U.S. Securities and Exchange Commission settles charges against Liquidnet over market access controls and ATS confidentiality safeguards with USD 5 million penalty

The U.S. Securities and Exchange Commission announced settled charges against broker-dealer Liquidnet Inc., an operator of multiple alternative trading systems (ATSs), for failing to maintain required market access controls and procedures, failing to protect confidential subscriber trading information, and related disclosure failures. Liquidnet agreed to be censured and to pay a USD 5 million civil penalty, without admitting or denying the SEC’s findings. As an ATS operator providing market access to non-broker-dealers, Liquidnet was required under the market access rule to maintain controls to prevent orders from exceeding appropriate customer credit thresholds, but the SEC found that for a number of years it set inappropriate thresholds, including a USD 1 billion default. The order also found that, for several years, Liquidnet did not adequately restrict access to systems containing confidential subscriber trading information as required to meet conditions of its ATS exemption from exchange registration, did not make adequate related disclosures on certain forms, and made material misrepresentations to customers and subscribers about its market access controls and ATS safeguards. The SEC order notes remedial efforts including retention of an outside consultant to improve controls and procedures related to the market access rule and Regulation ATS, and requires Liquidnet to submit certain reports and certifications in connection with those efforts.