Dark Pool Sponsor to Pay $14.4 Million for Favoring HFTs
The sponsor of a large dark pool agreed to settle charges that it favored certain customers by paying over $14.4 in penalties and disgorgement, the largest penalty ever imposed against an Alternative Trading System (ATS). The SEC alleges that the firm unlawfully permitted certain high-frequency traders to submit sub-penny orders, which gave the HFTs a trading advantage over other dark pool participants. The SEC also faults the firm for not making generally available a trading feature that protected clients from market makers and HFTs, but, instead, made the feature only available to clients trading through the firm’s algos. The SEC charges violations of the Exchange Act, Regulation ATS, and Regulation NMS.
OUR TAKE: The SEC continues its quest to root out HFT advantages and prosecute firms that facilitated their activities. The buy side, including mutual funds and institutional managers, should be asking hard questions of their ATS venues.