The operator of an alternative trading system (aka dark pool) agreed to pay a $2 Million penalty for failing to implement compliance policies and procedures to maintain the confidentiality of trading data.  The SEC alleges that the firm allowed marketing professionals within the firm to utilize trading data in efforts to attract corporate issuers and PE/VC firms.  The SEC asserts that the firm also used descriptive trading data in marketing presentations.  The SEC says that the firm’s conduct violated Rule 301(b)(10) of Regulation ATS, which requires an ATS to establish compliance policies and procedures that restrict access to trading data to those that operate the system or who have compliance responsibilities.  The SEC notes that the gross revenue from the corporate marketing initiative was approximately $1.66 Million, which accounted for less than 1% of the firm’s total revenue.  The violations were originally discovered during a routine exam.

OUR TAKE: This is an example of (lack of) compliance as a (bad) business decision.  The firm made $1.66 in total revenue and was fined $2 Million.  But, the fine is not really the big cost.  Going forward, the respondent will have to prove to current and potential clients that it can be trusted in the ultra-competitive ATS world, where trading confidentiality is the reason dark pools exist.  Reputation is the biggest victim of compliance violations.