Liquidnet Canada Inc. has paid a $600,000 penalty and agreed to other sanctions to settle allegations that weaknesses in its controls allowed employees of its foreign affiliates to access confidential order and trade information on its Canadian trading systems.
On Wednesday, Ontario’s Capital Markets Tribunal approved a proposed settlement between the firm and the Ontario Securities Commission (OSC), which imposed a monetary penalty, ordered $75,000 in costs and requires the firm to hire an independent consultant to review its controls, in a deal to resolve the regulator’s allegations.
Specifically, the OSC alleged that in 2023, Liquidnet discovered a deficiency in its fixed-income trading system that allowed certain foreign employees to access confidential trade information. And, in 2024, the firm found a similar issue with its equities trading systems.
While Liquidnet initially reported to the OSC that it had halted trading to enable a systems upgrade, it wasn’t forthcoming with the regulator about the control weakness that potentially exposed confidential trade information.
In the settlement hearing, OSC staff noted that while the confidential information that was potentially exposed only involved trade matches, not indications of interest, the regulator’s concern was that the personnel with access to the trade information were not directly accountable to the commission — and so, it was not “in the public interest” for them to have access to that information.
Additionally, staff noted that the firm’s initial lack of candour with the regulator in reporting the issue represented an aggravating factor in the case.
Mitigating factors included the fact that the firm agreed to settle the regulator’s allegations, admitted its misconduct and cooperated with the OSC.
Counsel for Liquidnet, Larry Ritchie, stressed that the settlement was important to the company, which is eager to put the issue behind it, and to strengthen its relationship with the regulator.
The panel approved the proposed settlement, concluding that the proposed sanctions were proportionate to the misconduct and met its objectives of providing both specific and general deterrence.
The firm’s alleged breaches in this case — including failing to protect confidential trade information and not being upfront with the regulator — were “serious,” the tribunal said, noting that these kinds of violations could undermine investor confidence, along with the fairness and efficiency of markets.
Last year, the firm’s U.S. affiliate settled an enforcement action from the U.S. Securities and Exchange Commission (SEC) that included similar allegations of failing to protect confidential trading information internally.
In that case, the firm paid US$5 million to resolve the SEC’s allegations, without admitting or denying the regulator’s findings.