Exclusive: Citigroup to shutter LavaFlow stock trading venue

Tue Dec 2, 2014 12:37pm EST
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By John McCrank

NEW YORK (Reuters) - Citigroup Inc (C.N: Quote) is shutting down its alternative stock trading venue LavaFlow, the bank said on Tuesday, at a time when regulatory scrutiny has increased around broker-run trading platforms, forcing banks to rethink the costs.

Critics say the alternative stock trading venues add to the fragmentation of the market, increasing complexity and costs for market participants.

"Following a recent review of the LavaFlow ECN, we have decided that our capital, resources and efforts would be better redeployed to other areas within Citi’s Equities Division," Citi said in a statement. The decision was first reported by Reuters.

LavaFlow, an alternative trading system (ATS) that electronically matches buy and sell orders for listed stocks, is one of about 40 such venues competing for much of the same business as the 11 registered U.S. stock exchanges such as Nasdaq OMX Group (NDAQ.O: Quote) and the New York Stock Exchange.

The Securities and Exchange Commission fined Citi $5 million on July 25, saying the bank failed to protect customer data inside LavaFlow from March 2008 through March 2011. Citi did not admit or deny the charges.

LavaFlow was the sixth largest ATS for stocks for the week of Nov. 10, according to the latest data from the Financial Industry Regulatory Authority (FINRA.) The trading venue is known as an electronic communications network (ECN) that unlike like other ATSs known as "dark pools" displays some information about pending orders in the system.

Dark pools allow investors to trade anonymously and only make data available after a trade, reducing the chance that others in the market will catch wind of a buyer's or seller's intentions and move the price against them.

Citi still operates at least two dark pools.   Continued...

A Citigroup logo is pictured from the floor of the New York Stock Exchange July 9, 2014. REUTERS/Brendan McDermid