In re LIQUIDNET

   
 
   
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933 
Release No. 11351 / January 10, 2025 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 102147 / January 10, 2025  
 
ADMINISTRATIVE PROCEEDING 
File No. 3-22394 
 
 
In the Matter of 
 
       LIQUIDNET, INC., 
 
 Respondent. 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTION 8A OF THE 
SECURITIES ACT OF 1933 AND SECTIONS 
15(b) AND 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS AND IMPOSING REMEDIAL 
SANCTIONS AND A CEASE-AND-DESIST 
ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Sections 
15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Liquidnet, Inc. 
(“Liquidnet” or “Respondent”). 
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-
Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 

   
 
 2 
21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions 
and a Cease-and-Desist Order (“Order”), as set forth below. 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that:  
 
SUMMARY 
 
1. This matter involves violations of the federal securities laws in two regulatory areas 
by Liquidnet, a registered broker-dealer that operates three alternative trading systems (“ATSs”): 
two ATSs that trade National Market System (“NMS”) stocks, Liquidnet Negotiation ATS and 
Liquidnet H20 ATS (the “NMS Stock ATSs”), and one ATS that trades fixed income securities, 
Liquidnet Fixed Income ATS (the “Fixed Income ATS” and together with the NMS Stock ATSs, 
the “Liquidnet ATSs”).  First, Liquidnet violated Section 15(c)(3) of the Exchange Act and Rule 
15c3-5 thereunder (the “market access rule”) by failing to have adequate risk management controls 
and supervisory procedures in place related to market access for its ATSs.  Second, Liquidnet failed 
to establish adequate written safeguards and written procedures to protect confidential subscriber
2
 
trading information and failed to amend its Forms ATS-N and ATS, as required by Regulation 
ATS.  Liquidnet also made material misrepresentations about the firm’s compliance with both 
Regulation ATS and the market access rule.   
 
2. As a broker-dealer operator of an ATS that provides market access to non-broker-
dealers, Liquidnet is subject to the market access rule, which requires subject broker-dealers to 
have, among other things, a system of financial risk management controls and supervisory 
procedures to prevent the entry of orders that would exceed appropriate credit thresholds for its non-
broker-dealer customers and to establish, document, and maintain a system for regularly reviewing 
the effectiveness of these controls and procedures, among other things.  The market access rule is 
designed to ensure that broker-dealers “appropriately control the risks associated with market 
access, so as not to jeopardize their own financial condition, that of other market participants, the 
integrity of trading on the securities markets, and the stability of the financial system.”  Risk 
Management Controls for Brokers or Dealers with Market Access, Exch. Act Rel. No. 63241 
(Nov. 10, 2010), 75 Fed. Reg. 69792 (Nov. 15, 2010).   
 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on 
any other person or entity in this or any other proceeding. 
 
2
  “Subscriber” is defined in Rule 300(b) of Regulation ATS as “any person that has entered into a 
contractual agreement with an [ATS] to access such [ATS] for the purpose of effecting transactions in 
securities or submitting, disseminating, or displaying orders on such [ATS], including a customer, member, 
user, or participant in an [ATS].”  Accordingly, “subscriber” is used throughout the discussion of Liquidnet’s 
Regulation ATS violations below.  The market access rule uses the term “customer” instead, and is therefore 
used throughout the discussion of Liquidnet’s market access rule violations below.   
 

   
 
 3 
 
3. From approximately 2019 through 2023, Liquidnet violated the market access rule 
by setting credit thresholds for non-broker-dealer customers without first performing adequate due 
diligence on their creditworthiness and frequently setting customer credit thresholds at a default of 
$1 billion – regardless of the customer’s financial standing.  Liquidnet also failed to implement 
systems to prevent these thresholds from being breached within the NMS Stock ATSs, and, until 
2023, failed to regularly review and certify its compliance with the market access rule.  Liquidnet 
further made material misrepresentations to certain customers about the firm’s compliance with the 
market access rule.    
 
4. As the registered broker-dealer operator of an ATS, which operates pursuant to an  
exemption from exchange registration,
3
 Liquidnet must comply with certain conditions to the 
exemption, including Rule 301(b)(10) of Regulation ATS, which requires an ATS operator to 
establish adequate written safeguards and written procedures to limit access to confidential 
subscriber trading information to employees of the ATS who operate the system or are responsible 
for its compliance with applicable rules and regulations.  The rule is designed to, among other 
things, minimize “information leakage of subscribers’ confidential trading information to other 
business units of the broker-dealer and their affiliates,” where there may be increased potential for 
misuse of that information.  See Regulation of NMS Stock Alternative Trading Systems, Exch. Act 
Rel. No. 83663 (Jul. 18, 2018), 83 Fed. Reg. 38768, 38775-76 (Aug. 7, 2018) (the “NMS Stock 
ATS Adopting Release”).  Liquidnet must also comply with Rules 301(b)(2) and 304 of Regulation 
ATS.  Rule 304 requires Liquidnet to make public disclosures on Form ATS-N about the operations 
of the NMS Stock ATSs and the activities of the broker-dealer operator and its affiliates.  Rule 
301(b)(2) requires Liquidnet to make disclosures to the Commission about the operations of the 
Fixed Income ATS.    
 
5. From approximately 2019 through 2024, Liquidnet failed to adequately limit 
internal access to specific systems and tools containing certain confidential subscriber trading 
information in two ways.  First, Liquidnet did not have appropriate access controls for certain ATS 
data used by technology personnel for testing purposes.  Second, Liquidnet permitted internal 
access to certain confidential subscriber trading information by certain employees who had no 
operational or compliance responsibilities for the Liquidnet ATSs.  This information primarily 
included match and execution data, but generally did not include subscribers’ unmatched 
indications of interest
4
 other than on an aggregate, non-symbol specific basis.  The access granted 
to these employees was at times inconsistent with Liquidnet’s public disclosures.   
 
3
  As explained below, Rule 3a1-1(a)(2) under the Exchange Act exempts an ATS from the definition 
of “exchange” under Section 3(a)(1) of the Exchange Act, and thus, the requirement to register as a national 
securities exchange pursuant to Section 5 of the Exchange Act, if the ATS complies with the conditions of 
Regulation ATS.   
 
4
  An indication of interest generally refers to a subscriber’s non-firm willingness to buy or sell a 
security.  The Liquidnet ATSs accepted and matched indications of interest of subscribers and allowed 
them to agree to terms of a trade on the ATS.  

   
 
 4 
 
6. Liquidnet also made material misrepresentations to subscribers and potential 
subscribers in response to due diligence inquiries about the safeguards it maintained over 
confidential subscriber trading information, the employees who had access to the Liquidnet ATSs, 
and the scope of that access.  In addition, Liquidnet failed to disclose certain information on its 
Form ATS-N and Form ATS to accurately reflect who had access to confidential subscriber trading 
information and the nature of that access.     
 
RESPONDENT 
 
7. Liquidnet is based in New York, New York and has been registered with the 
Commission as a broker-dealer since October 2000.  In March 2021, Liquidnet was acquired by TP 
ICAP plc (“TP ICAP” and the “TP ICAP Acquisition”), a London-based financial services firm 
listed on the London Stock Exchange.  Liquidnet is an agency-only broker that operates three ATSs: 
two NMS Stock ATSs and the Fixed Income ATS. 
 
BACKGROUND 
A. Liquidnet Violated the Market Access Rule 
 
8. Liquidnet provides market access through the Liquidnet ATSs to non-broker-dealer 
customers
5
 and is therefore required to comply with the market access rule with respect to the 
market access it provides to those customers.  As described in more detail below, from 
approximately 2019 through 2023, Liquidnet violated three different subsections of the market 
access rule and made certain misrepresentations to customers about its compliance with the rule. 
 
Liquidnet Set Credit Thresholds Without Adequately Assessing  
Customer Creditworthiness and Did Not Have Controls for its NMS Stock ATSs in Place to  
Prevent Certain Orders Exceeding Those Thresholds 
 
9. Exchange Act Rule 15c3-5(b) requires broker-dealers with market access to 
“establish, document, and maintain a system of risk management controls and supervisory 
procedures reasonably designed to manage the financial, regulatory, and other risks” of having 
market access. 17 C.F.R. § 240.15c3-5(b). 
  
10. Exchange Act Rule 15c3-5(c), among other things, requires that a broker-dealer’s 
risk management controls and supervisory procedures be reasonably designed to (i) “[p]revent the 
entry of orders that exceed appropriate pre-set credit or capital thresholds in the aggregate for each 
customer ... by rejecting orders if such orders would exceed the applicable credit or capital 
thresholds” and (ii) “[p]revent the entry of erroneous orders, by rejecting orders that exceed 
appropriate price or size parameters.” 17 C.F.R. §§ 240.15c3-5(c)(1)(i)-(ii).  This provision of the 
 
5
  The market access rule only applies to a broker-dealer operator of an ATS when providing market 
access to non-broker-dealer customers.  See Rule 15c3-5(a)(1)(ii); 17 C.F.R. § 240.15c3-5(a)(1)(ii). 

   
 
 5 
market access rule requires Liquidnet to set appropriate pre-trade credit thresholds for each non-
broker-dealer customer, and to have in place controls that will prevent the entry of orders – on a 
pre-trade basis – that exceed those thresholds or are erroneously entered.  
 
