Stephen Foley: Nasdaq in line of fire over the Facebook float fallout

US Outlook Bob Greifeld, the chief executive of Nasdaq, says the exchange has no legal obligation to compensate brokers who lost money because of software glitches that marred Facebook's flotation three weeks ago. But it says it will distribute $40m (£26m) to those who lost money when their trades didn't go through as requested.

That $40m is Nasdaq's calculation of the losses. Inevitably, the brokers tot it up to much more than that, with estimates totalling between $100m and $200m.

The brokers are adding in losses they say they suffered because of confusion about whether their trades had gone through or not, which had knock-on consequences for their customers, those poor retail traders who got their fingers burned that day.

There is a second group of institutions complaining about Nasdaq's compensation offer, but these need not be taken so seriously.

The New York Stock Exchange, Direct Exchange, BATS – rival stock markets – complain that the way Nasdaq plans to pay out that $40m is "anti-competitive".

This is because most of the money will be paid out in the form of discounts on future trading fees.

The competitors call that a grab for market share disguised as compensation; NYSE says it will lose business and therefore effectively be "subsidising" Nasdaq's payout to wronged customers.

Assuming Nasdaq is right and it has no legal obligation to compensate brokers, then showering discounts is just the opposite of anti-competitive. In fact, it is the sort of price competition that the exchange market needs more of.

But is Nasdaq right? When do customers have a legal right to compensation for a technical glitch? Generally, rarely.

Anyone who contacts their cable company when the internet is on the blink for days, or the DVR goes down, knows this much. User agreements are pretty protective of software companies' right to fail occasionally, even when big money is at stake.

Compensation is usually down to individual companies' policies; generosity might be a marketing advantage, and offering compensation might be good customer service, but legal liability may only come in if there is negligence.

My guess is that Nasdaq made a good faith effort on the Facebook flotation, faced with unprecedented demand from investors, speculators and the robots of the high-frequency trading industry.

These things happen. Just ask BATS. When it tried to list its own shares in the spring, its software failure caused haywire trading in every stock beginning with the letter A or B.

It doesn't look like Nasdaq's compensation plan is going to satisfy brokers like Citadel and Knight Capital. Mr Greifeld's challenge to them: sue me.