Opinion ID: 2747291
Heading Depth: 3
Heading Rank: 1

Heading: UBS Demands Arbitration

Text: On March 15, 2013, UBS filed a demand for arbitration against NASDAQ with the American Arbitration Association (“AAA”). See Demand for Arbitration and Statement of Claims (“Demand”), A. 46. The 18‐page demand asserts that UBS’s dispute with NASDAQ originates in the exchange’s “catastrophic mismanagement” of the Facebook IPO. Demand ¶ 1, A. 46. Specifically, UBS alleges that NASDAQ “was not up to the task” of handling such a large, high demand IPO: “[i]ts systems buckled under the strain,” and “proved incapable of completing the all‐important ‘IPO Cross.’” Id. ¶ 3, A. 47. As a result, NASDAQ not only “was forced repeatedly to delay the open of trading in Facebook stock,” but also decided to “conceal[] from the market why it was doing so,” and that it was switching to a “risky and untested” alternative system, thereby preventing customers from evaluating how that system might affect their own. Id. ¶¶ 4–5, A. 47. Moreover, because the alternative system impaired NASDAQ’s ability to confirm executed trades, market participants 12 were left “in the dark for more than two hours” as to the state of tens of thousands of trades, so that “[c]haos and mass confusion ensued throughout the market.” Id. ¶¶ 7, 28, 32–33, A. 47–48, 53. Based on these allegations, UBS charges NASDAQ with “violat[ing]” its “primary obligation to the investing public and to entities such as UBS”: “to operate a fair and orderly market.” Id. ¶ 37, A. 55. UBS asserts that how NASDAQ should have “responsibly” met this obligation was “by delaying or halting trading.” Id. ¶ 38, A. 55. UBS also alleges that it was “grossly negligent” for NASDAQ to “depart[] from proven software” in conducting such a large IPO and to continue trading with “new and inadequately tested solutions,” without advising market participants of “what was happening or what actions it was taking so they could evaluate the potential consequences for themselves, their systems and take appropriate action in response.” Id. ¶ 36, A. 54–55. As to its own injuries, UBS asserts that NASDAQ’s failure to provide prompt execution records prevented UBS’s own computers from confirming what orders had been executed, resulting in UBS’s placement of duplicate orders or its acceptance of cancellations for purchases that had, in fact, been made. See 13 id. ¶¶ 44–48, A. 57. “As a result, UBS unintentionally amassed a net long position of approximately 40.2 million Facebook shares by the end of the trading day,” and ultimately incurred losses “in excess of $350 million.” Id. ¶¶ 8, 50, A. 48, 58. UBS seeks to recover these losses from NASDAQ based on (1) the indemnification provision of the parties’ Services Agreement, (2) NASDAQ’s breach of contract in refusing UBS’s indemnification demand, (3) NASDAQ’s breach of the Services Agreement’s implied covenant of good faith and fair dealing in failing to declare certain UBS transactions clearly erroneous under NASDAQ Rule 11890, and (4) NASDAQ’s gross negligence in using insufficiently tested and inadequate systems to conduct the Facebook IPO. See id. ¶¶ 52–76, A. 58–62.