11. From at least 2019 until 2023, Liquidnet set pre-trade credit risk thresholds for 
certain non-broker-dealer customers of its NMS Stock ATSs without performing appropriate 
reviews of customer creditworthiness .  Instead, Liquidnet nearly always set pre-trade thresholds at a 
default aggregate notional value of $1 billion for these customers, without regard for the credit 
ratings or financial standing of each individual non-broker-dealer customer.   
 
12. As a result, certain pre-trade alerts, which were intended to flag that customers were 
close to reaching their credit thresholds, would only be triggered after a customer placed orders 
totaling an extremely high notional value. These pre-trade alerts were set at 80% of a customer’s 
credit threshold in the NMS Stock ATSs.  Therefore, a non-broker-dealer customer with a $1 billion 
credit threshold would be able to successfully place orders in the NMS Stock ATSs totaling $800 
million in notional value without triggering those alerts. 
 
13. Because these pre-trade credit thresholds were set at arbitrary levels without 
appropriate reviews of customer creditworthiness, and the related pre-trade alerts were based on 
these arbitrary thresholds, these risk management controls were not reasonably designed, as the 
market access rule requires.   
 
14.  In addition, from at least 2019, Liquidnet did not have a system in place to prevent 
the entry of orders by non-broker-dealer customers that exceeded these arbitrary pre-set credit 
thresholds when aggregated with all orders placed by that customer with the firm.  Orders placed by 
a customer into one of the Liquidnet ATSs would trigger a pre-trade alert if they breached the 
applicable alert threshold, but if the customer placed a subsequent order that in the aggregate 
exceeded the customer’s credit threshold, that order could be successfully executed, regardless of its 
size.   
 
15. Therefore, if a non-broker-dealer customer in one of the NMS Stock ATSs with a 
credit threshold of $1 billion executed orders totaling $900 million, the firm’s pre-trade alerts would 
be triggered because the non-broker-dealer customer had reached 80% of its credit threshold, but if 
that customer placed another order of $125 million, the order would be executed without any alert 
being generated, even though the notional value of that order when aggregated with earlier orders 
exceeded the firm’s $1 billion credit threshold for the customer.  
 
16. Liquidnet was aware by at least 2020 that the firm’s existing systems did not 
aggregate customer orders and therefore could not prevent the entry of a subsequent order 
exceeding a non-broker-dealer customer’s credit threshold.  Liquidnet remedied the issue in early 
2023, under TP ICAP’s supervision.  Trading and other documentation relating to credit thresholds 
in the NMS Stock ATSs indicate that these credit thresholds were not breached.  
 

   
 
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17. As a result, Liquidnet did not have a reasonably designed system to prevent the entry 
of orders that exceeded credit thresholds in the aggregate for each non-broker-dealer customer, as 
required by the market access rule.   
 
Liquidnet Violated the Market Access Rule by Failing to 
Consistently Conduct Annual Reviews and Issue CEO Certifications 
 
18. Exchange Act Rule 15c3-5(e) requires a broker-dealer to establish, document, and 
maintain a system for regularly reviewing the effectiveness of the risk management controls and 
supervisory procedures and for promptly addressing any issues.  More specifically, broker-dealers 
must perform a review at least annually to assure the overall effectiveness of these risk management 
controls and supervisory procedures ( “15c3-5 review”) and the broker-dealer’s Chief Executive 
Officer must certify compliance on an annual basis (“15c3-5 certification”).  17 C.F.R. § 240.15c3-
5(e).   
 
19. Despite its awareness by at least 2020 that its systems could not aggregate non-
broker-dealer customer orders and therefore could not prevent the entry of a subsequent order 
exceeding a non-broker-dealer customer’s credit threshold, Liquidnet did not perform a 15c3-5 
review covering the entire calendar year in 2021.  Specifically, Liquidnet did not review its 
compliance with the market access rule for the period September 1 through December 31, 2020.    
Moreover, until 2022, the firm’s 15c3-5 reviews did not adequately test to determine whether the 
firm’s risk management controls would prevent orders exceeding non-broker-dealer customers’ 
credit thresholds, as required by the market access rule.  In 2022, the firm began to conduct 
adequate testing and identified various deficiencies in its controls, including those described in 
paragraphs 14 and 15 above. 
 
20. Despite Liquidnet’s knowledge beginning in at least 2020 that its controls were 
deficient because its systems could not aggregate non-broker-dealer customer orders, Liquidnet’s 
CEO signed 15c3-5 certifications in 2020 and 2023 attesting compliance with the requirements of 
the market access rule.  The CEO did not sign certifications in 2021 or 2022. 
 
Liquidnet Made Material Misrepresentations  
to Customers about its Market Access Controls 
 
21. Liquidnet also made misrepresentations about its market access controls to certain 
customers and potential customers in response to due diligence questionnaires, stating that 
Liquidnet was compliant with all regulatory requirements applicable to market access through the 
firm, that it had aggregate exposure limits in place, and that it had controls that would prevent the 
entry of orders that exceed appropriate credit thresholds, during a time when the firm was aware that 
it could not aggregate customer orders or prevent the entry of certain orders that exceeded a 
customer’s credit threshold.  
 

   
 
 7 
22. These misrepresentations resulted from the firm’s negligence.  The firm did not take 
reasonable steps to ensure the accuracy of its representations, and as a result, made misstatements to 
customers and potential customers about its market access controls.  These misrepresentations were 
material because these customers and potential customers were considering Liquidnet’s 
representations about its market access controls in determining whether to select the firm as a 
trading venue, and there was a substantial likelihood that a reasonable customer or potential 
customer would have considered the disclosures important to their decision.  
 
B. Liquidnet Failed to Comply with Regulation ATS 
 
23. Section 5 of the Exchange Act requires an organization, association, or group of 
persons that meets the definition of “exchange” under section 3(a)(1) of the Exchange Act, unless 
otherwise exempt, to register with the Commission as a national securities exchange.  Exchange 
Act Rule 3a1–1(a)(2) exempts from the definition of “exchange,” and thus exchange registration, 
an organization, association, or group of persons that complies with Regulation ATS.  As the 
registered broker-dealer of an ATS that operated pursuant to the Rule 3a1-1(a)(2) exemption, 
Liquidnet is required to comply with the applicable conditions of Regulation ATS set forth under 
Rules 300-304.  As described in more detail below, from approximately 2019 through 2024, 
Liquidnet failed to comply with three different conditions of Regulation ATS, thus violating Section 
5 of the Exchange Act, and made misrepresentations to certain customers about access to 
confidential subscriber trading information. 
 
Liquidnet Failed to Establish Adequate Written Safeguards  
and Written Procedures to Protect Confidential Subscriber Trading Information 
 
24. Among other conditions to the Regulation ATS exemption, an ATS must, pursuant 
to Rule 301(b)(10) of Regulation ATS, establish adequate written safeguards and written 
procedures to protect the confidential trading information of subscribers, including by limiting 
access to employees who operate the system or are responsible for the ATS’s compliance with 
Regulation ATS and other applicable rules.  Furthermore, an ATS must adopt and implement 
adequate written oversight procedures to ensure that its written safeguards and written procedures 
are followed. 
 
25. Liquidnet disclosed one such written safeguard and written procedure in its public 
Forms ATS-N for the NMS Stock ATSs: a requirement that an employee requesting access to “an 
application that contains confidential participant data” must receive their manager’s approval in 
advance, and the manager must provide an explanation affirming both that the employee’s access 
will not adversely impact ATS subscribers and that the particular type of access has been disclosed 
to the firm’s customers.  Liquidnet also disclosed that supervisory personnel must make monthly 
certifications that the use of customer data in their business unit complies with firm policy.  
Liquidnet failed to establish adequate written safeguards and written procedures, however, because 
Liquidnet managers and supervisory personnel did not in fact provide these explanations or make 

   
 
 8 
these certifications.  In addition, Liquidnet did not have adequate oversight procedures to ensure 
that these safeguards and procedures were followed.    
 
26. Liquidnet also had written safeguards and written procedures that related to its 
Transparency Working Group.  Liquidnet stated in sales materials provided to subscribers and 
potential subscribers and in response to subscriber due diligence inquiries that the Transparency 
Working Group advised the firm on issues relating to the protection and usage of customer data.  
The group’s charter stated, among other things, that the Transparency Working Group sought to 
ensure that Liquidnet was disclosing to subscribers the firm’s processes relating to employee 
access to confidential subscriber trading information.  Several of Liquidnet’s policies and 
procedures, including its trading rules governing the systems and operations of the Liquidnet ATSs 
(the “Trading Rules”),
6
 required review by the Transparency Working Group before any changes 
to those policies and procedures could be made.   
 
27. However, in approximately September 2021, the Transparency Working Group 
disbanded due to employee turnover following the TP ICAP Acquisition.  Liquidnet only 
reconstituted the Transparency Working Group in Summer 2023 at the earliest, after a TP ICAP 
internal audit team discovered that the working group no longer existed but that the firm was 
continuing to make inaccurate representations about the group to firm customers.  From September 
2021 until Summer 2023, the Transparency Working Group was not performing any of the 
functions Liquidnet described in its sales materials, responses to certain due diligence inquiries, or 
in the group’s charter.   
 
28. Liquidnet also failed to adequately limit internal access to systems containing 
confidential subscriber trading information. While communications and other documentation do 
not indicate that confidential subscriber trading information was improperly shared outside the 
firm, Liquidnet did not comply with Rule 301(b)(10) of Regulation ATS by permitting employees’ 
internal access to certain systems and data as described in paragraphs 29 through 33 below.     
 
