook at that time."). If it's a mere exchange, should it just be matching buy and sell orders? When does it take ownership of anything? Is there a good explanation of how this works somewhere?

mikestew 13y ago
Because of the way they finally handled the snafu, they effectively ended up with a short position. NASDAQ did not set out to hold a short position, but because of how they covered customers who couldn't cancel their orders they ended up short FB. (They covered those customers because they quit trying to valid order matching by accounting for cancelled orders. They just took cancelled orders out of the equation.)
SeanDav 13y ago
The simplest explanation is that usually an exchange is essentially a conduit - they match buy with sell orders. If for some reason (i.e. computer glitch) they are matching only buy orders, they are creating short positions in their systems.
danbruc 13y ago
My guess is that its in their terms of service - they failed to consider all orders when they matched them and therefore have to account for that.
angli 13y ago
My understanding is that they don't usually end up with stocks, but their handling of this specific situation created what amounted to a short position. Essentially, the bug (whatever you want to call it is irrelevant from the financial angle) meant a bunch of people wanted to sell facebook stock and were unable to do it. They said that they were willing to sell at the current going rate, which was $42. NASDAQ was unable to process the orders, so they weren't able to process the sales. The resolution they settled on was essentially becoming the other party to the transaction: they would provide the FB shares to the (possibly disgruntled) customers at the same price - as if nothing had gone wrong. But, as this is happening, NASDAQ doesn't actually have FB stock - they have to buy it on the market later. Like a normal short, they benefit if the price goes down since they have to spend less to get back the shares. For example, if FB went down $2, NASDAQ only has to pay $40 for the share, and they make a $2 profit. This is all a long-winded way of saying they didn't have a short in the traditional sense, and in normal cases this doesn't happen, but it happened as a result of this screwup.
- gcb0 13y ago
  still does not explain "if i want to sell, the exchange should match me with someone. they fail to match me with someone, but instead they buy my shares" makes no sense. at all. unless exchange does not means what i think it means. and they should pay sales tax for shares as they are selling/buying them as a dealership buys and sells cars.
  - angli 13y ago
    No, exchange still means what you think it means. The issue they had is that a bunch of orders got stuck in a queue somewhere and thus couldn't actually be exchanged. This is all a question of how you deal with that. NASDAQ decided not to just cancel the orders or execute them later but to provide them the trade they "deserved" Personally, I think that was the right decision, but it's your call.
minimax 13y ago
The exchange matches buy orders against sell orders. In this case they were matching buy orders against sell orders that had already been cancelled (which is not something that should ever happen). NASDAQ stepped in and took the other side of the buy orders, and so ended up with a short position.

by akozak 13y ago

mikestew 13y ago

Because of the way they finally handled the snafu, they effectively ended up with a short position. NASDAQ did not set out to hold a short position, but because of how they covered customers who couldn't cancel their orders they ended up short FB. (They covered those customers because they quit trying to valid order matching by accounting for cancelled orders. They just took cancelled orders out of the equation.)

SeanDav 13y ago

The simplest explanation is that usually an exchange is essentially a conduit - they match buy with sell orders. If for some reason (i.e. computer glitch) they are matching only buy orders, they are creating short positions in their systems.

danbruc 13y ago

My guess is that its in their terms of service - they failed to consider all orders when they matched them and therefore have to account for that.

angli 13y ago

My understanding is that they don't usually end up with stocks, but their handling of this specific situation created what amounted to a short position. Essentially, the bug (whatever you want to call it is irrelevant from the financial angle) meant a bunch of people wanted to sell facebook stock and were unable to do it. They said that they were willing to sell at the current going rate, which was $42. NASDAQ was unable to process the orders, so they weren't able to process the sales. The resolution they settled on was essentially becoming the other party to the transaction: they would provide the FB shares to the (possibly disgruntled) customers at the same price - as if nothing had gone wrong. But, as this is happening, NASDAQ doesn't actually have FB stock - they have to buy it on the market later. Like a normal short, they benefit if the price goes down since they have to spend less to get back the shares. For example, if FB went down $2, NASDAQ only has to pay $40 for the share, and they make a $2 profit. This is all a long-winded way of saying they didn't have a short in the traditional sense, and in normal cases this doesn't happen, but it happened as a result of this screwup.

gcb0 13y ago
still does not explain "if i want to sell, the exchange should match me with someone. they fail to match me with someone, but instead they buy my shares" makes no sense. at all. unless exchange does not means what i think it means. and they should pay sales tax for shares as they are selling/buying them as a dealership buys and sells cars.
- angli 13y ago
  No, exchange still means what you think it means. The issue they had is that a bunch of orders got stuck in a queue somewhere and thus couldn't actually be exchanged. This is all a question of how you deal with that. NASDAQ decided not to just cancel the orders or execute them later but to provide them the trade they "deserved" Personally, I think that was the right decision, but it's your call.

minimax 13y ago

The exchange matches buy orders against sell orders. In this case they were matching buy orders against sell orders that had already been cancelled (which is not something that should ever happen). NASDAQ stepped in and took the other side of the buy orders, and so ended up with a short position.