A recent announcement from the Securities and Exchange Commission (SEC) revealed that a prominent broker-dealer operating multiple alternative trading systems (ATSs) has reached a settlement concerning several violations related to market access and client confidentiality. This broker-dealer has agreed to pay a civil penalty of $5 million to resolve the SEC’s charges.
As an operator of ATSs that offers market access to non-broker-dealers, adherence to the market access rule is essential for this company. This regulation mandates that such entities must implement adequate controls and procedures to prevent orders from exceeding appropriate credit thresholds set for their clients.
The SEC’s findings indicated that this broker-dealer had been in violation of the market access rule over a number of years. Specific issues noted included the establishment of inadequate credit thresholds, one of which was a default limit set at an astonishing $1 billion. This oversight raised serious concerns about their compliance with regulations.
In addition to these market access violations, the broker-dealer failed to uphold certain obligations necessary to maintain its ATS exemption from registration as an exchange. A key requirement entails having written safeguards and protocols to restrict access to confidential trading information of subscribers to specific staff members within the ATS. Unfortunately, for several years, the company did not effectively limit access to these sensitive systems or provide adequate disclosures on relevant forms. The SEC’s order also cited material misrepresentations made by the broker-dealer regarding its market access controls and the safeguards in place to protect subscriber trading information.
The SEC concluded that the company willfully violated the market access rule along with various rules governing ATSs. In resolving this matter, and without admitting or denying the specified findings, the broker-dealer agreed to undergo censure and pay the aforementioned penalty.
Following the SEC’s findings, the broker-dealer has initiated remedial measures. This includes the engagement of an external consultant tasked with enhancing existing controls and procedures related to the market access rule and the broader Regulation ATS. Additionally, the firm has committed to submitting specific reports and certifications related to these corrective actions.
This case underscores the importance of stringent adherence to compliance protocols within the trading and investment landscape. The SEC’s actions serve as a reminder to all market participants of their obligations to maintain high standards of integrity and security in trading practices.