29. Until Spring 2024, Liquidnet allowed access to ATS replications of indication, 
order, and execution data (“replications”) from the previous trading day, which were used by 
certain technology personnel for testing purposes, via generic log-in credentials that were shared 
among certain technology employees.  Liquidnet intended that only technology personnel with a 
need to perform troubleshooting and other technical work would access these replications, but 
because the log-in credentials were generic and not user-specific, the firm could not control which 
employees accessed the replications.  In addition, Liquidnet technology personnel saved certain 
logs containing confidential subscriber trading information in a shared file without any kind of 
 
6
   Liquidnet’s Form ATS filings included a copy of the Trading Rules for the Fixed Income ATS.  
Liquidnet’s Forms ATS-N refer to the Trading Rules for the NMS Stock ATSs for a description of the 
types of access employees were given to confidential subscriber trading information and state that 
employees must comply with restrictions on access set forth in the Trading Rules. Liquidnet also 
provided the Trading Rules to ATS subscribers.   
 

   
 
 9 
password protection.  While the shared file location was generally only provided to Liquidnet 
technology personnel, any Liquidnet employee with access to the shared file location could also 
access confidential subscriber trading information even if that employee did not have a basis for 
accessing such data.  The lack of access controls over the replications and logs was inconsistent 
with statements by Liquidnet on its public Forms ATS-N that the firm was responsible for 
maintaining the security of customer trading information and that it “instituted technological 
controls on access to trading information, including username and password controls... and access 
control lists on systems and networks.”   
 
30. Until October 2023, when the firm removed their access, Liquidnet granted non-
U.S. sales coverage employees access to confidential subscriber trading information in the NMS 
Stock ATSs that was inconsistent with Liquidnet’s Trading Rules. The Trading Rules generally 
provided that trade coverage personnel were given access to ATS match information only for 
equities in the region in which the employee was located and for all equities traded by subscribers 
whom each employee was specifically assigned to cover, but non-U.S. employees in some cases 
also received confidential subscriber trading information relating to trades in U.S. securities for 
subscribers they did not cover.  These non-U.S. employees did not hold any U.S. securities licenses 
and did not receive training on applicable U.S. rules and regulations.  In some cases, these 
employees also received access to ATS order and execution information, which they did not need 
to perform their jobs and to which the firm did not disclose they had access.  Documentation 
relating to employee ATS access indicates that these employees received unmatched indication 
data only on an aggregate, non-symbol specific basis.  
 
31. From at least 2019 through 2024, Liquidnet also permitted access to confidential 
subscriber trading information in the NMS Stock ATSs and the Fixed Income ATS that was 
inconsistent with the firm’s disclosures on Forms ATS-N and ATS and in its Trading Rules and 
with the requirements of Rule 301(b)(10) of Regulation ATS.  
 
32. For example, Liquidnet granted access to intraday match and execution information 
in the NMS Stock ATSs to numerous employees working in business development and on the 
firm’s agency-only high-touch equities trading desk, when the firm’s disclosures represented that 
these employees had more limited access to confidential subscriber trading information.   
 
33. Liquidnet also granted access to confidential subscriber trading information in the 
Fixed Income ATS to employees who serviced subscribers of the Fixed Income ATS at the same 
time as they serviced customers of ReBalance, a fixed income trading platform operated by TP 
ICAP Global Markets America, LLC, a Liquidnet and TP ICAP affiliate.  This was not disclosed 
on Form ATS or otherwise to subscribers before access was granted.  Liquidnet also permitted 
undisclosed access to confidential subscriber trading information by employees performing jobs in 
marketing and investor relations, roles that did not include operational or compliance 
responsibilities for the Liquidnet ATSs.  Documentation relating to employee ATS access indicates 
that these employees did not receive access to unmatched indication data. 
 

   
 
 10 
Liquidnet Failed to File Accurate Disclosures on its Forms ATS-N and ATS 
 
34. NMS Stock ATSs, as defined in Regulation ATS Rule 300(k), must file a public 
report on Form ATS-N in accordance with Rule 304 of Regulation ATS to disclose the activities of 
the broker-dealer operator and the operations of the NMS Stock ATSs.  See NMS Stock ATS 
Adopting Release, 83 Fed. Reg. at 38768.   NMS Stock ATSs are required by Rule 304(a)(2)(i) to 
publicly file certain amendments to the NMS Stock ATSs’ Forms ATS-N, in accordance with 
certain conditions, including: at least 30 calendar days prior to the implementation of a material 
change to the operation of the ATS or the activities of the broker-dealer operator or its affiliates 
subject to disclosure on Form ATS-N, and promptly to correct information in any previous Form 
ATS-N after discovery that such information was materially inaccurate or incomplete when filed.  
In the NMS Stock ATS Adopting Release, the Commission stated that a change to the operations of 
an NMS Stock ATS, or the disclosures regarding the activities of the broker-dealer operator and its 
affiliates, would be material if there is a substantial likelihood that a reasonable market participant 
would consider the change important when evaluating the NMS Stock ATS as a potential trading 
venue.  See NMS Stock ATS Adopting Release, 83 Fed. Reg. at 38803.  The Commission also 
stated that, among others, one scenario that is particularly likely to implicate a material change is a 
change to the broker-dealer operator’s policies and procedures governing the written safeguards 
and written procedures to protect the confidential trading information of subscribers pursuant to 
Rule 301(b)(10)(i) of Regulation ATS.  See id.   
 
35. Liquidnet’s Fixed Income ATS trades fixed income securities, primarily corporate 
bonds, and does not trade NMS stocks.  As such, the Fixed Income ATS files a Form ATS with the 
Commission pursuant to Rule 301(b)(2).  Unlike Form ATS-N, Form ATS is not a public report.  
A non-NMS Stock ATS, such as the Liquidnet Fixed Income ATS, must amend its Form ATS at 
least 20 calendar days prior to implementing a material change to the operation of the ATS, within 
30 calendar days after the end of a quarter when information contained in an initial operation report 
filed on Form ATS becomes inaccurate, and promptly upon discovering that an initial operation 
report filed on Form ATS or an amendment on Form ATS was inaccurate when filed.   
   
36. As detailed above in paragraphs 26 through 33, from at least 2019 until 2024, 
material information in Liquidnet’s public Forms ATS-N, which relate to the NMS Stock ATSs, 
was inaccurate.  The firm’s practices with regard to which employees had access to subscriber 
confidential trading information in the NMS Stock ATSs, the nature of that access, the type of 
supervisory reviews that were performed with respect to that access, and the security of 
subscribers’ trading data differed from the disclosures in the Forms ATS-N.  Subscribers 
evaluating whether to enter orders or continue to enter orders to trade in the NMS Stock ATSs 
frequently asked the firm about how it protected their confidential trading information.  These 
questions show that the firm’s written safeguards and written procedures were material to 
subscribers and potential subscribers. 
 
37. As a result, after discovering that its Forms ATS were materially inaccurate, 
Liquidnet was obligated to promptly file correcting amendments to its public Form ATS-N 

   
 
 11 
disclosures for both NMS Stock ATSs to accurately reflect information concerning access to 
subscribers’ confidential trading information and file material amendments to Form ATS-N at least 
30 calendar days before granting access to subscriber confidential trading information that differed 
from its disclosures in its Forms ATS-N.  Liquidnet, however, did not do so in these instances.    
 
38. In addition, as described above in paragraph 33,  Liquidnet’s disclosures about 
access to confidential subscriber trading information in the Fixed Income ATS’s Form ATS were 
also inaccurate.  Accordingly, after discovering that its Forms ATS were materially inaccurate, 
Liquidnet was required to amend those filings to correct any information that became inaccurate 
within 30 calendar days after the end of the calendar quarter, but it did not do so in the instances 
described above. 
 
Liquidnet Made Material Misrepresentations to Certain Subscribers 
 and Potential Subscribers about Access to Confidential Subscriber Trading Information 
 
39. Liquidnet held itself out in its disclosures on Forms ATS-N and ATS, as well as in 
marketing materials and other materials, as providing anonymity for subscriber trades, minimizing 
data leakage, and maintaining security over customer data.  The lack of adequate access controls 
over daily ATS replications and logs, described above in paragraph 29, for example, was 
inconsistent with these representations.   
 
40. The firm was also regularly asked by subscribers and potential subscribers about 
the general type and scope of access the firm granted to confidential subscriber trading data.  In 
response to these inquiries, Liquidnet often directed subscribers and potential subscribers to the 
firm’s disclosures in its Trading Rules, which, as described in paragraphs 30 through 33 above, 
were in certain instances inaccurate.    
 
41. Liquidnet also made misrepresentations in response to questions from subscribers 
and potential subscribers about specific safeguards over confidential subscriber trading 
information.  For example, during a period when the Transparency Working Group had been 
disbanded, Liquidnet provided subscribers and/or potential subscribers conducting due diligence 
on the firm copies of its security policy, which stated that all proposed new uses of customer 
trading information not specifically permitted by the Trading Rules would be reviewed by the 
Transparency Working Group.  Several other subscribers asked about access by non-U.S. persons 
to trading data; the firm referred them to the Trading Rules, which inaccurately described the 
nature and extent of access the firm gave to non-U.S. employees.   
 
42. These misrepresentations resulted from the firm’s negligence.  The firm did not take 
reasonable steps to ensure the accuracy of its representations, and as a result, made misstatements to 
customers about access to and safeguards over confidential subscriber trading information.  These 
misrepresentations were material in light of Liquidnet’s representations about anonymity and the 
minimization of data leakage and the fact that subscribers and potential subscribers specifically 
inquired about such as part of their due diligence on the firm.   

