UBS Securities agreed last week to pay more than $14.4 million to settle charges with the SEC that it failed to disclose certain features of order types in its dark pool to all subscribers, and further that it violated provisions of Regulation NMS by accepting certain orders. The payment included disgorgement, interest, and a $12 million penalty, representing the largest penalty levied to date against an alternative trading system.
The SEC’s investigation found that UBS selectively disclosed the existence of an order type known as “PrimaryPegPlus,” which allowed subscribers to place orders in sub-penny increments and gave them the ability to “jump ahead of other orders submitted at legal, whole-penny prices.” Under Regulation NMS, UBS was not permitted to accept such orders priced in increments of less than one cent. The SEC also found that UBS did not disclose to all subscribers the availability of a “natural-only crossing restriction,” which prevented orders from executing against other orders placed by market makers and high-frequency traders. The SEC found that the restriction was only available to its own algorithms for the first 30 months after the feature’s implementation.
The investigation found that statements on UBS’s Form ATS were inconsistent and incomplete regarding these issues. Further, the SEC found that the dark pool failed to maintain order data for a period totaling almost 11 months and violated confidentiality requirements by inappropriately giving access to trading information to 103 employees.