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UBS Fined Record $12 Million Plus $2.5m in Disgorgement, Interest for Dark Pool Disclosure Violations

The Securities & Exchange Commission fined UBS Securities LLC an industry-record $12 million and ordered disgorgement plus prejudgment interest of $2.5 million for failing to properly disclose a securities order type and accepting orders from certain subscribers in violation of SEC regulations, and for incomplete and inconsistent filings associated with its UBS ATS alternative trading system dark pool.

UBS ATS is a private forum that buys and sells securities from UBS clients and UBS ATS subscribers alike.

In sum, "the UBS dark pool was not a level playing field for all customers and did not operate as advertised," according to SEC Enforcement Director Andrew J. Ceresney.

SEC File No. 3-16338

The report states that UBS used order types called PrimaryPegPlus (PPP) and Whole Penny Offset, and later PTSS, that allowed certain subscribers—UBS allegedly failed to disclose PPP to all subscribers—to buy and sell securities by placing orders that were priced in mil increments of less than one cent.

The practice of placing bids or offers using fractions of a cent is prohibited by SEC Rule 612 because it allows for unfair manipulative practices that hurt legal, whole-cent orders. The SEC said that UBS e-mails advised the "issue" would be addressed with a new platform called Rainier, but implementation of Rainier was delayed for at least six months.

For instance, a PPP order to buy at $50.002 per share jumped the queue ahead of another order to buy the same security at $50.00 per share, thanks to the illegal two-tenths-of-a-cent difference in price.

Because UBS ATS enabled its subscribers to jump the line by using PPP sub-penny price differences not available to other ATSs that complied with SEC Rule 612, "UBS ATS obtained an unfair competitive advantage."

The SEC stated that UBS also failed to disclose—delaying disclosure by approximately 30 months—a "natural-only crossing restriction," which was a shield only available to automated orders placed using UBS algorithms.

The Commission concluded that UBS violated regulations by unreasonably prohibiting certain subscribers from using this natural-only crossing restriction and further failed to establish written standards for granting such access.

Investigators also found that UBS violated confidentiality requirements by giving over 100 employees full access to subscribers' confidential trading information and violated reporting requirements by filing documents with the SEC that were incomplete and/or inaccurate.

If you have invested with UBS Securities or with any other firm whose acceptance of transactions from or unfair priority given to one group of customers, but whose denial of this same playing field or safeguards to you or another class of investors has proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

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