   
 
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VIOLATIONS 
 
43. As a result of the conduct described above, Liquidnet willfully
7
 
violated: 
 
a. Sections 17(a)(2) and 17(a)(3) of the Securities Act, which prohibit, directly or 
indirectly, in the offer or sale of securities obtaining money or property by means of 
any untrue statement of a material fact or any omission to state a material fact 
necessary in order to make the statements made, in light of the circumstances under 
which they were made, not misleading and engaging in any transaction, practice, or 
course of business which operates or would operate as a fraud or deceit upon the 
purchaser. 
 
b. Section 15(c)(3) of the Exchange Act and Rules 15c3-5(b), (c) and (e) thereunder. 
Liquidnet violated Rule 15c3-5(b) by failing to establish, document, and maintain a 
system of risk management controls and supervisory procedures reasonably 
designed to manage the financial, regulatory, and other risks of having market 
access, Rule 15c3-5(c)(1) because its risk management controls and supervisory 
procedures were not reasonably designed to systematically limit the financial 
exposure of the broker or dealer, including preventing the entry of orders that 
exceed appropriate pre-set credit or capital thresholds in the aggregate for each 
customer and preventing the entry of erroneous orders, and Rule 15c3-5(e) because 
it did not establish, document, and maintain a system for regularly reviewing the 
effectiveness of the risk management controls and supervisory procedures required 
by Rules 15c3-5(b) and (c) and promptly address any issues or properly certify for 
2021 that such risk management controls and supervisory procedures comply with 
the rule. 
 
c.  Section 5 of the Exchange Act by failing to either register as a national 
securities exchange or operate pursuant to an exemption from such registration, 
despite meeting the criteria of “exchange” under Exchange Act Section 3(a)(1) and 
Rule 3b-16(a).  Specifically, Liquidnet failed to comply with the following 
conditions of the Regulation ATS exemption: (1) Rule 301(b)(2), which requires an 
ATS that does not trade NMS stocks to amend its Form ATS at least 20 calendar 
days prior to implementing a material change to the operation of the ATS, within 30 
calendar days after the end of a calendar quarter when information contained in an 
initial operation report filed on Form ATS becomes inaccurate, and promptly upon 
discovering that an initial operation report filed on Form ATS or an amendment on 
Form ATS was inaccurate when filed; (2)  Rule 301(b)(10), which requires an ATS 
 
7
  “Willfully” for purposes of imposing relief under Section 15(b) of the Exchange Act means “‘no 
more than that the person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 
408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no 
requirement that the actor “also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 
344 F.2d 5, 8 (2d Cir. 1965). 

   
 
 13 
to establish adequate written safeguards and written procedures to protect 
subscribers’ confidential trading information, including by limiting access to 
confidential trading information of subscribers to those employees of the ATS who 
are operating the system or responsible for its compliance with applicable rules, and 
to adopt and implement adequate written oversight procedures to ensure that the 
written safeguards and procedures for protecting subscribers’ confidential trading 
information are followed; and (3) Rule 304, which requires an NMS Stock ATS to 
file an amendment on Form ATS-N at least 30 calendar days prior to the 
implementation of a material change to the operations of the ATS or the activities of 
the broker-dealer operator or its affiliates that are subject to disclosure on Form 
ATS-N, and promptly to correct information in any previous Form ATS-N after 
discovery that such information was materially inaccurate or incomplete when filed. 
 
REMEDIAL EFFORTS 
 
44. In determining to accept the Offer, the Commission considered remedial acts 
promptly undertaken by Respondent and cooperation afforded the Commission staff, including 
engaging a compliance consultant tasked with assisting Liquidnet in remediating the compliance 
deficiencies identified herein and self-reporting the conduct relating to access controls over ATS 
replications described in paragraph 29 above. 
 
UNDERTAKINGS 
 
45. Respondent Liquidnet has undertaken to do the following:  
 
a. Liquidnet shall complete a review of the firm’s compliance with the market access 
rule and Regulation ATS (the “Review”), which shall involve assessments of: 
 
i. Liquidnet’s risk management controls and supervisory procedures relating 
to market access to determine whether they are reasonably designed to (i) 
prevent the entry of orders that exceed appropriate pre-set credit or capital 
thresholds in the aggregate for each customer and (ii) prevent the entry of 
erroneous orders, by rejecting orders that exceed appropriate price or size 
parameters, as required by Exchange Act Rule 15c3-5(c)(1)(i)-(ii); 
 
ii. Liquidnet’s procedures for conducting 15c3-5 reviews and causing 15c3-5 
certifications to be made, as required by Exchange Act Rule 15c3-5(e);   
 
iii. the adequacy of Liquidnet’s written safeguards and written procedures to 
protect the confidential trading information of subscribers to the Liquidnet 
ATSs and the adequacy of written oversight procedures to ensure that the 
written safeguards and written procedures are followed, as required by Rule 
301(b)(10) of Regulation ATS; and 

   
 
 14 
 
iv. Liquidnet’s procedures for confirming that its marketing materials, 
responses to customer due diligence inquiries, and Forms ATS-N and ATS 
disclosures are accurate.  
 
b. Liquidnet shall promptly file with the Commission any amendments to Form ATS-
N and Form ATS to accurately disclose its written safeguards and written 
procedures to protect confidential trading information, including its written 
oversight procedures to ensure that its safeguards and procedures are implemented 
and followed.    
 
c. Within 60 days of the entry of the Order, Liquidnet shall complete the Review. 
 
d. Within 90 days of the entry of the Order, Liquidnet shall submit to the Commission 
staff a written report (the “Report”) that includes: 
 
i. an assessment of the matters described in subparagraphs a. and b. above and 
 
ii. any remediation measures to be taken by Liquidnet to confirm that the 
firm’s policies and procedures are reasonably designed to achieve 
compliance with the market access rule and Regulation ATS (the 
“Remediation Measures”). 
 
e. Within 120 days of the entry of the Order, Liquidnet shall complete the 
Remediation Measures. 
 
46. Liquidnet shall certify, in writing, compliance with the undertakings set forth 
above.  The certification shall identify the undertakings, provide written evidence of compliance in 
the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  The 
Commission staff may make reasonable requests for further evidence of compliance, and 
Respondent agrees to provide such evidence.  The certification and supporting material shall be 
submitted to Joseph G. Sansone, Chief, Market Abuse Unit, Division of Enforcement, or such 
other person as the Commission staff may request, with a copy to the Office of Chief Counsel of 
the Enforcement Division, no later than sixty (60) days from the date of the completion of the 
undertakings.  The Commission staff may make reasonable requests for further evidence of 
compliance, and Respondent agrees to provide such evidence. 
 
47. For good cause shown, the Commission Staff may extend any of the deadlines set 
forth above.  
 
48. The Report submitted by Liquidnet will likely include confidential financial, 
proprietary, competitive business or commercial information.  Public disclosure of the Report 
could discourage cooperation, impede pending or potential government investigations or 

   
 
 15 
undermine the objectives of the reporting requirement.  For these reasons, among others, the 
Report and the contents thereof are intended to remain and shall remain non-public, except (1) 
pursuant to court order, (2) as agreed to by the parties in writing, (3) to the extent that the 
Commission determines in its sole discretion that disclosure would be in furtherance of the 
Commission’s discharge of its duties and responsibilities, or (4) is otherwise required by law. 
 
IV. 
 In view of the foregoing, the Commission deems it appropriate, and in the public interest to 
impose the sanctions agreed to in Respondent Liquidnet’s Offer. 
 
 Accordingly, pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of 
the Exchange Act, it is hereby ORDERED that: 
 
A. Respondent Liquidnet cease and desist from committing or causing any violations 
and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act; Section 15(c)(3) of 
the Exchange Act and Rules 15c3-5(b), (c), and (e) thereunder; and Section 5 of the Exchange Act 
by failing to comply with Rules 301(b)(2), 301(b)(10), and 304 of Regulation ATS promulgated 
under the Exchange Act. 
 
B. Respondent Liquidnet shall comply with the undertakings enumerated in 
paragraphs 45 through 48 above. 
 
C. Respondent Liquidnet is censured.   
 
D. Respondent Liquidnet shall, within ten (10) days of the entry of this Order, pay a 
civil money penalty in the amount of $5,000,000 to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§ 3717.   
 
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 

   
 
 16 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Liquidnet as a Respondent in these proceedings, and the file number of these proceedings; a copy 
of the cover letter and check or money order must be sent to Joseph G. Sansone, Chief, Market 
Abuse Unit, Division of Enforcement, Securities and Exchange Commission, 100 Pearl Street, 
Suite 20-100, New York, NY 10004-2616. 
 
Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated 
as penalties paid to the government for all purposes, including all tax purposes.  To preserve the 
deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it shall 
not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 
this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty 
Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 
Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 
in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondent by or on behalf of one or more investors based on 
substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
        Secretary 
 
 
 

UNITED STATES OF AMERICA 

 Before the 
 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES ACT OF 1933 

Release No. 11351 / January 10, 2025 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 102147 / January 10, 2025  

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22394 

 

 

In the Matter of 

 

       LIQUIDNET, INC., 

 

 Respondent. 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTION 8A OF THE 

SECURITIES ACT OF 1933 AND SECTIONS 

15(b) AND 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS AND IMPOSING REMEDIAL 

SANCTIONS AND A CEASE-AND-DESIST 

ORDER  

   

 

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Sections 

15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Liquidnet, Inc. 

