Liquidnet Inc. has agreed to pay a $5 million civil penalty to resolve allegations brought by the U.S. Securities and Exchange Commission (SEC) that the broker-dealer failed to establish proper controls related to market access and the protection of confidential subscriber trading information. The settlement, which was announced on Friday, also includes a censure, though Liquidnet neither admits nor denies any of the SEC’s findings.
According to the SEC’s order, Liquidnet violated the market access rule from 2019 through 2023. The market access rule, which was introduced to ensure that broker-dealers have proper financial risk management controls and supervisory procedures in place, requires firms to take steps to prevent the entry of orders that would exceed appropriate credit thresholds for non-broker-dealer customers. Broker-dealers must also regularly review the effectiveness of these controls and procedures.
The SEC alleged that from 2019 to 2023, Liquidnet violated the market access rule by setting credit thresholds for non-broker-dealer customers without first conducting proper due diligence on the customers’ creditworthiness. According to the order, Liquidnet often set customer credit thresholds at a default value of $1 billion, irrespective of the customer’s actual financial standing. The SEC claims that Liquidnet also failed to implement systems to prevent these thresholds from being exceeded, and that the company did not conduct the necessary reviews or certifications of compliance with the market access rule until 2023.
