dark pools

Deutsche Bank Ends Dark Pool Probe with $37M Settlement to the NY AG and the SEC, as well as a $3.25M Fine to FINRA

Published on: December 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has agreed to pay $37M to conclude the US government probes into its handling of trades in dark pool trading venues. The German bank also admitted that between 1/2012 and 2/2014 traders were misled about the way the it ranked its SuperX dark pool and other trading venues. The government settlements were reached with the US Securities and Exchange Commission and the New York Attorney General. Meantime, the Financial Industry Regulatory Authority fined Deutsche Bank $3.25M, noting “deficient disclosures” involving dark pool trading.

According to the NY AG and the SEC, Deutsche Bank told investors that it ranked its dark pools according to a number of factors, including transaction costs. However, some its technology purportedly wasn’t functioning correctly which means that the order-routing choices were not organized according to the factors noted. The German bank also is accused of disregarding its own method for ranking dark pools and placing its own dark pool in a preferred tier.

The government believes that between 1/2012 and 2/2013, Deutsche Bank employed outdated dark-pool rankings to decide how to route orders rather than updating its ranking model on a regular basis.The bank discovered the technical glitch in 2013, but did not fully correct the issue and waited until the following year to notify clients.

SEC, CFTC Look to Enhance Oversight of Alternative Trading Systems, High Speed Trading

Published on: November 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has voted to propose rules to make enhancements to the regulatory oversight and operational transparency of Alternative Trading Systems (ATSs). The proposal would mandate that a ATS trading through the National Market System (NMS) submit detailed disclosures regarding: operations and broker-dealer operator and affiliated-related activities, the kinds of orders and market data used on these trading systems, and procedures regarding priority and execution. The information would be submitted on the newly proposed-Form ATS. ATSs trade stocks on national securities exchanges, such as dark pools.

The SEC’s proposal would make the disclosures at issue are available to the public on the regulator’s website. This could make it easier for market participants to be able to better assess whether to do business with an ATS. The disclosures could also allow participants to have more information when assessing decisions made by their brokers regarding their orders.

Also, the proposals would give the commission a process for qualifying NMS stock ATS for the exemption that they operate under and allow them to review disclosures submitted on Form ATS.

Following the proposal’s publication on the federal register, the SEC has allotted 60 days for comments.

Credit Suisse To Pay Over $80M to Settle Dark Pool Allegations, Says Source

Published on: September 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg.com reports that according to someone familiar with the matter, Credit Suisse Group AG (CS) will pay over $80 million to resolve federal and state authorities’ claims that it failed to fully disclose information to clients about how it ran its dark pool. Over $50 million of the payment is expected to take the forms of fines and disgorgement in a settlement with the SEC, while about $30 million would resolve the allegations made by the New York Attorney General.

Credit Suisse’s dark pool, Crossfinder, is the biggest alternative trading system in the country. The source said that the Swiss bank is accused of misrepresenting certain aspects about the way it runs the platform.

In dark pools, demand and supply remain private. Only specifics about executed trades are disclosed. Dark pools comprise one-fifth of trading in the U.S. stock market. Large investors, high frequency traders, and hedge funds are among those that trade on these alternative trading systems. There is concern that some traders are able to exploit and profit, sometimes with the help of dark pool operators. Meantime, ordinary investors may be suffering because of their inability to avail of such benefits.

ITG, AlterNet Securities to Pay $20.3M to Settle SEC Charges that it Misused Confidential Dark Pool Data, Ran Secret Trading Desk

Published on: August 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

ITG Inc. and affiliate AlterNet Securities will pay $20.3M to resolve Securities and Exchange Commission charges accusing them of running a secret trading desk and misusing dark pool subscribers’ confidential trading information. As part of the settlement, ITG admitted to wrongdoing.

According to the regulator, even though it told the public it was an “agency-only” broker with interests that were not in conflict with the interests of customers, the firm ran Project Omega, an undisclosed proprietary trading desk, for over a year. The SEC’s probe found that even though ITG said that it protected dark pool subscribers’ trading information, for eight months, the trading desk accessed feeds of order and execution data and used the information to put into place its strategies for high-frequency algorithmic.

SEC Working on Mutual Fund Regulations, Conducts Dark Pool Probes, Enacts New Exchange Rules

Published on: November 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is developing regulations that would make sure that mutual funds are liquid enough to satisfy client redemptions and money managers have a plan should a fund fail. Part of the regulator’s strategy may include limiting how mutual funds are allowed to place in assets that are hard-to-sell and use derivatives to enhance returns.

InvestmentNews reports that according to a report issued by the International Monetary Fund last month, mutual funds’ holdings of leveraged loans, junk bonds, and other assets that don’t trade often had higher market and liquidity risks. The IMF said that this could “compromise” financial stability unless the matter is dealt with. Mutual funds also have come under the Financial Stability Oversight Council’s scrutiny.

Per the SEC’s agenda, regulators could propose new mutual fund rules in October of next year. Earlier this year, when Commission Chair Mary Jo White talked about an action plan that the agency was developing to enhance asset management oversight, she noted that the regulator intends to mandate that mutual fund investments provide more disclosures. The SEC has been seeking to gain greater insight into whether the asset management industry presents a risk to the financial system.

SEC To Tackle High-Speed Trading, Dark Pools With New Initiatives

Published on: June 6, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Securities and Exchange Commission Chairman Mary Jo White said that the regulator is working on new rules that would target dark pools, high-speed traders, order-routing practices, and trading venues that don’t offer much transparency. Her proposed regulations mark the first time she has spoken about her plans to overhaul equity market structure rules since becoming head of the SEC last year.

Included in White’s proposals are an “anti-disruptive trading” regulation to curb high-frequency traders from making aggressive short-term trades when the market is vulnerable, as well as a strategy to make proprietary trading shops register with the regulators and share their books for inspection. The SEC chairman also said that her team is working on enhancing the way trading firms handle the risks involved with computer algorithms.

To improve oversight over high-speed traders, White wants to shut a loophole that lets trading firms get out of registering with the Financial Industry Regulatory Authority if they trade off traditional exchanges. Also, while noting that it wasn’t the job of the SEC to forbid algorithmic trading, White said that the Commission is trying to determine if there is anything about a computer-driven trading environment that works against the best interests of investors.