BD Fined $42 Million for Masking Trade Execution
The SEC fined a large broker-dealer $42 Million for masking trade execution venues over a 5-year period. The SEC asserts that the respondent routed orders to various undisclosed third party execution venues in an effort to increase order flow to those venues, avoid trading access fees, and give the impression that the firm was a more active trading center. The firm acknowledges that it masked trading venues by reconfiguring FIX messages, modifying TCA reports, and misleading clients. The SEC argues that the firm withheld material information because many large buy-side clients consider trading venue material to their execution strategies.
OUR TAKE: Although this case was brought as a failure to disclose material information, it is really a fiduciary duty case. The SEC does not allege that the customers suffered any harm i.e. that they paid higher commissions or received worse execution. Instead, the SEC faults the respondent for using its unique position to benefit itself (and its trading partners).