NEW YORK (Reuters) - Broker dealer Investment Technology Group said on Wednesday it set aside $20.3 million for a probable settlement with the U.S. Securities and Exchange Commission over rule violations related to its private stock trading venue.
The settlement would be a record amount handed out by the SEC related to the operation of a private stock trading platform, or “dark pool.”
ITG said the SEC was investigating a test program one of the firm’s subsidiaries ran from 2010 until mid-2011 that involved proprietary trading inside of ITG’s POSIT dark pool against some of its broker clients that the firm did not disclose.
ITG also said the employee who ran the program in question, who is no longer with the firm, used information from customer stock orders within ITG’s dark pool, as well as information from ITG clients that used the firm’s algorithms to execute trades on other trading platforms, that should not have been available.
ITG disclosed the information in an earnings pre-announcement after the market closed on Wednesday and also in letter to its clients.
“In hindsight, I recognize that our client disclosures about the pilot were insufficient,” ITG Chief Executive Officer Bob Gasser said in the letter to clients. “I take full responsibility for these historical mistakes.”
There are around 40 U.S. dark pools and regulatory scrutiny of the broker-run electronic trading venues, which only make trading data available after a trade has taken place, reducing the chance of others in the market moving the price against it, has been on the rise. In January, UBS said it would pay 14.4 million over regulatory failures in its dark pool.
Based on the terms of the potential settlement with the SEC, ITG would pay a fine of $18 million, disgorgement of around $2.1 million in trading revenues, and prejudgment interest of around $250,000.
The firm also said that on July 23, Kevin J.P. O’Hara resigned from ITG’s board of directors effective immediately, but did not state a reason.
Reporting by John McCrank; Editing by Bernard Orr