Bloomberg Tradebook will pay a $5 million penalty after the US regulatory watchdog found the agency broker had misrepresented how it handled certain client trade orders.
The US Securities and Exchange Commission (SEC) found that Bloomberg Tradebook had mostly routed orders from clients that paid low commission rates using an undisclosed arrangement, referred to as the ‘low cost router’.
The arrangement saw Bloomberg Tradebook allow three unaffiliated broker-dealers to route the client orders to venues for execution, but clients were not informed that a large proportion of their orders would be routed by the unaffiliated brokers and not by Tradebook.
Around 6.4 million Tradebook client orders were executed based on the low cost router arrangement between November 2010 and September 2018, according to the SEC.
The undisclosed routing system contradicted Bloomberg Tradebook’s marketing, which claimed client orders would be routed by the firm’s own technology based on price and liquidity. Unverifiable execution venue data was also sent to clients for over one million orders routed using the low cost router system.
“Contrary to representations in its marketing materials, Tradebook lets unaffiliated brokers make decisions about the routing of certain customer trade orders in a way that lowered Tradebook’s costs,” said Joseph Sansone, chief of the enforcement division’s market abuse unit at the SEC. “Broker-dealers must take care to provide customers with accurate and up to date information about important features of their order routing services.”
Bloomberg Tradebook did not admit or deny the SEC’s findings, but agreed to the $5 million penalty, which reflected the firm’s ‘significant cooperation’ with the SEC during its investigation, the regulator concluded.