By Julian Hattem - 05/29/13 04:40 PM EDT
The NASDAQ stock exchange has agreed to pay $10 million to the Securities and Exchange Commission (SEC) for its mishandling of Facebook's initial public offering last May.
The penalty is the largest ever paid by an exchange.
Technical issues hampered investors when the social media company went public with its shares last year, leading to delays of public trading as the stock exchange struggled to keep up with traders' frantic activity.
NASDAQ officials believed they had fixed the errors by removing a few lines of computer code, but problems persisted, indicating that the stock exchange initiated trading before fully understanding the problem with its system. By continuing trading, the stock exchange violated several of its own rules.
The exchange also violated its rules when it assumed a position on more than 3 million shares in an unauthorized account set up to compensate for trading errors, ultimately pulling in a profit of about $10.8 million. Both the use of the account and raking in the profit were violations of the exchange's rules.
By breaking its own rules, NASDAQ violated the Securities and Exchange Act.
“This action against NASDAQ tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets,” said George Canellos, a co-director of the SEC’s enforcement division, in a statement.