A major player in the trade execution business, Virtu Financial Inc., has settled allegations from the U.S. Securities and Exchange Commission (SEC) that it failed to adequately guard against the misuse of data from its clients’ trading activity.
Without admitting or denying the SEC’s allegations, Virtu and its subsidiary, Virtu Americas LLC (VAL), consented to the entry of a final order in the U.S. district court for the Southern District of New York, which requires VAL pay a US$2.5-million penalty, but no disgorgement.
The judgement settled the allegations that Virtu — which processes approximately 25% of retail orders in the U.S. — failed to establish and enforce policies to prevent the misuse of client data, and that it falsely told institutional customers (and the public) that client data was safeguarded with “information barriers.”
The SEC alleged that between January 2019 and April 2019, almost all of the firm’s employees had access to customers’ trading information, which constituted material non-public information that could be used by traders.
“For example, a trader could observe that [Virtu] had executed the orders of a large institutional customer throughout the day, understand that the same customer may follow a similar trading pattern over the next day or days, and take advantage of such information by trading ahead of the customer’s subsequent orders,” the SEC’s complaint said.
At the time, when Virtu operated both a large trade execution business and a prop trading business, it “failed to establish, maintain, and enforce reasonably designed policies and procedures to ensure that proprietary traders at VAL and its affiliates could not access VAL customers’ [data], including by failing to impose reasonable information barriers,” the SEC alleged.
The regulator also alleged that the firm didn’t track who accessed that information, and ultimately can’t determine whether traders traded on this information or not.
As part of the settlement, the SEC dismissed its other claims from the original complaint that was filed back in 2023.