## Facts

- UBS Securities LLC operated an alternative trading system, UBS ATS, a large U.S. “dark pool” that matched orders away from public exchanges.
- UBS offered an order type called PrimaryPegPlus (PPP) that it marketed primarily to market makers and high-frequency trading firms, while failing to properly disclose the order type to all subscribers.
- PPP enabled certain subscribers to place sub-penny-priced orders in NMS stocks, allowing those orders to gain priority over whole-penny-priced orders at the same nominal price level.
- UBS developed a “natural-only crossing restriction” (NOCR) intended to prevent selected orders from executing against market makers and high-frequency trading firms, but the feature was made available mainly for orders using UBS algorithms.
- UBS did not disclose NOCR’s existence to all subscribers until roughly 30 months after launch.
- UBS’s Form ATS filings and amendments contained inconsistent and incomplete statements about sub-penny order acceptance and NOCR, and omitted required attachments.
- UBS unreasonably restricted subscriber access to NOCR and failed to establish written standards for granting access to subscribers.
- During certain periods, UBS failed to preserve specified UBS ATS order data and provided confidential subscriber trading data to employees without appropriate operational or compliance responsibilities.
- The SEC instituted administrative and cease-and-desist proceedings; UBS consented to a settled order without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether UBS made material misstatements or omissions to UBS ATS subscribers regarding order types and functionality in connection with securities transactions.
2. Whether UBS violated Regulation NMS by accepting impermissible sub-penny-priced orders through PPP.
3. Whether UBS violated Regulation ATS by filing incomplete or inconsistent Form ATS disclosures, restricting access without reasonable or written standards, and failing ATS recordkeeping and confidentiality requirements.
4. What remedial sanctions and monetary relief were appropriate in an SEC administrative settlement.

## Decision

- The SEC issued a settled administrative order finding violations of federal securities laws and SEC rules governing disclosures and ATS operations.
- UBS was censured and ordered to cease and desist from committing or causing violations and future violations of the cited provisions.
- The SEC imposed monetary sanctions totaling more than $14.4 million: $2,240,702.50 disgorgement, $235,686.14 prejudgment interest, and a $12 million civil penalty.
- UBS agreed to undertakings addressing compliance, disclosures, and operational practices for UBS ATS.

## Legal Principles

- Material misstatements or omissions about trading venue functionality and order handling, made in connection with securities transactions, can violate Securities Act § 17(a)(2).
- Regulation NMS generally prohibits accepting orders in NMS stocks priced in sub-penny increments outside limited exceptions; creating or accepting order types that permit impermissible sub-penny pricing violates that prohibition.
- Regulation ATS requires ATS operators to file and maintain accurate, complete, and consistent Form ATS disclosures and to provide required attachments.
- An ATS must apply fair access practices, including avoiding unreasonable subscriber prohibitions and maintaining written standards for granting access where required.
- ATS operators must preserve required order and trading records and must protect the confidentiality of subscriber trading information by limiting access to authorized personnel.

## Conclusion

The SEC concluded that UBS’s dark pool practices and disclosures were misleading and noncompliant, including impermissible sub-penny order acceptance, selective and delayed disclosure of key features, deficient Form ATS filings, and failures in recordkeeping and confidentiality, and imposed censure, a cease-and-desist order, and more than $14.4 million in monetary sanctions via settlement.


In re UBS Sec. LLC, Admin. Proc. File No. 3-16338 (S.E.C. Jan. 15, 2015)