In addition to the market access violations, the SEC’s order also highlighted issues regarding the protection of confidential subscriber trading information. Specifically, the SEC found that Liquidnet failed to establish adequate safeguards and procedures to limit access to confidential data, particularly for employees of the alternative trading system (ATS) who were not responsible for operating the system or ensuring compliance with applicable rules. Liquidnet reportedly allowed employees without operational or compliance responsibilities to access certain confidential subscriber trading information, which primarily included match and execution data. However, this access did not typically extend to subscribers’ unmatched indications of interest, except on an aggregate and non-symbol specific basis.
The SEC further noted that Liquidnet did not have proper access controls for certain ATS data that was used by technology personnel for testing purposes, which led to additional concerns about the firm’s handling of sensitive information. The SEC’s order also pointed out that Liquidnet made material misrepresentations to customers about the firm’s compliance with the market access rule and its safeguards for protecting confidential trading information. In addition, the firm failed to disclose certain information in its Form ATS-N and Form ATS filings that would have clarified who had access to confidential subscriber trading information and the nature of that access.
