Virtu Americas Pays $1.5 Million to Settle SEC Charges over its Dark Pool

The firm violated Regulation SCI which applies to entities that affect “the efficient functioning of the US Securities markets.

Virtu Americas LLC (formerly KCG Americas LLC) agreed to pay the Securities and Exchange Commission $1.5 million to settle allegations that its alternative trading system, Virtu MatchIt, exceeded trading volume thresholds on certain securities.

The SEC said Virtu MatchIt, formerly known as KCG MatchIt, had violated its Regulation SCI which applies to entities that play vital roles in “the efficient functioning of the US Securities markets.” The list includes self-regulatory organizations, alternative trading systems that satisfy equity volume thresholds and some clearing agencies. Collectively, these participants are referred to as “SCI entities.”

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The commission states that volume thresholds identify those ATSs that could have a significant impact on the overall market or a single stock. Depending on its structure, it may be possible for an ATS to limit trading so as not to reach the volume thresholds and thereby not be subject to Regulation SCI, the SEC says.

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KCG background

The Jersey-based firm used a volume monitoring system to keep an eye on the trading activity on its equity dark pool and discontinue trading in particular securities before their turnover exceeds certain thresholds. However, due to an error in KCG MatchIt’s reporting logic that calculates execution volumes, the automated system did not function as intended and, as a result, exceeded the relevant volume thresholds. The violations occurred from February 2015 and continued for at least a year and a half.

KCG was formed in December 2012 from the merger of New Jersey-based Knight Capital Group, a pioneer of electronic market making, and Chicago-based Getco LLC.

KCG MatchIt was part of KCG Americas LLC. KCG, based in Jersey City, which provides futures execution, clearing, and custody services. In 2017, Virtu Financial acquired rival KCG Holdings Inc. for $1.4 billion in cash, as tough market conditions forced high-frequency traders to consolidate and rethink business strategies. The combined entity created a giant HFT firm responsible for around 20 percent of the volume in U.S. equities.

Virtu makes markets over 25,000 financial instruments, at over 235 venues, in 36 countries worldwide, continuously quoting buy and sell prices for others to trade against, profiting off the bid-offer spread, using high-frequency trading (HFT) strategies.

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