September 19, 2021

Volume XI, Number 262

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Don’t Judge a Tradebook by Its Cover

The Securities and Exchange Commission (SEC) recently filed settled charges against Bloomberg Tradebook LLC (Bloomberg) for making material misrepresentations and omitting material facts about how the firm handled certain customer trade orders. [FN1] The SEC’s order finds that Tradebook routed certain customer orders using an undisclosed arrangement that it referred to internally as the “Low Cost Router.” Tradebook’s marketing materials claimed Tradebook’s “advanced” technology, including its Smart Order Router (SOR), would determine the market centers to which customer orders were routed. Tradebook did not disclose that, contrary to these representations, routing decisions for some of the customer orders affected by the Low Cost Router arrangement were not made by Tradebook , but by unaffiliated broker-dealers. Tradebook provided customers with information about the identity of the market centers where some of the orders placed through the Low Cost Router were executed that was unverified and, at times, without basis. During the Relevant Period, one of the services Tradebook offered to customers was the routing of orders to buy or sell stock to various market centers, including registered securities exchanges and alternative trading systems (ATSs), for execution.

Beginning in 2010, Tradebook sought to reduce the costs it incurred to execute customer orders at market centers, particularly with respect to customers who paid relatively low commission rates to Tradebook. Tradebook allowed three unaffiliated broker-dealers to determine the venues to which certain customer immediate-or-cancel orders would be routed for execution. Tradebook did not inform affected customers that a significant portion of their orders would be routed by an unaffiliated broker-dealer instead of by Tradebook. Over nearly eight years, approximately 6.4 million Tradebook customer orders were executed based on routing decisions made by these unaffiliated broker-dealers. This practice contradicted Tradebook’s marketing materials, which represented that customer orders would be routed by Tradebook’s own “advanced” technology, based on factors such as price and liquidity. Tradebook provided unverifiable execution venue information to customers for more than a million orders routed using the Low Cost Router.

The SEC’s order finds that Tradebook violated Section 17(a)(2) of the Securities Exchange Act of 1934 which makes it unlawful for “any person in the offer or sale of any securities … directly or indirectly … to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading.” The SEC recognized Tradebook’s significant cooperation, including voluntarily retaining an outside expert to conduct an analysis of millions of rows of data related to customer orders and executions which was provided to the SEC staff. Tradebook agreed to be censured and to pay a $5 million penalty, an amount that reflects Tradebook’s significant cooperation with the SEC staff.

[FN1] https://www.sec.gov/litigation/admin/2020/33-10783.pdf.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 132
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About this Author

Richard Levin Polsinelli Fintech Attorney
Shareholder

Richard Levin is the Chair of Polsinelli’s Chambers rated FinTech and Regulation Practice.  He brings his experience as a senior legal and compliance officer on Wall Street and in London to bear in advising clients on corporate, securities and regulatory issues. A problem-solver by nature, his practice focuses on helping financial services and technology (FinTech) clients identify and address regulatory issues as they build their businesses.

The FinTech sector is...

303.583.8261
Paul Roshka, Polsinelli, financial securities lawyer
Shareholder

Known for his thorough preparation and persistence, Paul Roshka has a national practice representing companies, their directors, officers, and employees during investigations and enforcement/disciplinary proceedings involving potential violations of the federal and state securities laws, and other financial regulatory statutes and rules. He has handled matters initiated by almost every SEC Regional Office and FINRA District Office, and their Home Offices in Washington, D.C.

He is also a recognized bet-the-company litigator. Paul has defended securities/financial...

602.650.2098
T.J. Mitchell Commercial Litigation Lawyer Polsinelli Law Firm
Associate

Thomas (T.J.) Mitchell is an associate in the Commercial Litigation practice group. T.J. partners with Polsinelli’s seasoned attorneys to provide litigation solutions in complex financial and business disputes, manage clients’ risk, and allow clients to focus on driving their business or personal objectives. Drawing from his experience working in the legal department of a large technology company, T.J. understands what clients expect from their outside counsel or personal attorney and takes the time to understand their unique challenges, goals, and values. These priorities shape his work...

602-650-2005
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