Dark Pools

November 7, 2018

ITG Inc. and its affiliate AlterNet Securities Inc. have agreed to pay a $12 million SEC fine to settle charges that ITG made misstatements about the operation of its dark pool, POSIT, and failed to establish adequate safeguards and procedures to protect POSIT subscribers’ confidential trading information.  The SEC found that ITG improperly disclosed the confidential dark pool trading information of firm clients, and failed to disclose certain structural features of the dark pool, including segmentation and speed limits.  SEC

September 7, 2017

The Securities and Exchange Commission today announced that State Street has agreed to pay more than $35 million to settle charges that it fraudulently charged secret markups for transition management services and separately omitted material information about the operation of its platform for trading U.S. Treasury securities. An SEC order finds that State Street’s scheme to overcharge transition management customers generated approximately $20 million in improper revenue for the firm.  State Street used false trading statements, pre-trade estimates, and post-trade reports to misrepresent its compensation on various transactions, especially purchases and sales of bonds and other securities that trade outside large transparent markets. SEC

December 16, 2016

Deutsche Bank will pay $18.5 million in penalties to the SEC and $18.5 million to the New York Attorney General’s Office to settle charges that it misled clients about the performance of a core feature of its automated order router that primarily sent client orders to dark pools.  According to the SEC’s order, Deutsche made materially misleading statements and omissions concerning the Dark Pool Ranking Model feature of one of its order routers, known as SuperX+.  The Model was intended to measure execution quality and liquidity of venues to which it sent orders.  Deutsche used the Model to determine which venues would receive orders and the sequence in which Deutsche would send them.  Deutsche stated that he Model “smartly routes and selects optimal pools of liquidity on an order by order basis.”  But according to the SEC’s order, due to a coding error, Deutsche updated the ranking model just once during a two-year period, causing at least two dark pools to receive inflated rankings and consequently millions of orders that SuperX+ would have sent elsewhere if the system was operating as described.  SEC

January 31, 2016

Barclays Capital Inc. and Credit Suisse Securities (USA) LLC will collectively pay $154.3 million to the SEC and New York Attorney General to settle separate cases finding that they violated federal securities laws while operating alternative trading systems known as dark pools and Credit Suisse’s Light Pool.  Barclays will pay $35 million in penalties to the SEC and $35 million in penalties to the New York Attorney General.  Credit Suisse will pay $30 million in penalties and $24.3 million in disgorgement and prejudgment interest to the SEC and $30 million in penalties to the New York Attorney General.  The settlements address misstatements by Barclays and Credit Suisse to subscribers about the material operations of their alternative trading systems.  SEC

February 1, 2016

Barclays Capital Inc. and Credit Suisse Securities (USA) LLC will pay a combined $154.3 million to the State of New York and the SEC to settle investigations into false statements and omissions made in connection with the marketing of their respective dark pools and other high-speed electronic equities trading services. Dark pools are private exchanges for trading securities that are not viewable by the general public and are completed outside of public stock exchanges. Barclays admitted to core facts set forth in the Attorney General’s Complaint from June 2014 alleging misrepresentations about how it operated its dark pool, “Barclays LX,” including that it misled investors and violated securities laws. NY

August 12, 2015

Broker Investment Technology Group, Inc. (ITG) and affiliate AlterNet Securities have admitted wrongdoing and agreed to pay $20.3 million to settle SEC charges that they operated a secret trading desk and misused the confidential trading information of dark pool subscribers.  The SEC found that despite claiming to be an “agency-only” broker whose interests wouldn’t conflict with its customers, ITG operated an undisclosed proprietary trading desk known as “Project Omega” for more than a year.  While ITG claimed to protect the confidentiality of its dark pool subscribers’ trading information, Project Omega accessed live feeds of order and execution information of its subscribers and used the information to implement high-frequency algorithmic trading strategies, including one in which it traded against subscribers in POSIT, ITG’s dark pool.  The $20.3 million payment includes an $18 million penalty – the largest to date imposed by the SEC against an alternative trading system.  SEC

January 15, 2015

UBS subsidiary UBS Securities LLC agreed to pay more than $14.4M, including a $12M penalty that is the SEC’s largest against an alternative trading system (ATS), to settle charges of disclosure failures and other securities law violations related to the operation and marketing of its dark pool.  SEC