ITG, AlterNet agree to pay $12m to settle charges about misleading dark pool subscribers

Maria Nikolova

The charges brought by the SEC, arise from ITG’s misstatements and omissions about the operation of the firm’s dark pool, POSIT.

ITG Inc. and its affiliate AlterNet Securities Inc. have agreed to pay $12 million to settle charges about misleading dark pool customers, the United States Securities and Exchange Commission (SEC) has announced earlier today.

The charges arise from ITG’s misstatements and omissions about the operation of the firm’s dark pool, POSIT, and ITG’s failure to implement the necessary safeguards and procedures to protect the confidential trading information of dark pool subscribers.

The SEC’s order finds that despite assuring subscribers that it would maintain the confidentiality of their trading information, ITG improperly disclosed the confidential dark pool trading information of firm clients. For instance, from 2010 to 2015, ITG sent daily Top 100 Reports for the prior day’s trading activity. The reports identified the top 100 stocks for which certain orders were submitted to POSIT and the top 100 stocks for which certain orders were executed. ITG informed some high frequency trading firms that they could use these Top 100 Reports to identify “potential unsatisfied liquidity needs” in the dark pool, despite assuring subscribers that ITG would not signal their trading intentions.

Furthermore, as per the SEC’s order, ITG misleadingly omitted important structural features of the dark pool. From 2010 to mid-2014, ITG split the dark pool into two separate pools, which prevented certain orders in the two pools from interacting with one another. ITG failed to disclose the separate pools, which had different performance and fill rates, despite specific questions from subscribers about whether ITG “tiered” or segmented the dark pool in any way.

The SEC’s order also finds that from mid-2014 to late 2016, ITG did not disclose that the firm was using a “speedbump” to slow down interactions involving orders from certain HFT firms.

Without admitting or denying the findings, ITG and AlterNet consent to the entry of the SEC’s order finding that they violated the antifraud provisions of the securities laws as well as the rules governing the requirements for dark pools. In addition to imposing a monetary penalty, the order directs ITG and AlterNet to cease and desist from committing any future violations of those provisions.

These charges are in addition to charges filed in August 2015 against ITG and AlterNet for operating an undisclosed proprietary trading desk that used confidential customer trading information to trade in the POSIT dark pool.

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