The SEC has charged NASDAQ with securities laws violations resulting from its poor systems and decision-making during the initial public offering (IPO) and secondary market trading of Facebook shares. An agreement was reached to settle the SEC’s charges, with NASDAQ agreeing to pay a $10 million penalty, which is the largest ever against an exchange.

Exchanges must ensure that their systems, processes, and contingency planning are adequate to manage an IPO without disruption to the market. According to the SEC’s order instituting settled administrative proceedings, a design limitation in NASDAQ’s system to match IPO buy and sell orders caused disruptions to the Facebook IPO. NASDAQ then made a series of ill-fated decisions that led to the rules violations.