Federal securities regulators on Wednesday charged Boston-based eBX LLC, a “dark pool” securities exchange, with failing to protect confidential trading information of customers and for failing to disclose that it let an outside firm use their trading data.
The Securities and Exchange Commission said eBX, which runs the alternative trading system LeveL ATS, agreed to settle the charges and to pay an $800,000 penalty.
Dark pools are a growing part of the trading world and are legal but they do not disclose the identity of buyers and sellers. Quotes on securities are not displayed to the public, as they are with major mainstream stock exchanges like the New York Stock Exchange. Participants in dark pools have access to trades that other investors in public exchanges do not.
But eBX allowed an outside technology firm to use its trading information, the SEC alleged, meaning that firm could route business to other investors and have an information advantage over other clients.
“Dark pools are dark for a reason: buyers and sellers expect confidentiality of their trading information,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Many eBX subscribers didn’t get the benefit of that bargain – they were unaware that another order routing system was given exclusive access to trading information that it used for its own benefit.”
eBX’s attorney did not immediately return a call seeking comment.
Under the terms of the settlement, in addition to the fine, eBX was censured and ordered to cease and desist from committing further violations of securities laws regulating alternative trading systems.