Sometimes transparency isn’t so great.
Federal regulators on Friday settled a probe into a “dark pool” trading platform, fining the company $2 million for violating its own confidentiality rules in using its clients’ data in marketing materials.
During an audit two years ago, the Securities and Exchange Commission found that Liquidnet was leaking its own information. The company informed its clients soon after.
“It would have been really, really terrible if today was the first time our clients heard about this,” Seth Merrin, the company’s chief executive officer, told The Post.
The dark pool has since put in controls to keep client data from leaking, Merrin said.
Liquidnet, a brokerage that runs a secret “exchange,” gets about half a percent of all trading volume in the US, about 40 million trades a day, Merrin said.
Liquidnet isn’t the first to get fined for not living up to its own promises.
The New York Stock Exchange was fined $4.5 million by the SEC last month for flouting its own rules for high-frequency traders.
Neither Liquidnet nor NYSE admitted or denied guilt in their settlements.
The fine came one day after SEC Chair Mary Jo White proposed major changes to dark pools, which are less regulated than exchanges and don’t have to show available prices.
White, speaking in New York, said that the lack of transparency in stock prices on the dark pools could mean that investors don’t always get the best price.
“I really have no idea how they come up with these things,” Merrin said of the size of the fine. “There has been exponential increase of size of fines since Mary Jo has been there.”