ITG agreed to pay a penalty of $20.3 million to settle the charges filed by the Securities and Exchange Commission (SEC). The firm is accused of operating a secret trading desk and misusing confidential trading information of dark pool subscribers.
ITG Project Omega
Based on the investigation of the SEC, ITG operated an undisclosed proprietary trading desk called “Project Omega” despite claiming to the public that it is an “agency-only” broker without conflict of interest with customers. ITG operated Project Omega for more than a year.
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The SEC also found that ITG accessed live feeds of order and execution information of its dark pool subscribers for eight months while operating Project Omega. ITG used the information to implement high-frequency algorithmic trading strategies including a trade against its dark pool (POSIT) subscribers.
Project Omega traded approximately 1.3 billion shares including around 262 million with unsuspecting subscribers to its dark pool. The secret trading desk accessed the live feed of information about orders sent by sell-side subscribers to ITG’s algorithm for handling.
Project Omega used an algorithmic trading strategy called the “Facilitation Strategy” and executed traded based on the live feed of orders.
According to the SEC, “Project Omega opened positions in displayed markets on the same side of the market as the detected orders, and then closed these positions in POSIT by trading against the detected orders. By employing this strategy, Project Omega sought to capture the full “bid-ask spread” between the National Best Bid and Offer (NBBO).”
ITG abused customer trust
SEC Division of Enforcement Director Andrew Ceresney said, “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.”
ITG admitted wrongdoing, agreed to pay disgorgement of $2,081,034 (the total proprietary revenues generated by Project Omega) and $256,532 in pre-judgement in interest. The firm also agreed to pay a penalty of $18 million.
According to the SECITG failed to amend its ATS filing related to Project Omega trading activities in POSIT. It also failed to establish adequate safeguards and implement proper oversight procedures to protect the confidential information of POSIT subscribers.
ITG violated Sections 17(a)(2) and (3) of the Securities Act of 1993 and Rules 301(b)(2) and 301(b)(10) of Regulation ATS.