The SEC announced that Liquidnet Inc. agreed to pay a $5 million civil penalty to settle charges of regulatory violations. According to the SEC, these charges included failure to implement necessary controls and procedures for market access, inadequate protection of confidential subscriber trading information and related disclosure failures.
As an ATS operator used to facilitate market access for non-broker dealers, Liquidnet is mandated under the SEC’s market access rule to implement meticulous systems to prevent orders that exceed appropriate credit thresholds. However, the SEC’s statement reveals that Liquidnet systematically violated this rule over several years, establishing an excessive default credit threshold of $1 billion.
The SEC’s investigation was conducted by members of the Market Abuse Unit, including Rachael Clarke, Mandy Sturmfelz and Lindsay S. Moilanen, under the supervision of Chief of the SEC’s Market Abuse Unit, Joseph Snasone.
Furthermore, compliance with the ATS exemption from exchange registration necessitates written protocols limiting employee access to confidential subscriber trading information. The SEC determined that Liquidnet’s controls in this area were inadequate, allowing unauthorized access to sensitive data. Additionally, the firm misrepresented the integrity of its market access controls and confidential safeguards.
“Ensuring robust controls for market access and the protection of sensitive trading information is non-negotiable for preserving investor confidence and market integrity,” said Sansone.
Without admitting or denying the SEC’s findings, Liquidnet consented to a censure and committed to remediation measures, including the engagement of an external consultant to enhance compliance with the market access rule and Regulations ATS. The firm will also provide detailed reports and certifications to validate its corrective actions.
