NEW YORK (Reuters) - Shares of brokerage Investment Technology Group (ITG.N) were down more than 20 percent on Thursday after the company said it had set aside $20.3 million for a probable settlement with regulators related to how it ran its “dark pool.”
ITG disclosed late on Wednesday that the U.S. Securities and Exchange Commission was investigating the lack of disclosure by the firm to its clients that a subsidiary of the agency broker was trading against client orders within ITG’s private stock trading venue, or “dark pool.”
The issue involved a trial market making program the ITG subsidiary, AlterNet, ran between 2010 and mid-2011.
ITG also said the employee who headed the trial program used customer information from 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, which should not have been available. The employee was later fired.
There are around 40 U.S. dark pools, which make trading data available only after a trade has taken place, reducing the chance of others in the market moving the price against it. Regulatory scrutiny of the broker-run electronic trading venues has been on the rise.
In January, UBS Group AG UBSG.VX said it would pay $14.4 million over regulatory failures in its dark pool.
Dark pools compete with exchanges such the New York Stock Exchange and Nasdaq OMX Group NDAQ.O for stock orders and account for nearly 40 percent of U.S. stock trading activity.
ITG was one of the first dark pools, starting in 1987, aimed at helping asset managers compete large trades with each other.
Shares of the New York-based firm were down 21.2 percent at $18.91 on Thursday around midday.
Reporting by John McCrank; Editing by Matthew Lewis