Jun 26, 2012
Liquidnet moves to plug “omissions”
Block trading venue operator Liquidnet has
closed off disclosure issues identified by the Securities and Exchange
Commission (SEC) related to its service which facilitates links between issuers
and investors.
In an email to members last week, Liquidnet
informed clients that SEC staff had raised concerns over how the firm protected
identities of participants, but that the venue operator had since corrected
these issues and no longer provided “descriptive characteristics” about member
firms.
The SEC was specifically concerned about
practices at Liquidnet which meant representatives described counterparties in
the pool in a manner that could, the SEC maintained, have potentially lead to
identification.
“These were oversights. They were errors of
omission, not commission,” Liquidnet chief executive officer Seth Merrin is
reported to have said. “Still, they are issues we had to correct and we
corrected them.”
The issues pertained to Liquidnet’s
InfraRed application, which is a platform through which issuers can gauge “institutional
sentiment” as indicated by the participating members of the venue’s
institutional community. Liquidnet lets asset managers opt out of having their
information included in the InfraRed product, but it seems there were issues
with how this opt-out was managed.
Merrin said the SEC inspection “revealed
some shortcomings with this business, [but] we do not believe that any member
was ever disadvantaged in any trade. Nevertheless, we take these issues very
seriously and have taken steps to address them.”
In his communication to customers, Merrin
said the venue was not accused of revealing the identities of institutions, but
it might not have lived up to its responsibilities, because the descriptive information
it provided prospective customers could have been construed as valuable to
companies considering buying or selling shares.
The SEC has also inspected Liquidnet’s Equity
Capital Markets team, which used the InfraRed tool to bring issuers and
institutions together.
Liquidnet is thought to be one of many
venue operators which have come under increased scrutiny by the agency this
year as concerns grow over the increased take-up of dark pools, and electronic
and automated trading practices.
Bruce Love
+44 (0)20 7397 3818
bruce.love@thetrade.ltd.uk