SEC Charges Interdealer Broker for Misleading Customers
Sept. 27, 2019
File No. 3-19546
September 27, 2019 - The Securities and Exchange Commission today announced settled charges against New York-based interdealer broker GFI Securities LLC for repeatedly disclosing customer identities to potential trading counterparties despite its statements to customers that it generally maintained customer anonymity when brokering trades. Pursuant to the settlement agreement, GFI will pay a $4.3 million penalty.
Interdealer brokers act as intermediaries that match buyers and sellers of securities. As an interdealer broker, GFI receives orders from customers and communicates those orders to other customers to find potential counterparties for trades.
The SEC's order finds that GFI publicly represented itself as an interdealer broker that generally maintained the anonymity of customer identities when brokering securities trades. GFI also marketed its ability to retain customer anonymity in materials sent to potential customers. Notwithstanding these representations, from at least January 2014 to June 2016, at least three registered representatives on GFI's equity derivatives desk regularly provided customer identities to potential counterparties and others did so occasionally. The registered representatives who engaged in this practice routinely gave the information to other customers who were among their own top revenue-generating customers.
According to the SEC's order, GFI failed to take reasonable steps to inform the registered representatives on its equity derivatives desk of the company's confidentiality and anonymity policy and its public statements, did not provide adequate substantive training concerning the anonymity policy, and failed to take reasonable steps to enforce its confidentiality and anonymity policy. Anonymity was important to many customers of GFI's equity derivatives desk because they were concerned that the disclosure of their identities could unfairly advantage other market participants.
Without admitting or denying the SEC's findings, GFI consented to the entry of an order finding that it violated the antifraud provisions of Section 17(a)(2) of the Securities Act of 1933. The order directs GFI to cease and desist from committing or causing any future violations of that provision, censures GFI, and orders GFI to pay a $4.3 million penalty.
The SEC's investigation was conducted by Ann Marie Preissler, Megan Bergstrom, and David Austin of the Market Abuse Unit with assistance from Senior Trial Counsel Haimavathi Marlier, as well as Matthew Koop, Ainsley Kerr, and Mathew Wong of the Market Abuse Unit. The case was supervised by Joseph G. Sansone, Chief of the Market Abuse Unit.