NEW YORK (Reuters) - Securities regulators said on Thursday a unit of UBS AG agreed to pay more than $14.4 million to settle charges over regulatory failures in its private U.S. trading platform, known as a "dark pool," that gave some of customers an advantage over others.
UBS Securities LLC, which did not admit or deny any wrongdoing, failed to properly disclose the existence of an order type pitched almost exclusively to market makers and high-frequency trading firms, the U.S. Securities and Exchange Commission said.
Order types are instructions for how trades are executed. UBS offered an order type to some of its customers that let them buy and sell securities by placing orders priced in increments of less than one cent, even though regulations prohibited the bank from accepting orders at sub-penny prices.
The users of the order type were able to jump ahead of other orders submitted at legal, whole-penny prices, giving them an unfair advantage.
"The UBS dark pool was not a level playing field for all customers and did not operate as advertised," said Andrew Ceresney, director of the SEC's Division of Enforcement.
The SEC also highlighted several other violations by UBS, including keeping some of its customers in the dark about a proprietary algorithm that let those using it avoid interacting with market makers and high-frequency traders. The feature was only disclosed to all customers of the dark pool around 30 months after it was launched.
The action was the second order type-related fine levied by the SEC this week. On Monday the regulator said BATS Global Markets agreed to pay a record $14 million penalty to settle charges that two exchanges formerly owned by Direct Edge Holdings had selectively disclosed information about order types.
There are around 40 U.S. dark pools and UBS operates the second largest. Regulatory scrutiny of the broker-run electronic trading venues, which only make trading data available after a trade has taken place, reducing the chance of others in the market moving the price against it, has been on the rise.
In June, New York's attorney general brought a lawsuit against Barclays for allegedly misleading clients in its dark pool. Also in June, the SEC fined dark pool operator Liquidnet $2 million over improperly using its subscribers' confidential trading information to market its services. And in July, Goldman Sachs paid $800,000 over pricing violations in its dark pool.