In re ARCHIPELAGO TRADING

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98234 / August 29, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-21587 
 
In the Matter of 
 
ARCHIPELAGO TRADING 
SERVICES, INC. 
 
Respondent. 
 
 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO 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 Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”) against Archipelago Trading Services, Inc. (“ATSI” 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 Sections 15(b) and 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. 
 
 
 
 
 

 
 
2 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
Summary 
 
1. This proceeding concerns ATSI’s failure to file Suspicious Activity Reports 
(“SARs”) between August 2012 and September 2020 related to suspicious transactions that were 
executed on its Alternative Trading System (“ATS”), Global OTC, which exclusively trades in 
Over-the-Counter (“OTC”) securities, many of which are considered microcap or penny stock 
securities, on behalf of its Subscribers, all of whom were U.S. registered broker-dealers.
 2
  As a 
registered broker-dealer, ATSI was required to comply with the Bank Secrecy Act (“BSA”) and its 
implementing regulations, and to file SARs relating to suspicious transactions executed through 
Global OTC that ATSI knew, suspected, or had reason to suspect involved the use of the trading 
platform to facilitate fraudulent activity or that had no business or apparent lawful purpose.  
However, until September 2020, ATSI failed to have or implement reasonably designed anti-money 
laundering (“AML”) policies and procedures to surveil transactions executed on Global OTC for 
possible red flags regarding suspicious trading activity.  Due to these deficiencies, ATSI failed to 
surveil for, investigate, or file SARs on numerous transactions that it had reason to suspect involved 
possible fraudulent activity or for which there was no business or apparent lawful purpose.  In 
particular, between October 2017 and September 2020, ATSI failed to surveil for, recognize, and 
investigate numerous red flags of potentially unlawful manipulative trading, including possible 
spoofing, layering, wash trading, and pre-arranged trading, related to approximately 15,000 
transactions executed on Global OTC, most of which involved microcap or penny stock securities.  
As a result, ATSI failed to file at least 461 SARs and, accordingly, willfully violated Section 17(a) 
of the Exchange Act and Rule 17a-8 thereunder. 
 
 
 
 
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
 OTC securities are securities that are not listed on a national securities exchange.  The 
securities at issue here are primarily microcap and penny stock securities.  The term “microcap 
stock” generally refers to securities issued by companies with a market capitalization of less than 
$250 to $300 million.  See, e.g., U.S. Securities and Exchange Commission, Microcap Stock: A 
Guide for Investors (Sept. 18, 2013) at https://www.sec.gov/reportspubs/investor-
publications/investorpubsmicrocapstock and U.S. Securities and Exchange Commission, Investor 
Bulletin, Microcap Stock Basics (Sept. 30, 2016) at https://www.sec.gov/resources-
investors/investor-alerts-bulletins/microcap-stock-basics.  The term “penny stock” generally 
refers to a security issued by a very small company that trades at less than $5 per share.  See 
https://www.investor.gov/introduction-investing/investing-basics/glossary/microcap-stock; 
Section 3(a)(51) of the Exchange Act and Rule 3a51-1 thereunder.   

 
 
3 
Respondent and Relevant Entity  
 
2. Archipelago Trading Services, Inc. is a Florida corporation with its principal 
place of business in Chicago, Illinois.  ATSI has been registered with the Commission as a broker-
dealer since 1985.  ATSI’s sole line of business is to operate and provide trading access for other 
broker-dealers to its OTC equity securities platform known as Global OTC.  ATSI generates 
revenue from the fees charged for its services.  ATSI is an indirect, wholly-owned subsidiary of 
Intercontinental Exchange, Inc.  
 
3. Global OTC is an ATS operated by ATSI for OTC securities, which are securities 
not listed on any national stock exchanges in the United States.  Global OTC is one of three inter-
dealer quotation systems for OTC securities in the United States.  ATSI permitted its Subscribers, 
all of whom were U.S. registered broker-dealers, to trade securities through Global OTC.  Global 
OTC is not a stock exchange or self-regulatory organization.    
 
Background 
 
4. The BSA and implementing regulations promulgated by the U.S. Treasury 
Department’s Financial Crimes Enforcement Network (“FinCEN”) require broker-dealers such as 
ATSI to file SARs with FinCEN to report, among other things, a transaction (or a pattern of 
transactions of which the transaction is a part) conducted or attempted by, at, or through the 
broker-dealer involving or aggregating funds or other assets of at least $5,000 that the broker-
dealer knows, suspects, or has reason to suspect:  (1) involves funds derived from illegal activities 
or were conducted to disguise or hide funds or assets derived from illegal activities; (2) is designed 
to evade any requirement of the BSA; (3) has no business or apparent lawful purpose or is not the 
sort in which the particular customer would normally be expected to engage and the broker-dealer 
knows of no reasonable explanation for the transaction after examining the available facts; or (4) 
involves the use of the broker-dealer to facilitate criminal activity. 31 C.F.R. § 1023.320(a)(2) (the 
“SAR Rule”). 
 
