UBS Securities LLC has agreed to pay more than US$14 million to settle allegations that it didn’t make proper disclosure about trading features offered in its dark pool, which benefited certain traders.
The U.S. Securities and Exchange Commission (SEC) brought charges against a subsidiary of UBS alleging various securities law violations in connection with the operation and marketing of its dark pool. UBS consented to the entry of an order by the SEC, without admitting or denying the findings. The order requires the firm to pay a US$12 million penalty, $2.2 million in disgorgement, and US$235,686.14 in prejudgment interest.
The SEC says that its investigation found that the firm failed to properly disclose the existence of a certain order type to all of its subscribers. Instead, it pitched a particular order type that allowed orders priced in increments of less than one cent almost exclusively to market makers and high-frequency trading (HFT) firms. The SEC says that the order type enabled users to place sub-penny-priced orders that jumped ahead of other orders submitted at legal, whole-penny prices.
It also found that UBS failed to disclose to all subscribers a “natural-only crossing restriction” developed to ensure that select orders would not execute against orders placed by market makers and HFTs. This feature was only available to benefit orders placed using UBS algorithmic trading strategies. And, the SEC says that UBS did not disclose the existence of this feature to all subscribers until approximately 30 months after it was launched.
“The UBS dark pool was not a level playing field for all customers and did not operate as advertised,” said Andrew Ceresney, director of the SEC’s division of enforcement. “Our action shows our continued commitment to policing the equity markets to ensure fairness and compliance with all laws and rules.”
The SEC says its investigation is continuing.