Firm Settles SEC Charges for Violations of Market Access and Confidential Information Rules

A broker-dealer that operates three alternative trading systems ("ATSs") settled SEC charges for failing to protect confidential subscriber trading information and for failing to implement adequate risk management controls.

According to the Order, the firm failed to conduct appropriate assessments of client creditworthiness when setting pre-trade credit thresholds and frequently applied arbitrary limits without adequate review. The SEC found that the firm's systems lacked controls to prevent trades from exceeding established thresholds and failed to aggregate client orders to ensure compliance with credit limits. In addition, the SEC said the firm did not perform required annual reviews of its market access protocols or submit accurate CEO certifications.

The SEC also found that the firm had insufficient safeguards to protect confidential client trading information. The SEC determined that unauthorized employees had access to sensitive trading data, and internal controls were not consistent with public disclosures or regulatory requirements. The SEC said that the firm further failed to file accurate and timely amendments to its regulatory disclosures.

As a result, the SEC determined the firm violated: SEA Rule 15c3-5 ("Risk management controls for brokers or dealers with market access") and Regulation ATS Rules 301(b)(10) ("Requirements for alternative trading systems") and 304 ("NMS Stock ATSs").

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $5,000,000 civil penalty and (iii) undertakings to implement revised risk management, supervisory procedures and disclosure practices.