The U.S. Securities and Exchange Commission is charging BATS Global Markets Inc. $14 million to resolve claims that two of the exchanges that the company purchased last year did not disclose important information to investors about the way the markets work. The settlement resolves the regulator’s probe into the way Direct Edge Holdings LLC gave certain high-speed traders the upper hand over others by withholding details about certain orders. Direct Edge and BATS merged together in 2014.
Order types are the directions investors use to trade on exchanges. High-frequency traders will often use complex versions of order types to compete in today’s fast markets. In 2009, Direct Edge offered up a number of new order types after talking with two high-frequency trading firms. However, what it purportedly did not do was properly disclose to the pubic the way the order types worked.
In the SEC order, the agency notes that one trading firm, whose name was not disclosed, told Direct Edge that if it introduced a certain order type, the firm would up the number of orders by over four million more.
The probe was began after Haim Bodek, an ex-high-frequency trader, filed a whistleblower lawsuit a few years back. Bodek claimed that certain order types, include the Hide Not Slide, which is from Direct Edge, gave certain investors the advantage.
As the person to file the whistleblower complaint over this matter, Bodek is entitled to a percentage of the recovery. By settling, BATS is not denying or admitting to the SEC allegations.
The SSEK Partners Group is an institutional investor fraud law firm. We also represent high net worth individuals.
BATS to Pay $14 Million to Settle Direct Edge Order-Type Case, The Wall Street Journal, January 12, 2015
BATS faces record penalty for Direct Edge legacy practices, Kansas City Business Journal, January 12, 2015
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