SEC Fines Brokerage Firm $2M For Improper Use Of Customer Data

(Catastrophe Girl)

When a company breaks its promise of securing your personal information, that’s a problem. When the company does so for three years and used consumer trading data for its own benefit, that elicits a hefty fine from U.S. regulators.

The U.S. Securities and Exchange Commission announced today that New York-based brokerage firm Liquidnet Holdings will pay $2 million to settle charges it misused consumer data.

Regulators found Liquidnet, which operates a secretive trading venue, in violation of SEC regulatory obligations and the company’s own promises to its alternative trading system (ATS) subscribers during a three-year period when it allowed a business unit outside the operation to access confidential trading information.

According to the SEC, Liquidnet’s core business is operating a block-trading dark pool for large institutional investors. The firm promised those investors that it would keep their trading information confidential and allow them to trade with maximum anonymity and minimum information leakage.

However, SEC examiners found that Liquidnet allowed consumer information, including locations, approximate assets under management, and investment styles, to be used for marketing purposes.

Liquidnet’s Equity Capital Markets (ECM) desk also used the information to advise customers who to meet with at conferences and when to execute transactions in the ATS.

Additionally, the company used the information to employ two sales tools. In one instance the data was used to crest alerts notifying employees of missed opportunities between subscriber orders and subscriber indications. The other tool was used to identify subscribers to be contacted about the firm’s dominance in certain stocks.

Regulators say Liquidnet did not admit or deny the findings, but consented to the SEC order, which censures the firm and requires it to pay the $2 million penalty and cease and desist from committing the violations.

SEC Charges New York-Based Dark Pool Operator With Failing to Safeguard Confidential Trading Information [U.S. Securities and Exchange Commission]

by Ashlee Kieler via Consumerist