Institutional crossing network operator Liquidnet has been fined US$2 million by the US Securities and Exchange Commission (SEC) for sharing customer trading information between two separate business units.
The SEC found Liquidnet violated regulations and promises to its customers over a three-year period by allowing its equity capital markets division to use customer data from its dark pool for marketing purposes.
Its equity capital markets business was created in 2009 to attract business from corporates and private equity firms.
An investigation by the SEC found employees in the division were contacting corporate issuers with information about trading activity in their stock.
Liquidnet did not admit or deny the findings but agreed to settle and pay the penalty.
The firm was also found to be improperly using confidential trading data for two alternative trading system (ATS) sales tools. One alerted ATS sales people to missed execution opportunities in its dark pool, while another identified subscribers to be contacted regarding Liquidnet’s market share in certain stocks.
Andrew Ceresney, director of the SEC’s enforcement division, said: “Dark pool operators violate the law when they fail to protect the confidential trading information that their subscribers entrust to them, as Liquidnet did here when it used this confidential information to try to expand its business.”
Liquidnet’s business model relies on access to institutional investors’ trading blotters to identify block crossing opportunities.