Misrepresentations About Dark Pool Participants and Order Routing Cost Citi Entities Nearly $13 Million in Recent SEC Settlement

In another illustration of why fund managers must conduct careful due diligence of their counterparties, the SEC recently settled charges against two Citi-affiliated entities. The SEC alleged that one entity falsely claimed that the dark pool it marketed did not admit high-frequency traders and hid from customers that about half of all executions through the dark pool were routed to external venues. In addition, the other entity, which operated the pool, allegedly functioned as an unregistered exchange. This article details the respondents’ alleged misconduct and the terms of the SEC’s order. For another SEC action against a Citi affiliate, see “Failure by Investment Advisers to Ensure Accurate Client Billing May Lead to SEC Enforcement Action and Penalties” (Feb. 2, 2017).

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