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.
The SEC censured and fined a proprietary trading firm for failing to register as a broker-dealer. The firm offered $5000 memberships to individual traders who could use a limited amount of firm capital and also had access to firm research, training, software, and execution services. The SEC maintains that the firm’s principals benefitted through access to better execution resulting from higher trading volumes. The SEC charges violations of Section 15(a) of the Exchange Act for effecting transactions in securities without registering as a broker-dealer.
OUR TAKE: It is unclear why the firm could not rely on Rule 15b9-1, the exemption generally utilized by proprietary trading firms. In fact, two years ago, the SEC proposed to close the exemption but never followed through with a final rule. Maybe, the SEC intends to take a narrow reading of the rule in enforcement cases rather than change the rule.