The US Securities and Exchange Commission (SEC) has reported that ITG Inc., an independent execution broker and financial data firm, as well as its affiliate AlterNet Securities, have agreed to collectively pay $20.3 million to settle charges over the breach of dark pool trading confidentiality.
The settlement follows just one day after a recent report that the SEC was engaged in talks with banking giant Credit Suisse over its role in dark pool trading that could result in a record fine. The SEC had alleged that the bank helped provided unfair advantages to select traders, whereby violating rules against the pricing of stocks without adequately disclosing to investors how the process itself worked.
Dark pool trading allows buyers and sellers to swap shares under a heightened veil of anonymity relative to traditional stock market trading. The practice itself has drawn the attention of US regulators in recent years given the propensity and vulnerability for misconduct under such loose conditions.
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In terms of ITG however, the SEC stipulates that the broker operated a secret trading desk and misused the confidential trading information of dark pool subscribers. According to an SEC manifest, the investigation found that ITG operated an undisclosed proprietary trading desk known as ‘Project Omega’ for a period of at least one year.
Consequently, ITG has agreed to admit wrongdoing in its role in the handling of its client information, whereby paying a disgorgement of $2,081,034 (corresponding to the total proprietary revenues generated by Project Omega) in addition to a prejudgment interest of $256,532 and a penalty of $18 million – currently the SEC’s largest to date against an alternative trading system.
According to Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, in a recent statement on the settlement and fine, “ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit. In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.”