The US Securities and Exchange Commission (SEC) has charged a subsidiary of UBS with disclosure failures and other securities law violations related to the operation and marketing of its dark pool.
UBS Securities agreed to settle the charges by paying more than $14.4m, including a $12m penalty that is the SEC’s largest against an alternative trading system (ATS).
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An SEC examination and investigation of UBS revealed that the firm failed to properly disclose to all subscribers the existence of an order type that it pitched almost exclusively to market makers and high-frequency trading firms.
The order type, called PrimaryPegPlus (PPP), enabled certain subscribers to buy and sell securities by placing orders priced in increments of less than one cent. However, UBS was prohibited under Regulation NMS from accepting orders at those prices. By doing so the firm enabled users of the PPP order type to place sub-penny-priced orders that jumped ahead of other orders submitted at legal, whole-penny prices.
Furthermore, the SEC investigation found that UBS similarly failed to disclose to all subscribers a "natural-only crossing restriction" developed to ensure that select orders would not execute against orders placed by market makers and high-frequency trading firms.
UBS also did not disclose the existence of this feature to all subscribers until approximately 30 months after it was launched.
"The UBS dark pool was not a level playing field for all customers and did not operate as advertised," said Andrew Ceresney, director of the SEC’s Division of Enforcement. "Our action shows our continued commitment to policing the equity markets to ensure fairness and compliance with all laws and rules."
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By GlobalDataUBS consented to the SEC’s order without admitting or denying the findings.
