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ITG to pay $20M on SEC charges it ran secret trading desk

August 12, 2015 GMT

NEW YORK (AP) — Investment Technology Group Inc. will pay a record $20.3 million to settle charges that it ran a secret trading desk that used confidential customer trading information for profit, including bets against its customers.

The U.S. Securities and Exchange Commission Wednesday that ITG earned nearly $2.1 million secretly trading data gleaned from its own customers between 2010 and 2011. ITG will pay back those earnings, plus a penalty of $18 million and more than $256,000 in interest, the SEC said. The settlement is the largest amount paid by an alternative trading system.

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According to investigators, ITG told customers that it was a broker only, but covertly operated a trading desk known as “Project Omega” in concert with its dark pools, which allow anonymous trades between buyers and sellers.

ITG used customer data on those orders to make its own trades.

“While ITG claimed to protect the confidentiality of its dark pool subscribers’ trading information, during an eight-month period Project Omega accessed live feeds of order and execution information of its subscribers and used it to implement high-frequency algorithmic trading strategies, including one in which it traded against subscribers in ITG’s dark pool,” according to the SEC.

In settling the case, the SEC said that ITG admitted wrongdoing.

ITG, based in New York, said it is working to regain its trust with customers and shareholders. “With today’s settlement, we have put this regrettable legacy matter behind us,” said Maureen O’Hara, chair of ITG’s board, in a statement.

Last week, ITG removed Bob Gasser as CEO and replaced him with Jarrett Lilien, an ITG board member and former E-Trade Financial CEO, as interim CEO.

Shares of ITG fell 6 percent, or $1.10, to $16.39, in midday trading.