ITG Confirms Plan to Pay $20 Million to Settle SEC Dark Pool Charges

Investment Technology Group Inc. confirmed it plans to pay $20.3 million to settle allegations that it operated a secret trading desk and misused confidential trading information.

About two weeks ago, the company said it had set aside that amount for a likely settlement over alleged improprieties related to its "dark pool," which is a privately-run venue that helps buyers and sellers trade anonymously.

The Securities and Exchange Commission said ITG operated an undisclosed proprietary trading desk known as "Project Omega" for about a year. That desk connected to a software utility that was used by ITG's sales and support teams, by which it accessed a live feed of customer order and execution information, according to the agency. Project Omega used that real-time view of subscriber orders to implement high-frequency algorithmic trading strategies, and, with one strategy, the desk used the customer data to trade against subscribers in ITG's dark pool, the agency said.

"ITG abused the trust of its customers," said SEC enforcement official Andrew Ceresney.

The company admitted to wrongdoing, according to the SEC.

In an email to clients, ITG said "this was not ITG's finest hour," and added that the settlement has "brought those legacy issues to a close."

Last week, the company ousted Chief Executive Robert Gasser after an investigation by an outside law firm found that he hadn't disclosed to the board some details of the alleged dark pool improprieties.

The SEC, as well as the Financial Industry Regulatory Authority and the New York Attorney General, has been examining the use of dark pools across Wall Street since last year as part of a broad effort to increase oversight of off-exchange trading.

According to the SEC, Project Omega traded a total of about 1.3 billion shares, including approximately 262 million shares with subscribers in ITG's own dark pool.

The Wall Street Journal reported Tuesday that Credit Suisse Group AG and Barclays PLC, two of the biggest operators of dark pools, have entered settlement negotiations with the New York attorney general and the Securities and Exchange Commission over allegations of wrongdoing in the private trading venues.

Deals with the banks could come as soon as the next several weeks, though talks could still fall apart, they said.

Write to Lisa Beilfuss at [e-mail]

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