Citigroup Global Markets' LavaFlow alternative trading system will pay $5 million — $2.85 million in penalties and the remainder in refunds to clients including money managers — to settle SEC charges that it did not protect subscribers' confidential information.
It's the agency's largest settlement ever against an ATS, the Securities and Exchange Commission said in a news release.
LavaFlow, an electronic communications network that, unlike a dark pool, displays best bids and offers on its system, allowed a smart-order router, called ColorBook, to access confidential orders of subscribers without their consent from March 2008 to March 2011, according to the SEC administrative proceeding released Friday.
ColorBook was outside LavaFlow's operations and Citigroup had inadequate protections for the LavaFlow data, the SEC said.
Over three years, ColorBook executed trades involving more than 400 million shares “based in part on the subscriber information contained in the ECN's unexecuted hidden orders,” the SEC said.
“We are pleased to put this matter behind us,” said Scott Helfman, Citigroup spokesman.
