Market maker Virtu is currently facing new enforcement action by the Securities and Exchange Commission (SEC).
(WSJ) The firm disclosed last week that it is facing a potential enforcement lawsuit from the Securities and Exchange Commission.
Virtu disclosed in a quarterly filing after Friday’s closing bell that it had engaged in settlement discussions with the SEC about an investigation related to “information barriers policies and procedures” between January 2018 and April 2019.
The company first disclosed the probe in February. Its updated disclosure suggested that the SEC could be moving forward with a lawsuit.
Virtu said it “currently believes it may receive a Wells notice from the SEC,” referring to a type of letter that the agency’s staffers send to companies or individuals to inform them of a possible enforcement action.
A Virtu spokesman said the investigation was “primarily focused on an access controls weakness in one of our internal back office systems containing post trade information that theoretically could allow certain system users access greater than what was intended by our policies.”
“We have no reason to believe and have found no evidence that anyone ever made any improper use of any client information”, said Virtu.
SEC Fines Virtu for Abusing Dark Pools
In 2019, the SEC announced that Virtu Americas LLC (f/k/a KCG Americas LLC) agreed to pay $1.5 million to settle charges for failing to comply with Regulation SCI.
According to the SEC’s order, KCG Americas operated an alternative trading system, or ATS, commonly referred to as a “dark pool.”
An ATS that exceeds certain trading volume thresholds is required to comply with Regulation SCI.
The SEC order finds that KCG Americas implemented an automated system that was intended to keep its dark pool’s trading volume below the volume thresholds by discontinuing trading in particular securities before the thresholds were met.
KCG Americas relied on this system for more than a year and half.
However, according to the SEC’s order, the system did not function as intended, causing trading to exceed the thresholds that triggered the need to comply with Regulation SCI.
The SEC’s order finds that Virtu willfully violated the policy and procedure.
Without admitting or denying the SEC’s findings, Virtu consented to the entry of a cease and desist order and agreed to be censured and to pay a penalty $1.5 million.
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