(“Liquidnet” or “Respondent”). 

 

II. 

 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 

of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 

which the Commission is a party, and without admitting or denying the findings herein, except as 

to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 

admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-

Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 



   

 

 2 

21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions 

and a Cease-and-Desist Order (“Order”), as set forth below. 

 

III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  

 

SUMMARY 

 

1. This matter involves violations of the federal securities laws in two regulatory areas 

by Liquidnet, a registered broker-dealer that operates three alternative trading systems (“ATSs”): 

two ATSs that trade National Market System (“NMS”) stocks, Liquidnet Negotiation ATS and 

Liquidnet H20 ATS (the “NMS Stock ATSs”), and one ATS that trades fixed income securities, 

Liquidnet Fixed Income ATS (the “Fixed Income ATS” and together with the NMS Stock ATSs, 

the “Liquidnet ATSs”).  First, Liquidnet violated Section 15(c)(3) of the Exchange Act and Rule 

15c3-5 thereunder (the “market access rule”) by failing to have adequate risk management controls 

and supervisory procedures in place related to market access for its ATSs.  Second, Liquidnet failed 

to establish adequate written safeguards and written procedures to protect confidential subscriber2 

trading information and failed to amend its Forms ATS-N and ATS, as required by Regulation 

ATS.  Liquidnet also made material misrepresentations about the firm’s compliance with both 

Regulation ATS and the market access rule.   

 

2. As a broker-dealer operator of an ATS that provides market access to non-broker-

dealers, Liquidnet is subject to the market access rule, which requires subject broker-dealers to 

have, among other things, a system of financial risk management controls and supervisory 

procedures to prevent the entry of orders that would exceed appropriate credit thresholds for its non-

broker-dealer customers and to establish, document, and maintain a system for regularly reviewing 

the effectiveness of these controls and procedures, among other things.  The market access rule is 

designed to ensure that broker-dealers “appropriately control the risks associated with market 

access, so as not to jeopardize their own financial condition, that of other market participants, the 

integrity of trading on the securities markets, and the stability of the financial system.”  Risk 

Management Controls for Brokers or Dealers with Market Access, Exch. Act Rel. No. 63241 

(Nov. 10, 2010), 75 Fed. Reg. 69792 (Nov. 15, 2010).   

 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on 

any other person or entity in this or any other proceeding. 
 
2  “Subscriber” is defined in Rule 300(b) of Regulation ATS as “any person that has entered into a 

contractual agreement with an [ATS] to access such [ATS] for the purpose of effecting transactions in 

securities or submitting, disseminating, or displaying orders on such [ATS], including a customer, member, 

user, or participant in an [ATS].”  Accordingly, “subscriber” is used throughout the discussion of Liquidnet’s 

Regulation ATS violations below.  The market access rule uses the term “customer” instead, and is therefore 

used throughout the discussion of Liquidnet’s market access rule violations below.   

 

https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=9c12da86854e96c46dc95ff993598e0a&term_occur=999&term_src=Title:17:Chapter:II:Part:242:242.300
https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=9a940bb194d36e6df059c94ded4aaa07&term_occur=999&term_src=Title:17:Chapter:II:Part:242:242.300
https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=2ca76e9763f094a5df4ecb426162e301&term_occur=999&term_src=Title:17:Chapter:II:Part:242:242.300
https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=c2edd8acdbcb2c4db14f380cf18ee61f&term_occur=999&term_src=Title:17:Chapter:II:Part:242:242.300


   

 

 3 

 

3. From approximately 2019 through 2023, Liquidnet violated the market access rule 

by setting credit thresholds for non-broker-dealer customers without first performing adequate due 

diligence on their creditworthiness and frequently setting customer credit thresholds at a default of 

$1 billion – regardless of the customer’s financial standing.  Liquidnet also failed to implement 

systems to prevent these thresholds from being breached within the NMS Stock ATSs, and, until 

2023, failed to regularly review and certify its compliance with the market access rule.  Liquidnet 

further made material misrepresentations to certain customers about the firm’s compliance with the 

market access rule.    

 

4. As the registered broker-dealer operator of an ATS, which operates pursuant to an  

exemption from exchange registration,3 Liquidnet must comply with certain conditions to the 

exemption, including Rule 301(b)(10) of Regulation ATS, which requires an ATS operator to 

establish adequate written safeguards and written procedures to limit access to confidential 

subscriber trading information to employees of the ATS who operate the system or are responsible 

for its compliance with applicable rules and regulations.  The rule is designed to, among other 

things, minimize “information leakage of subscribers’ confidential trading information to other 

business units of the broker-dealer and their affiliates,” where there may be increased potential for 

misuse of that information.  See Regulation of NMS Stock Alternative Trading Systems, Exch. Act 

Rel. No. 83663 (Jul. 18, 2018), 83 Fed. Reg. 38768, 38775-76 (Aug. 7, 2018) (the “NMS Stock 

ATS Adopting Release”).  Liquidnet must also comply with Rules 301(b)(2) and 304 of Regulation 

ATS.  Rule 304 requires Liquidnet to make public disclosures on Form ATS-N about the operations 

of the NMS Stock ATSs and the activities of the broker-dealer operator and its affiliates.  Rule 

301(b)(2) requires Liquidnet to make disclosures to the Commission about the operations of the 

Fixed Income ATS.    

 

5. From approximately 2019 through 2024, Liquidnet failed to adequately limit 

internal access to specific systems and tools containing certain confidential subscriber trading 

information in two ways.  First, Liquidnet did not have appropriate access controls for certain ATS 

data used by technology personnel for testing purposes.  Second, Liquidnet permitted internal 

access to certain confidential subscriber trading information by certain employees who had no 

operational or compliance responsibilities for the Liquidnet ATSs.  This information primarily 

included match and execution data, but generally did not include subscribers’ unmatched 

indications of interest4 other than on an aggregate, non-symbol specific basis.  The access granted 

to these employees was at times inconsistent with Liquidnet’s public disclosures.   

 
3  As explained below, Rule 3a1-1(a)(2) under the Exchange Act exempts an ATS from the definition 

of “exchange” under Section 3(a)(1) of the Exchange Act, and thus, the requirement to register as a national 

securities exchange pursuant to Section 5 of the Exchange Act, if the ATS complies with the conditions of 

Regulation ATS.   

 
4  An indication of interest generally refers to a subscriber’s non-firm willingness to buy or sell a 

security.  The Liquidnet ATSs accepted and matched indications of interest of subscribers and allowed 

them to agree to terms of a trade on the ATS.  



   

 

 4 

 

6. Liquidnet also made material misrepresentations to subscribers and potential 

subscribers in response to due diligence inquiries about the safeguards it maintained over 

confidential subscriber trading information, the employees who had access to the Liquidnet ATSs, 

and the scope of that access.  In addition, Liquidnet failed to disclose certain information on its 

Form ATS-N and Form ATS to accurately reflect who had access to confidential subscriber trading 

information and the nature of that access.     

 

RESPONDENT 

 

7. Liquidnet is based in New York, New York and has been registered with the 

Commission as a broker-dealer since October 2000.  In March 2021, Liquidnet was acquired by TP 

ICAP plc (“TP ICAP” and the “TP ICAP Acquisition”), a London-based financial services firm 

listed on the London Stock Exchange.  Liquidnet is an agency-only broker that operates three ATSs: 

two NMS Stock ATSs and the Fixed Income ATS. 

 

BACKGROUND 

A. Liquidnet Violated the Market Access Rule 

 

8. Liquidnet provides market access through the Liquidnet ATSs to non-broker-dealer 

customers5 and is therefore required to comply with the market access rule with respect to the 

market access it provides to those customers.  As described in more detail below, from 

approximately 2019 through 2023, Liquidnet violated three different subsections of the market 

access rule and made certain misrepresentations to customers about its compliance with the rule. 

 

Liquidnet Set Credit Thresholds Without Adequately Assessing  

Customer Creditworthiness and Did Not Have Controls for its NMS Stock ATSs in Place to  

Prevent Certain Orders Exceeding Those Thresholds 

 

9. Exchange Act Rule 15c3-5(b) requires broker-dealers with market access to 

“establish, document, and maintain a system of risk management controls and supervisory 

procedures reasonably designed to manage the financial, regulatory, and other risks” of having 

market access. 17 C.F.R. § 240.15c3-5(b). 

  

10. Exchange Act Rule 15c3-5(c), among other things, requires that a broker-dealer’s 

risk management controls and supervisory procedures be reasonably designed to (i) “[p]revent the 

entry of orders that exceed appropriate pre-set credit or capital thresholds in the aggregate for each 

customer … by rejecting orders if such orders would exceed the applicable credit or capital 

thresholds” and (ii) “[p]revent the entry of erroneous orders, by rejecting orders that exceed 

appropriate price or size parameters.” 17 C.F.R. §§ 240.15c3-5(c)(1)(i)-(ii).  This provision of the 

 
5  The market access rule only applies to a broker-dealer operator of an ATS when providing market 

access to non-broker-dealer customers.  See Rule 15c3-5(a)(1)(ii); 17 C.F.R. § 240.15c3-5(a)(1)(ii). 



   

 

 5 

market access rule requires Liquidnet to set appropriate pre-trade credit thresholds for each non-

broker-dealer customer, and to have in place controls that will prevent the entry of orders – on a 

pre-trade basis – that exceed those thresholds or are erroneously entered.  

