UBS Pays $14.4 Million Penalty To SEC To Settle Dark Pool Violations

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The Securities and Exchange Commission announced on Thursday it had charged a holding company of UBS with several securities law violations including failure to disclose related to the operation and marketing of its stock trading dark pool.

The SEC statement noted that UBS Securities LLC had agreed to settle the charges by coughing up a fine of $14.4 million. The fine includes a $12 million penalty that is the largest ever levied against an alternative trading system.

UBS agreed to the SEC’s order and penalty without admitting or denying the findings. The order officially censures the company and levies $2,240,702.50 in disgorgement, $235,686.14 in prejudgment interest, and the $12 million penalty.

Details on UBS dark pool violations

An SEC investigation of UBS’s dark pool operations showed that the firm did not properly disclose to all subscribers an order type that it offered almost exclusively to market makers and high-frequency trading firms.  The PrimaryPegPlus order allowed certain subscribers to buy and sell securities by placing orders in increments of less than one cent.

By accepting these orders, UBS was intentionally violating SEC Regulation NMS that banned from accepting orders at those prices. The PPP order type allowed users to place sub-penny-priced orders that jumped ahead of other orders properly submitted at whole-penny prices.

The SEC investigation also found that UBS failed to disclose to all subscribers a “natural-only crossing restriction” developed to make sure specific orders would not execute against orders placed by market makers and high-frequency trading firms. This was only available to benefit orders placed using UBS automated trading strategies. Furthermore, the firm did not disclose the existence of this feature to all subscribers until approximately 30 months after it was available.

Statement from SEC

“The UBS dark pool was not a level playing field for all customers and did not operate as advertised,” commented Andrew J. 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.”

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