(Bloomberg) -- Investment Technology Group Inc. maybe should've worked with Michael Lewis, too.
The New York-based brokerage said Wednesday that it faces a third Securities and Exchange Commission fine in three years. Part of the latest violation flips the script on bad behavior in the U.S. stock market: ITG got in trouble for not disclosing that, in the aftermath of Lewis's “Flash Boys,” it introduced a speed bump on its Posit dark pool roughly similar to the one glorified by the author in his 2014 book on high-frequency traders.
So, like the folks that Lewis profiled at IEX Group Inc., ITG was trying to defang such traders by slowing them down, but it didn't immediately disclose what it was doing. And doing things without telling clients isn't allowed by the SEC, which has used a similar rationale in several high-profile fines in recent years.
ITG took a $12 million charge in the second quarter to cover a penalty, which hasn't been finalized with regulators and would include other violations beside the speed bump. From 2010 to 2014, the dark pool was set up in a way that sometimes prevented the fastest traders from interacting with orders on Posit. Also, information on trading was shared inside and outside ITG in a way that it shouldn't have been.
“ITG has cooperated with the SEC and has taken meaningful actions to remediate issues, including ending distribution of certain external post-trade-date reports containing U.S. POSIT data in July 2015 and November 2017, respectively, and imposing stricter limits on internal access to POSIT data in 2017 and into 2018,” the company said in a statement.
ITG's stock dropped 5 percent Wednesday after the news was announced, but surged as much as 14 percent Thursday after a JPMorgan Chase & Co. analyst said the fine will be a “manageable” problem.
Read more about ITG's prior SEC fines:
- ITG Pays Record Dark Pool Fine for Secret Trading Desk
- ITG to Pay $24 Million in SEC Settlement Over ADR Securities
To contact the reporter on this story: Nick Baker in Chicago at nbaker7@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steven Crabill, Dan Reichl
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