 

11. From at least 2019 until 2023, Liquidnet set pre-trade credit risk thresholds for 

certain non-broker-dealer customers of its NMS Stock ATSs without performing appropriate 

reviews of customer creditworthiness .  Instead, Liquidnet nearly always set pre-trade thresholds at a 

default aggregate notional value of $1 billion for these customers, without regard for the credit 

ratings or financial standing of each individual non-broker-dealer customer.   

 

12. As a result, certain pre-trade alerts, which were intended to flag that customers were 

close to reaching their credit thresholds, would only be triggered after a customer placed orders 

totaling an extremely high notional value. These pre-trade alerts were set at 80% of a customer’s 

credit threshold in the NMS Stock ATSs.  Therefore, a non-broker-dealer customer with a $1 billion 

credit threshold would be able to successfully place orders in the NMS Stock ATSs totaling $800 

million in notional value without triggering those alerts. 

 

13. Because these pre-trade credit thresholds were set at arbitrary levels without 

appropriate reviews of customer creditworthiness, and the related pre-trade alerts were based on 

these arbitrary thresholds, these risk management controls were not reasonably designed, as the 

market access rule requires.   

 

14.  In addition, from at least 2019, Liquidnet did not have a system in place to prevent 

the entry of orders by non-broker-dealer customers that exceeded these arbitrary pre-set credit 

thresholds when aggregated with all orders placed by that customer with the firm.  Orders placed by 

a customer into one of the Liquidnet ATSs would trigger a pre-trade alert if they breached the 

applicable alert threshold, but if the customer placed a subsequent order that in the aggregate 

exceeded the customer’s credit threshold, that order could be successfully executed, regardless of its 

size.   

 

15. Therefore, if a non-broker-dealer customer in one of the NMS Stock ATSs with a 

credit threshold of $1 billion executed orders totaling $900 million, the firm’s pre-trade alerts would 

be triggered because the non-broker-dealer customer had reached 80% of its credit threshold, but if 

that customer placed another order of $125 million, the order would be executed without any alert 

being generated, even though the notional value of that order when aggregated with earlier orders 

exceeded the firm’s $1 billion credit threshold for the customer.  

 

16. Liquidnet was aware by at least 2020 that the firm’s existing systems did not 

aggregate customer orders and therefore could not prevent the entry of a subsequent order 

exceeding a non-broker-dealer customer’s credit threshold.  Liquidnet remedied the issue in early 

2023, under TP ICAP’s supervision.  Trading and other documentation relating to credit thresholds 

in the NMS Stock ATSs indicate that these credit thresholds were not breached.  

 



   

 

 6 

17. As a result, Liquidnet did not have a reasonably designed system to prevent the entry 

of orders that exceeded credit thresholds in the aggregate for each non-broker-dealer customer, as 

required by the market access rule.   

 

Liquidnet Violated the Market Access Rule by Failing to 

Consistently Conduct Annual Reviews and Issue CEO Certifications 

 

18. Exchange Act Rule 15c3-5(e) requires a broker-dealer to establish, document, and 

maintain a system for regularly reviewing the effectiveness of the risk management controls and 

supervisory procedures and for promptly addressing any issues.  More specifically, broker-dealers 

must perform a review at least annually to assure the overall effectiveness of these risk management 

controls and supervisory procedures ( “15c3-5 review”) and the broker-dealer’s Chief Executive 

Officer must certify compliance on an annual basis (“15c3-5 certification”).  17 C.F.R. § 240.15c3-

5(e).   

 

19. Despite its awareness by at least 2020 that its systems could not aggregate non-

broker-dealer customer orders and therefore could not prevent the entry of a subsequent order 

exceeding a non-broker-dealer customer’s credit threshold, Liquidnet did not perform a 15c3-5 

review covering the entire calendar year in 2021.  Specifically, Liquidnet did not review its 

compliance with the market access rule for the period September 1 through December 31, 2020.    

Moreover, until 2022, the firm’s 15c3-5 reviews did not adequately test to determine whether the 

firm’s risk management controls would prevent orders exceeding non-broker-dealer customers’ 

credit thresholds, as required by the market access rule.  In 2022, the firm began to conduct 

adequate testing and identified various deficiencies in its controls, including those described in 

paragraphs 14 and 15 above. 

 

20. Despite Liquidnet’s knowledge beginning in at least 2020 that its controls were 

deficient because its systems could not aggregate non-broker-dealer customer orders, Liquidnet’s 

CEO signed 15c3-5 certifications in 2020 and 2023 attesting compliance with the requirements of 

the market access rule.  The CEO did not sign certifications in 2021 or 2022. 

 

Liquidnet Made Material Misrepresentations  

to Customers about its Market Access Controls 

 

21. Liquidnet also made misrepresentations about its market access controls to certain 

customers and potential customers in response to due diligence questionnaires, stating that 

Liquidnet was compliant with all regulatory requirements applicable to market access through the 

firm, that it had aggregate exposure limits in place, and that it had controls that would prevent the 

entry of orders that exceed appropriate credit thresholds, during a time when the firm was aware that 

it could not aggregate customer orders or prevent the entry of certain orders that exceeded a 

customer’s credit threshold.  

 



   

 

 7 

22. These misrepresentations resulted from the firm’s negligence.  The firm did not take 

reasonable steps to ensure the accuracy of its representations, and as a result, made misstatements to 

customers and potential customers about its market access controls.  These misrepresentations were 

material because these customers and potential customers were considering Liquidnet’s 

representations about its market access controls in determining whether to select the firm as a 

trading venue, and there was a substantial likelihood that a reasonable customer or potential 

customer would have considered the disclosures important to their decision.  

 

B. Liquidnet Failed to Comply with Regulation ATS 

 

23. Section 5 of the Exchange Act requires an organization, association, or group of 

persons that meets the definition of “exchange” under section 3(a)(1) of the Exchange Act, unless 

otherwise exempt, to register with the Commission as a national securities exchange.  Exchange 

Act Rule 3a1–1(a)(2) exempts from the definition of “exchange,” and thus exchange registration, 

an organization, association, or group of persons that complies with Regulation ATS.  As the 

registered broker-dealer of an ATS that operated pursuant to the Rule 3a1-1(a)(2) exemption, 

Liquidnet is required to comply with the applicable conditions of Regulation ATS set forth under 

Rules 300-304.  As described in more detail below, from approximately 2019 through 2024, 

Liquidnet failed to comply with three different conditions of Regulation ATS, thus violating Section 

5 of the Exchange Act, and made misrepresentations to certain customers about access to 

confidential subscriber trading information. 

 

Liquidnet Failed to Establish Adequate Written Safeguards  

and Written Procedures to Protect Confidential Subscriber Trading Information 

 

24. Among other conditions to the Regulation ATS exemption, an ATS must, pursuant 

to Rule 301(b)(10) of Regulation ATS, establish adequate written safeguards and written 

procedures to protect the confidential trading information of subscribers, including by limiting 

access to employees who operate the system or are responsible for the ATS’s compliance with 

Regulation ATS and other applicable rules.  Furthermore, an ATS must adopt and implement 

adequate written oversight procedures to ensure that its written safeguards and written procedures 

are followed. 

 

25. Liquidnet disclosed one such written safeguard and written procedure in its public 

Forms ATS-N for the NMS Stock ATSs: a requirement that an employee requesting access to “an 

application that contains confidential participant data” must receive their manager’s approval in 

advance, and the manager must provide an explanation affirming both that the employee’s access 

will not adversely impact ATS subscribers and that the particular type of access has been disclosed 

to the firm’s customers.  Liquidnet also disclosed that supervisory personnel must make monthly 

certifications that the use of customer data in their business unit complies with firm policy.  

Liquidnet failed to establish adequate written safeguards and written procedures, however, because 

Liquidnet managers and supervisory personnel did not in fact provide these explanations or make 



   

 

 8 

these certifications.  In addition, Liquidnet did not have adequate oversight procedures to ensure 

that these safeguards and procedures were followed.    

 

26. Liquidnet also had written safeguards and written procedures that related to its 

Transparency Working Group.  Liquidnet stated in sales materials provided to subscribers and 

potential subscribers and in response to subscriber due diligence inquiries that the Transparency 

Working Group advised the firm on issues relating to the protection and usage of customer data.  

The group’s charter stated, among other things, that the Transparency Working Group sought to 

ensure that Liquidnet was disclosing to subscribers the firm’s processes relating to employee 

access to confidential subscriber trading information.  Several of Liquidnet’s policies and 

procedures, including its trading rules governing the systems and operations of the Liquidnet ATSs 

(the “Trading Rules”),6 required review by the Transparency Working Group before any changes 

to those policies and procedures could be made.   

 

27. However, in approximately September 2021, the Transparency Working Group 

disbanded due to employee turnover following the TP ICAP Acquisition.  Liquidnet only 

reconstituted the Transparency Working Group in Summer 2023 at the earliest, after a TP ICAP 

internal audit team discovered that the working group no longer existed but that the firm was 

continuing to make inaccurate representations about the group to firm customers.  From September 

2021 until Summer 2023, the Transparency Working Group was not performing any of the 

functions Liquidnet described in its sales materials, responses to certain due diligence inquiries, or 

in the group’s charter.   

 

28. Liquidnet also failed to adequately limit internal access to systems containing 

confidential subscriber trading information. While communications and other documentation do 

not indicate that confidential subscriber trading information was improperly shared outside the 

firm, Liquidnet did not comply with Rule 301(b)(10) of Regulation ATS by permitting employees’ 

internal access to certain systems and data as described in paragraphs 29 through 33 below.     

