Morgan Stanley adjusts Facebook trades

Last updated 13:52 25/05/2012

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Morgan Stanley will adjust thousands of trades to ensure outstanding limit orders to sell will be filled at no more than US$42.99 a share for Facebook stock from last Friday's botched initial public offering, the firm told its brokers on Thursday (US time), according to several who listened to the call.

Morgan Stanley said that limit orders to sell shares at US$43 or higher that have not yet been processed because of glitches at Nasdaq will be settled over the next few days at less than US$43.

Fewer than one million shares traded in a two-minute period on the opening day above US$43. Shares reached a high of US$45.

Limit orders allow investors to buy or sell shares at a preset price. In the case of the newly issued Facebook shares traded last Friday, Morgan Stanley's adjustment applies only to sell orders.

Andy Saperstein, head of wealth management at Morgan Stanley's Smith Barney unit, told advisers the adjustments will likely begin on Friday, according to five advisers who listened to the call.

According to several of the advisers, Saperstein said that the company has been manually reviewing each trade and the time it was executed, and that he stressed that the company is putting the clients' interests first.

Saperstein took no questions during the call, which lasted about ten minutes, according to two advisers. He made no apology, and told brokers to follow procedure and go directly to their service manager if they had any outstanding issues, advisers told Reuters.

Another adviser who listened to the call said that Saperstein said that all clients and brokers who had expressed interest in Facebook shares were sent the amended prospectus the company filed on May 9. The adviser did not want to be named because she was not permitted to speak to the press.

Fallout from Facebook's disastrous stock market debut last week has become the latest headache for Morgan Stanley Smith Barney's brokers.

Technical difficulties at the Nasdaq stock market delayed the opening of trading and left thousands of investors in the dark about what they owned and at what price they had bought or sold shares.

Reuters also reported that Morgan Stanley's Facebook analyst, Scott Devitt, had warned ahead of the IPO that he was reducing his revenue forecasts for the social networking company. That information was shared with some large investors.

Caught in the crossfire were the brokers who scrambled to get clients into Facebook shares and who now must deal with angry investors who lost money or are uncertain about how their orders were handled.

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Many brokerages are dealing with frustrated customers, but Morgan Stanley Smith Barney is a unit of Facebook's lead IPO underwriter and its army of 17,200 brokers received the biggest allocation of IPO shares for individual investors.

The Facebook flop comes at a sensitive time for the firm, which for the past three years has been merging Smith Barney into Morgan Stanley's brokerage unit, an undertaking that has come with technology glitches and reported culture clashes.

Moody's Investor Service has warned that it may downgrade Morgan Stanley's credit rating by two notches, as opposed to one notch for its chief competitors.

Now advisers are dealing with the aftermath of a glitch-filled IPO.

Several brokers interviewed by Reuters on Thursday had the same question: "Where is Morgan Stanley Chief Executive James Gorman?" These brokers want Gorman to take a more public stance to present the firm's case and to assure investors the firm will refund their losses as quickly as possible.

"In other words, we'll fix you and then we'll worry about ourselves," said a broker based in the Southeast US, who is not permitted to speak to the press.

Several brokers told Reuters that the call on Thursday offered little new information or insight. One adviser said his mood about the way the company had handled the Facebook situation had not changed after the call - he remains frustrated that Morgan Stanley has not made stronger statement to clients.

Much of the concern brokers are facing come from investors who placed orders but did not immediately learn what price they paid, due first to a delayed opening on the Nasdaq and then a lack of timely trade data. Morgan Stanley and other brokerages continue working through a backlog of unresolved trades as late as Thursday.

- Reuters

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