People walk past a sign welcoming Facebook at the NASDAQ stock exchange in Times Square in New York, on May 18, 2012. - 

Today NASDAQ will pay out tens of millions of dollars to firms which say they lost money from a technical glitch during Facebook’s IPO last spring. The exchange will pay out $41.6 million dollars even though traders estimate $500 million was lost.

Facebook’s IPO was supposed to start at 11:00.

“They let everybody know it’s not going to be 11:00 it’s going to be 11:05. It’s not going to be 11:05, it’s going to be 11:15,” says Jamie Selway, managing director at ITG, maker of software and hardware brokers use to trade stock. “And then not much happened,” he says.

Orders were coming in so quickly NASDAQ’s software couldn't keep up. Much like at an auction for art, or farm equipment, at an auction of stock (which is essentially what happens during an IPO),  Selway says the auctioneer, digital or human, needs a pause to let it know bidding is over.  But because of the onslaught of orders during the Facebook IPO, “the gap that the software was looking for,” says Selway, “to conclude the auction, never occurred.”

And  as markets have become more complex we’ve seen more and more of these technical glitches. So says Gaston Ceron, an equity analyst with Morningstar. Note what happened, he says, to BATS, another exchange.

“BATS had a problem with the handling of its own IPO and it ended up having to scuttle the whole thing,” he says.

NASDAQ says prior to the issue with Facebook it’s conducted more than a hundred IPOs using the same, or similar, systems without incident and that it’s hired new staff. Since then, the company notes it’s raised almost $8 billion dollars through IPOS.

The decision, says Jamie Selway, of where to list an IPO is highly complex. But he says it’s possible companies may be swayed by NASDAQ rival NYSE’s technology. When it comes to deciding when to end an auction, the exchange in New York makes the decision using an old-fashioned but nonetheless trustworthy mechanism – a human being.