The SEC fined a large dark pool $12 Million for sending confidential trading data to third party high frequency traders over an eight-year period. The information included daily aggregated order and execution information and suggested that the recipient HFTs use the reports to identify unsatisfied liquidity needs. The SEC also faults the firm for allowing unfettered access to trading data by sales and trading personnel. While engaging in the alleged activity, the respondent consistently advertised the confidentiality of the trading information through the dark pool.
The whole point of trading through the dark pool was to avoid signaling to HFTs. Yet, this firm allegedly exploited its trusted position by using the dark pool to court large, presumably profitable, third party market players.
A large broker-dealer agreed to pay nearly $13 Million to settle charges that it misled institutional customers about the operation of its dark pool and failed to register as an exchange or an ATS. The SEC alleges that the broker-dealer, contrary to marketing and other representations, allowed high frequency traders into its dark pool. According to the SEC, the HFTs represented more than 17% of all execution during the relevant 3-year period. The SEC also faults the firm for routing orders to external venues that charged less for execution without passing the lower cost to clients. The SEC also charges that the dark pool should have registered as a national securities exchange.
OUR TAKE: Apparently, the prosecutions of dark pools and high frequency traders have not ended. The SEC has focused on the trading venues as a backdoor way to regulate HFTs.
A large dark pool operator and router agreed to pay $18.5 Million and admit wrongdoing because its order router did not work as advertised. The respondent marketed and advertised its dark pool order routing system as based on objective, quantitative algorithms. However, because of technological and programming errors, the firm assigned manual and subjective scores to venues including its own dark pool. As a result, millions of orders were incorrectly routed. During the relevant 2-year period, the firm continue to market the order routing system as an objective, algorithm-based process.
OUR TAKE: This is what can happen when the front office and back office are disconnected. It appears that the marketing/sales folks did not know that the order routing system was not fully functional, as described.