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August 13, 2015

Broker ITG fined $20m for Flash Boys-style dark pool misuse

Financial firm operated high-frequency trading desk to game customers.

By Jimmy Nicholls

An American technology brokerage was handed a $20m (£12.8m) fine over misuse of a Flash Boys-esque "dark pool" after it accessed client data it promised to keep confidential.

Investigators at a US financial regulator found that the Investment Technology Group (ITG) ran a secret high-frequency trading desk known as "Project Omega", which accessed supposedly confidential trading data to game the market.

Andrew Ceresney, director of enforcement at the Securities and Exchange Commission, said: "ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit.

"In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case."

Under Project Omega ITG traded around 1.3 billion shares, including 262 million shares with unwitting subscribers in its own dark pool, a kind of private market in which access to market data is heavily restricted.

Much like tactics described in Michael Lewis’s Flash Boys, a book released last year that described high-frequency trading, ITG intercepted order data from its sell-side subscribers, allowing it to trade against the orders from April to December of 2010.

As a result of the scam the firm was fined $2m, equivalent to revenues generated by Project Omega, as well as prejudgement interest of $250,000 and a penalty of $18m, the largest such penalty the SEC has ever issued against an alternative trading system.ITG admitted wrongdoing and agreed to pay the fine to settle charges.

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In a letter to shareholders the firm said: "We won’t mince words — this was not ITG’s finest hour. With this settlement, we’ve brought those legacy issues to a close."

Staff at the ITG have been bracing themselves for such a penalty since at least last month, the firm’s chief executive Bob Gasser having resigned last week over the furore.

At the time he accepted "full responsibility for these historical mistakes."

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