 

29. Until Spring 2024, Liquidnet allowed access to ATS replications of indication, 

order, and execution data (“replications”) from the previous trading day, which were used by 

certain technology personnel for testing purposes, via generic log-in credentials that were shared 

among certain technology employees.  Liquidnet intended that only technology personnel with a 

need to perform troubleshooting and other technical work would access these replications, but 

because the log-in credentials were generic and not user-specific, the firm could not control which 

employees accessed the replications.  In addition, Liquidnet technology personnel saved certain 

logs containing confidential subscriber trading information in a shared file without any kind of 

 
6   Liquidnet’s Form ATS filings included a copy of the Trading Rules for the Fixed Income ATS.  

Liquidnet’s Forms ATS-N refer to the Trading Rules for the NMS Stock ATSs for a description of the 

types of access employees were given to confidential subscriber trading information and state that 

employees must comply with restrictions on access set forth in the Trading Rules. Liquidnet also 

provided the Trading Rules to ATS subscribers.   

 



   

 

 9 

password protection.  While the shared file location was generally only provided to Liquidnet 

technology personnel, any Liquidnet employee with access to the shared file location could also 

access confidential subscriber trading information even if that employee did not have a basis for 

accessing such data.  The lack of access controls over the replications and logs was inconsistent 

with statements by Liquidnet on its public Forms ATS-N that the firm was responsible for 

maintaining the security of customer trading information and that it “instituted technological 

controls on access to trading information, including username and password controls… and access 

control lists on systems and networks.”   

 

30. Until October 2023, when the firm removed their access, Liquidnet granted non-

U.S. sales coverage employees access to confidential subscriber trading information in the NMS 

Stock ATSs that was inconsistent with Liquidnet’s Trading Rules. The Trading Rules generally 

provided that trade coverage personnel were given access to ATS match information only for 

equities in the region in which the employee was located and for all equities traded by subscribers 

whom each employee was specifically assigned to cover, but non-U.S. employees in some cases 

also received confidential subscriber trading information relating to trades in U.S. securities for 

subscribers they did not cover.  These non-U.S. employees did not hold any U.S. securities licenses 

and did not receive training on applicable U.S. rules and regulations.  In some cases, these 

employees also received access to ATS order and execution information, which they did not need 

to perform their jobs and to which the firm did not disclose they had access.  Documentation 

relating to employee ATS access indicates that these employees received unmatched indication 

data only on an aggregate, non-symbol specific basis.  

 

31. From at least 2019 through 2024, Liquidnet also permitted access to confidential 

subscriber trading information in the NMS Stock ATSs and the Fixed Income ATS that was 

inconsistent with the firm’s disclosures on Forms ATS-N and ATS and in its Trading Rules and 

with the requirements of Rule 301(b)(10) of Regulation ATS.  

 

32. For example, Liquidnet granted access to intraday match and execution information 

in the NMS Stock ATSs to numerous employees working in business development and on the 

firm’s agency-only high-touch equities trading desk, when the firm’s disclosures represented that 

these employees had more limited access to confidential subscriber trading information.   

 

33. Liquidnet also granted access to confidential subscriber trading information in the 

Fixed Income ATS to employees who serviced subscribers of the Fixed Income ATS at the same 

time as they serviced customers of ReBalance, a fixed income trading platform operated by TP 

ICAP Global Markets America, LLC, a Liquidnet and TP ICAP affiliate.  This was not disclosed 

on Form ATS or otherwise to subscribers before access was granted.  Liquidnet also permitted 

undisclosed access to confidential subscriber trading information by employees performing jobs in 

marketing and investor relations, roles that did not include operational or compliance 

responsibilities for the Liquidnet ATSs.  Documentation relating to employee ATS access indicates 

that these employees did not receive access to unmatched indication data. 

 



   

 

 10 

Liquidnet Failed to File Accurate Disclosures on its Forms ATS-N and ATS 

 

34. NMS Stock ATSs, as defined in Regulation ATS Rule 300(k), must file a public 

report on Form ATS-N in accordance with Rule 304 of Regulation ATS to disclose the activities of 

the broker-dealer operator and the operations of the NMS Stock ATSs.  See NMS Stock ATS 

Adopting Release, 83 Fed. Reg. at 38768.   NMS Stock ATSs are required by Rule 304(a)(2)(i) to 

publicly file certain amendments to the NMS Stock ATSs’ Forms ATS-N, in accordance with 

certain conditions, including: at least 30 calendar days prior to the implementation of a material 

change to the operation of the ATS or the activities of the broker-dealer operator or its affiliates 

subject to disclosure on Form ATS-N, and promptly to correct information in any previous Form 

ATS-N after discovery that such information was materially inaccurate or incomplete when filed.  

In the NMS Stock ATS Adopting Release, the Commission stated that a change to the operations of 

an NMS Stock ATS, or the disclosures regarding the activities of the broker-dealer operator and its 

affiliates, would be material if there is a substantial likelihood that a reasonable market participant 

would consider the change important when evaluating the NMS Stock ATS as a potential trading 

venue.  See NMS Stock ATS Adopting Release, 83 Fed. Reg. at 38803.  The Commission also 

stated that, among others, one scenario that is particularly likely to implicate a material change is a 

change to the broker-dealer operator’s policies and procedures governing the written safeguards 

and written procedures to protect the confidential trading information of subscribers pursuant to 

Rule 301(b)(10)(i) of Regulation ATS.  See id.   

 

35. Liquidnet’s Fixed Income ATS trades fixed income securities, primarily corporate 

bonds, and does not trade NMS stocks.  As such, the Fixed Income ATS files a Form ATS with the 

Commission pursuant to Rule 301(b)(2).  Unlike Form ATS-N, Form ATS is not a public report.  

A non-NMS Stock ATS, such as the Liquidnet Fixed Income ATS, must amend its Form ATS at 

least 20 calendar days prior to implementing a material change to the operation of the ATS, within 

30 calendar days after the end of a quarter when information contained in an initial operation report 

filed on Form ATS becomes inaccurate, and promptly upon discovering that an initial operation 

report filed on Form ATS or an amendment on Form ATS was inaccurate when filed.   

   

36. As detailed above in paragraphs 26 through 33, from at least 2019 until 2024, 

material information in Liquidnet’s public Forms ATS-N, which relate to the NMS Stock ATSs, 

was inaccurate.  The firm’s practices with regard to which employees had access to subscriber 

confidential trading information in the NMS Stock ATSs, the nature of that access, the type of 

supervisory reviews that were performed with respect to that access, and the security of 

subscribers’ trading data differed from the disclosures in the Forms ATS-N.  Subscribers 

evaluating whether to enter orders or continue to enter orders to trade in the NMS Stock ATSs 

frequently asked the firm about how it protected their confidential trading information.  These 

questions show that the firm’s written safeguards and written procedures were material to 

subscribers and potential subscribers. 

 

37. As a result, after discovering that its Forms ATS were materially inaccurate, 

Liquidnet was obligated to promptly file correcting amendments to its public Form ATS-N 



   

 

 11 

disclosures for both NMS Stock ATSs to accurately reflect information concerning access to 

subscribers’ confidential trading information and file material amendments to Form ATS-N at least 

30 calendar days before granting access to subscriber confidential trading information that differed 

from its disclosures in its Forms ATS-N.  Liquidnet, however, did not do so in these instances.    

 

38. In addition, as described above in paragraph 33,  Liquidnet’s disclosures about 

access to confidential subscriber trading information in the Fixed Income ATS’s Form ATS were 

also inaccurate.  Accordingly, after discovering that its Forms ATS were materially inaccurate, 

Liquidnet was required to amend those filings to correct any information that became inaccurate 

within 30 calendar days after the end of the calendar quarter, but it did not do so in the instances 

described above. 

 

Liquidnet Made Material Misrepresentations to Certain Subscribers 

 and Potential Subscribers about Access to Confidential Subscriber Trading Information 

 

39. Liquidnet held itself out in its disclosures on Forms ATS-N and ATS, as well as in 

marketing materials and other materials, as providing anonymity for subscriber trades, minimizing 

data leakage, and maintaining security over customer data.  The lack of adequate access controls 

over daily ATS replications and logs, described above in paragraph 29, for example, was 

inconsistent with these representations.   

 

40. The firm was also regularly asked by subscribers and potential subscribers about 

the general type and scope of access the firm granted to confidential subscriber trading data.  In 

response to these inquiries, Liquidnet often directed subscribers and potential subscribers to the 

firm’s disclosures in its Trading Rules, which, as described in paragraphs 30 through 33 above, 

were in certain instances inaccurate.    

 

41. Liquidnet also made misrepresentations in response to questions from subscribers 

and potential subscribers about specific safeguards over confidential subscriber trading 

information.  For example, during a period when the Transparency Working Group had been 

disbanded, Liquidnet provided subscribers and/or potential subscribers conducting due diligence 

on the firm copies of its security policy, which stated that all proposed new uses of customer 

trading information not specifically permitted by the Trading Rules would be reviewed by the 

Transparency Working Group.  Several other subscribers asked about access by non-U.S. persons 

to trading data; the firm referred them to the Trading Rules, which inaccurately described the 

nature and extent of access the firm gave to non-U.S. employees.   

