SEC fines firm for operating secret trading desk

The Securities and Exchange Commission fined a financial firm $20 million for operating a secret trading desk and using client information to invest against them.

ITG Inc. and its affiliate, Alternet Securities, agreed to admit wrongdoing and pay the fine, the SEC’s largest ever against an alternative trading system, after an agency probe uncovered the covert trading activity.

{mosads}According to the SEC, ITG billed itself as a broker that traded only on behalf of clients, operating a “dark pool,” which is a private exchange for trading securities. However, for over a year the company ran a trading desk for its own profits. That desk, dubbed “Project Omega,” even tapped into the private information of ITG’s clients to gain a trading edge.

“ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit,” said Andrew J. Ceresney, director of the SEC’s enforcement division.  “In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.”

The SEC claimed that via this secret trading operation, ITG traded roughly 1.3 billion shares, including 262 million shares traded with company clients unaware of ITG’s in-house operation. Furthermore, the regulator charged that the company used incoming trading data from its clients to inform its own investments, allowing it to deploy high-frequency trading algorithms to maximize profit from incoming client moves.

The company agreed to pay $2.3 million in improperly gained profits and interest, as well as an $18 million penalty to the SEC.