Execution broker ITG and its affiliate AlterNet Securities have agreed to pay $20.3 million to settle SEC charges that they operated a secret dealing desk and misused the confidential trading information of dark pool subscribers.
ITG publicly claimed to be an agency-only broker, yet ran a secret proprietary trading desk dubbed 'Project Omega' for more than a year, according to the SEC investigation.
Not only this, despite promising its dark pool subscribers that their trading information was confidential, for eight months Project Omega was accessing live order and execution feeds by connecting to a software utility used by ITG's sales and support teams.
The information was used to shape the firm's algorithmic trading strategies, with Project Omega trading approximately 1.3 billion shares. One of the HFT strategies even traded against subscribers in ITG's own Posit dark pool.
ITG has admitted wrongdoing and will pay a disgorgement of $2,081,034 (the total proprietary revenues generated by Project Omega) plus prejudgment interest of $256,532 and a penalty of $18 million.
Andrew Ceresney, director, division of enforcement, SEC, says: "ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit. In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case."
The scandal has already claimed the scalp of ITG CEO Bob Gasser, who earlier this month was replaced on an interim basis by board member and former E*Trade COO Jarrett Lilien.
Speaking after today's settlement, Lilien vowed: "We look forward to restoring the confidence of our customers and our shareholders through the actions we take in the coming weeks and months."
Separately, Credit Suisse is in negotiations with the SEC and New York Attorney Generals' office about settling allegations relating to its Crossfinder dark pool, according to the Wall Street Journal.
Any deal could see Credit Suisse hit with a fine of tens of millions of dollars for, among other things, allegedly facilitating unfair advantages to some high frequency traders.