 

42. These misrepresentations resulted from the firm’s negligence.  The firm did not take 

reasonable steps to ensure the accuracy of its representations, and as a result, made misstatements to 

customers about access to and safeguards over confidential subscriber trading information.  These 

misrepresentations were material in light of Liquidnet’s representations about anonymity and the 

minimization of data leakage and the fact that subscribers and potential subscribers specifically 

inquired about such as part of their due diligence on the firm.   



   

 

 12 

VIOLATIONS 

 

43. As a result of the conduct described above, Liquidnet willfully7 violated: 

 

a. Sections 17(a)(2) and 17(a)(3) of the Securities Act, which prohibit, directly or 

indirectly, in the offer or sale of securities obtaining money or property by means of 

any untrue statement of a material fact or any omission to state a material fact 

necessary in order to make the statements made, in light of the circumstances under 

which they were made, not misleading and engaging in any transaction, practice, or 

course of business which operates or would operate as a fraud or deceit upon the 

purchaser. 

 

b. Section 15(c)(3) of the Exchange Act and Rules 15c3-5(b), (c) and (e) thereunder. 

Liquidnet violated Rule 15c3-5(b) by failing to establish, document, and maintain a 

system of risk management controls and supervisory procedures reasonably 

designed to manage the financial, regulatory, and other risks of having market 

access, Rule 15c3-5(c)(1) because its risk management controls and supervisory 

procedures were not reasonably designed to systematically limit the financial 

exposure of the broker or dealer, including preventing the entry of orders that 

exceed appropriate pre-set credit or capital thresholds in the aggregate for each 

customer and preventing the entry of erroneous orders, and Rule 15c3-5(e) because 

it did not establish, document, and maintain a system for regularly reviewing the 

effectiveness of the risk management controls and supervisory procedures required 

by Rules 15c3-5(b) and (c) and promptly address any issues or properly certify for 

2021 that such risk management controls and supervisory procedures comply with 

the rule. 

 

c.  Section 5 of the Exchange Act by failing to either register as a national 

securities exchange or operate pursuant to an exemption from such registration, 

despite meeting the criteria of “exchange” under Exchange Act Section 3(a)(1) and 

Rule 3b-16(a).  Specifically, Liquidnet failed to comply with the following 

conditions of the Regulation ATS exemption: (1) Rule 301(b)(2), which requires an 

ATS that does not trade NMS stocks to amend its Form ATS at least 20 calendar 

days prior to implementing a material change to the operation of the ATS, within 30 

calendar days after the end of a calendar quarter when information contained in an 

initial operation report filed on Form ATS becomes inaccurate, and promptly upon 

discovering that an initial operation report filed on Form ATS or an amendment on 

Form ATS was inaccurate when filed; (2)  Rule 301(b)(10), which requires an ATS 

 
7  “Willfully” for purposes of imposing relief under Section 15(b) of the Exchange Act means “‘no 

more than that the person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 

408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no 

requirement that the actor “also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 

344 F.2d 5, 8 (2d Cir. 1965). 



   

 

 13 

to establish adequate written safeguards and written procedures to protect 

subscribers’ confidential trading information, including by limiting access to 

confidential trading information of subscribers to those employees of the ATS who 

are operating the system or responsible for its compliance with applicable rules, and 

to adopt and implement adequate written oversight procedures to ensure that the 

written safeguards and procedures for protecting subscribers’ confidential trading 

information are followed; and (3) Rule 304, which requires an NMS Stock ATS to 

file an amendment on Form ATS-N at least 30 calendar days prior to the 

implementation of a material change to the operations of the ATS or the activities of 

the broker-dealer operator or its affiliates that are subject to disclosure on Form 

ATS-N, and promptly to correct information in any previous Form ATS-N after 

discovery that such information was materially inaccurate or incomplete when filed. 

 

REMEDIAL EFFORTS 

 

44. In determining to accept the Offer, the Commission considered remedial acts 

promptly undertaken by Respondent and cooperation afforded the Commission staff, including 

engaging a compliance consultant tasked with assisting Liquidnet in remediating the compliance 

deficiencies identified herein and self-reporting the conduct relating to access controls over ATS 

replications described in paragraph 29 above. 

 

UNDERTAKINGS 

 

45. Respondent Liquidnet has undertaken to do the following:  

 

a. Liquidnet shall complete a review of the firm’s compliance with the market access 

rule and Regulation ATS (the “Review”), which shall involve assessments of: 

 

i. Liquidnet’s risk management controls and supervisory procedures relating 

to market access to determine whether they are reasonably designed to (i) 

prevent the entry of orders that exceed appropriate pre-set credit or capital 

thresholds in the aggregate for each customer and (ii) prevent the entry of 

erroneous orders, by rejecting orders that exceed appropriate price or size 

parameters, as required by Exchange Act Rule 15c3-5(c)(1)(i)-(ii); 

 

ii. Liquidnet’s procedures for conducting 15c3-5 reviews and causing 15c3-5 

certifications to be made, as required by Exchange Act Rule 15c3-5(e);   

 

iii. the adequacy of Liquidnet’s written safeguards and written procedures to 

protect the confidential trading information of subscribers to the Liquidnet 

ATSs and the adequacy of written oversight procedures to ensure that the 

written safeguards and written procedures are followed, as required by Rule 

301(b)(10) of Regulation ATS; and 



   

 

 14 

 

iv. Liquidnet’s procedures for confirming that its marketing materials, 

responses to customer due diligence inquiries, and Forms ATS-N and ATS 

disclosures are accurate.  

 

b. Liquidnet shall promptly file with the Commission any amendments to Form ATS-

N and Form ATS to accurately disclose its written safeguards and written 

procedures to protect confidential trading information, including its written 

oversight procedures to ensure that its safeguards and procedures are implemented 

and followed.    

 

c. Within 60 days of the entry of the Order, Liquidnet shall complete the Review. 

 

d. Within 90 days of the entry of the Order, Liquidnet shall submit to the Commission 

staff a written report (the “Report”) that includes: 

 

i. an assessment of the matters described in subparagraphs a. and b. above and 

 

ii. any remediation measures to be taken by Liquidnet to confirm that the 

firm’s policies and procedures are reasonably designed to achieve 

compliance with the market access rule and Regulation ATS (the 

“Remediation Measures”). 

 

e. Within 120 days of the entry of the Order, Liquidnet shall complete the 

Remediation Measures. 

 

46. Liquidnet shall certify, in writing, compliance with the undertakings set forth 

above.  The certification shall identify the undertakings, provide written evidence of compliance in 

the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  The 

Commission staff may make reasonable requests for further evidence of compliance, and 

Respondent agrees to provide such evidence.  The certification and supporting material shall be 

submitted to Joseph G. Sansone, Chief, Market Abuse Unit, Division of Enforcement, or such 

other person as the Commission staff may request, with a copy to the Office of Chief Counsel of 

the Enforcement Division, no later than sixty (60) days from the date of the completion of the 

undertakings.  The Commission staff may make reasonable requests for further evidence of 

compliance, and Respondent agrees to provide such evidence. 

 

47. For good cause shown, the Commission Staff may extend any of the deadlines set 

forth above.  

 

48. The Report submitted by Liquidnet will likely include confidential financial, 

proprietary, competitive business or commercial information.  Public disclosure of the Report 

could discourage cooperation, impede pending or potential government investigations or 



   

 

 15 

undermine the objectives of the reporting requirement.  For these reasons, among others, the 

Report and the contents thereof are intended to remain and shall remain non-public, except (1) 

pursuant to court order, (2) as agreed to by the parties in writing, (3) to the extent that the 

Commission determines in its sole discretion that disclosure would be in furtherance of the 

Commission’s discharge of its duties and responsibilities, or (4) is otherwise required by law. 

 

IV. 

 In view of the foregoing, the Commission deems it appropriate, and in the public interest to 

impose the sanctions agreed to in Respondent Liquidnet’s Offer. 

 

 Accordingly, pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of 

the Exchange Act, it is hereby ORDERED that: 

 

A. Respondent Liquidnet cease and desist from committing or causing any violations 

and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act; Section 15(c)(3) of 

the Exchange Act and Rules 15c3-5(b), (c), and (e) thereunder; and Section 5 of the Exchange Act 

by failing to comply with Rules 301(b)(2), 301(b)(10), and 304 of Regulation ATS promulgated 

under the Exchange Act. 

 

B. Respondent Liquidnet shall comply with the undertakings enumerated in 

paragraphs 45 through 48 above. 

 

C. Respondent Liquidnet is censured.   

 

D. Respondent Liquidnet shall, within ten (10) days of the entry of this Order, pay a 

civil money penalty in the amount of $5,000,000 to the Securities and Exchange Commission for 

transfer to the general fund of the United States Treasury, subject to Exchange Act Section 

21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 

§ 3717.   

 

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

http://www.sec.gov/about/offices/ofm.htm


   

 

 16 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Liquidnet as a Respondent in these proceedings, and the file number of these proceedings; a copy 

of the cover letter and check or money order must be sent to Joseph G. Sansone, Chief, Market 

Abuse Unit, Division of Enforcement, Securities and Exchange Commission, 100 Pearl Street, 

Suite 20-100, New York, NY 10004-2616. 

 

Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated 

as penalties paid to the government for all purposes, including all tax purposes.  To preserve the 

deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it shall 

not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 

compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 

this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty 

Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 

Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 

Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed an 

additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 

in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 

damages action brought against Respondent by or on behalf of one or more investors based on 

substantially the same facts as alleged in the Order instituted by the Commission in this 

proceeding. 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

        Secretary