ATS to Pay $1 Million Fine for Failing to Disclose Dominance by Affiliate
An Alternative Trading System operating as a dark pool agreed to a $1 Million fine for failing to properly disclose that an affiliate provided approximately 80% of the systemâ€™s liquidity and had access to information unavailable to non-affiliates. The respondent claimed to operate a dark pool that provided natural liquidity. However, an affiliate used information about ATS customers to buy/sell securities in another venue in order to satisfy customer orders. The SEC alleges that the respondent used the affiliate to create liquidity so as to attract third party customers. The SEC alleges that the firm failed to fully disclose the affiliateâ€™s activities.
OUR TAKE: ATS dark pools have become popular with buy-side mutual fund and hedge funds. In fact, the regulators have stated that advisers should consider ATSs as part of their best execution obligations.