NASDAQ OMX Group, Inc. : Direct Edge to contest Nasdaq plan to aid Facebook clients

NEW YORK (Reuters) - Bill O'Brien, chief executive of exchange operator Direct Edge, on Thursday called Nasdaq OMX's plans to compensate clients for its mishandling of Facebook's initial public offering an illegal move and a challenge to the industry.

"It was a shameless attempt to basically turn an investor confidence-eroding event into a competitive advantage," O'Brien told analysts at a Sandler O'Neill conference on exchanges and brokerage. "We're going to vigorously contest it."

O'Brien said he does not believe Nasdaq's plans will be approved by the Securities and Exchange Commission, and he said Nasdaq will have to go back to the drawing board to address how it will compensate clients.

"I don't think it complies with U.S. securities law," O'Brien said. "It's like dumping oil in the ocean. You can't do it."

Nasdaq OMX Group Inc said it will offer $40 million in cash and rebates to clients harmed by its mishandling of Facebook Inc's market debut.

(Additional reporting by John McCrank; Reporting By Herbert Lash; Editing by Chizu Nomiyama and Sofina Mirza-Reid)

By Herbert Lash

Stocks treated in this article : Citigroup Inc., NASDAQ OMX Group, Inc.