ITG agrees to $12 million dark pool settlement

SEC hands ITG $12 million fine for disclosing information on client activity within POSIT to HFTs and misleading investors on how the dark pool operates.

Agency broker ITG will pay a $12 million settlement after the US financial regulator found it had misled investors about its dark pool operations and failed to safeguard confidential client trading information.

The Securities and Exchange Commission (SEC) said this week that the charges related to ITG’s misstatements and omissions about its POSIT dark pool between 2010 and 2016.

ITG allegedly disclosed information on trading firms via ‘Top 100 reports’ which outlined the top orders submitted to POSIT and the top stocks for execution within the dark pool. The broker used the reports to inform high-frequency trading (HFT) firms about ‘potential unsatisfied liquidity needs’ of its dark pool members, despite assuring users that their trading intentions would not be disclosed.

“Contrary to assurances it made to dark pool subscribers, ITG failed to ensure that trading information was protected, and in some instances used this information to attempt to grow its business,” said Joseph Sansone, chief of the SEC enforcement division’s market abuse unit. “Our agency continues to scrutinise dark pools to ensure they protect client trading information and operate in compliance with the securities laws.”

In a filing related to the settlement, ITG stated that it is “not aware of any live order information or client-identifying information having been shared outside the firm”, and that any information that was shared outside of the company was anonymised, aggregated and data from prior trading days. 

The SEC also said that ITG misled investors about structural features of POSIT after it split the dark pool into two separate pools to prevent certain orders from interacting with each other. The company did not inform its clients of the two separate pools despite questions from users on whether ITG segmented POSIT in any way. A speedbump, which was implemented on POSIT from mid-2014 to late 2016, was also applied to the dark pool to slow down interactions with HFT firms, although clients were not informed of this.

ITG warned of the potential $12 million settlement with the SEC in August this year, adding that it had since taken “meaningful remedial actions” during the course of the SEC’s investigation.

“Across the firm, we are deeply committed to operating with the highest level of integrity,” ITG’s CEO, Frank Troise, said about the settlement at the time. “We are working towards a potential SEC settlement of these issues so we can focus on our agenda of technology-driven innovation and world-class client service.”

«