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SEC Charges Virtu. Virtu Suggests Charges are Retaliatory.

On September 12, the SEC filed charges against Virtu for allegedly misleading customers about the existence and adequacy of information barriers between its customer execution and proprietary trading businesses.

The SEC alleges that Virtu failed to safeguard material nonpublic information generated from customer orders that it routed and executed. The alleged ability of Virtu's proprietary traders to access the database created "significant risk" that its proprietary traders could misuse or share the information - for example, by trading ahead of a customer’s orders.

Notably, the SEC did not allege that Virtu actually misused material non-public information. Rather, the SEC claims that Virtu misrepresented and misled customers as to the adequacy of its information barriers. Virtu has denied the SEC's allegations and noted that the SEC brought the charges following Virtu's public criticism of SEC rule proposals and a FOIA lawsuit against the SEC.

The SEC frequently charges firms for allegedly inadequate policies and procedures, but firms should be cautious that the SEC may also bring charges in connection with representations made to customers regarding the adequacy of those policies and procedures.

"Today’s enforcement action....sends a strong message to firms that they must do much more than use shared, generic usernames and passwords to protect against and prevent the misuse of material nonpublic information.”


capital markets and securities, capital markets, regulatory