5. To be liable for failing to file a SAR, a broker-dealer must know, suspect, or have 
reason to suspect that a transaction falls into one of the four categories of suspicious activity in 31 
C.F.R. § 1023.320(a)(2).  FINRA and FinCEN long have highlighted in regulatory guidance red 
flags specifically related to penny stock transactions and FINRA has cautioned firms that its 
examples of red flags are “merely illustrative” and that other situations may arise that require 
further investigation.  See FinCEN’s The SAR Activity Review Trends Tips & Issues, Issue 15, “ln 
Focus: The Securities and Futures Industry;” FINRA’s Updated Small Firm Template Anti-Money 
Laundering (AML) Program (updated January 2010); FINRA Regulatory Notice 09-05 (Jan. 
2009).  In May 2019, FINRA issued Regulatory Notice 19-18, which included a list of previously 
identified red flags and provided additional examples of red flags potentially indicative of 
suspicious activity, including examples of manipulative trading of microcap and penny stock 
securities.  FINRA Regulatory Notice 19-18 (May 2019), at 3–11. 
 

 
 
4 
6. The BSA and FinCEN require the filing of a SAR within 30 calendar days after a 
broker-dealer determines the activity is “suspicious” within the meaning of the SAR Rule.  If no 
suspect is identified on the date of such initial detection, a broker-dealer may delay filing a SAR 
for an additional 30 calendar days to identify a suspect, but in no case shall reporting be delayed 
more than 60 calendar days after the date of such initial detection.  31 CFR 1023.320(b).   
 
7. Exchange Act Rule 17a-8 requires broker-dealers registered with the Commission 
to comply with the reporting, record-keeping, and record retention requirements of the BSA.  The 
failure to file a SAR, including continuing activity SARs, as required by the SAR Rule is a 
violation of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.  See SEC v. Alpine Sec. 
Corp., 308 F. Supp. 3d 775, 798–800 (S.D.N.Y. 2018), aff’d, 982 F.3d 68 (2d Cir. 2020), cert. 
denied, Alpine Sec. Corp. v. SEC (2021), No. 19-3272, 595 U.S. (2021).  
 
Facts 
 
8. Since at least 2003, ATSI has operated Global OTC, one of the largest ATSs for 
trading OTC securities in the United States.  As an ATS for OTC securities, Global OTC plays a 
significant role in executing trades of microcap and penny stock securities.  Microcap and penny 
stock securities tend to be high-risk securities because they typically lack public information, have 
no minimum listing standards, lack liquidity, and have high volatility.  Global OTC matches 
buyers and sellers, with ATSI acting as the buyer for each seller, and the seller for each buyer, for 
each transaction on Global OTC.  Between October 2017 and September 2020, Global OTC 
executed approximately 23,000 transactions per day in approximately 1,000 different OTC 
securities on behalf of its Subscribers, which accounted for approximately 13% of the average 
daily transactions in OTC securities.  Despite thousands of higher risk microcap and penny stock 
securities transactions executed daily on the ATS, until September 2020, ATSI failed to establish 
an AML surveillance program for its transactions.  
 
9. Until approximately September 2020, ATSI’s AML department consisted of its 
Compliance Director, who was also designated as the anti-money laundering compliance officer 
(the “AMLCO”), and a Compliance Manager.  ATSI’s AML policies and procedures (“AML 
Policies”) specified that the AMLCO and Compliance Manager were responsible for investigating 
reports of suspicious trading activity and the AMLCO was responsible for filing SARs.  Although 
ATSI’s AML Policies acknowledged that “suspicious activity could arise at any time during a 
Subscriber’s relationship with ATSI”, the AML Policies had no description, discussion, or any 
guidance concerning red flags specific to possible manipulative trading of OTC securities, 
including microcap and penny stock securities.  During this time period, ATSI’s AML Policies 
also provided in relevant part that “[a]s the Firm does not carry customer accounts, does not 
maintain customer assets and does not engage in transactions involving cash or cash equivalents... 
it is not anticipated that any suspicious activity would occur on the ATS platform.” 
 
10. While ATSI’s AML Policies stated that ATSI’s personnel were trained to monitor 
for and where appropriate, report, certain red flags indicative of money laundering to ATSI’s 
AMLCO, ATSI did not include any discussion of red flags specific to manipulative trading of OTC 

 
 
5 
securities, including microcap and penny stock securities, in its AML training or reasonably tailor 
its training to ATSI’s business.  Between August 2012 and September 2020, ATSI did not have 
any automated surveillance or other systems reasonably designed to identify potentially suspicious 
trades executed on Global OTC, nor did it reasonably conduct manual surveillance of the 
transactions executed on Global OTC for potentially suspicious activity.  
 
11. Instead, until September 2020, ATSI’s AML program relating to Global OTC was 
limited to:  (1) “know your subscriber” due diligence conducted as part of its onboarding 
procedures for new Subscribers; and (2) ongoing sanctions screenings for any U.S. Department of 
the Treasury Office of Foreign Assets Control (“OFAC”) economic or trade sanctions or 
significant regulatory enforcement matters, which included money laundering charges, links to 
terrorist financing, links to drug trafficking, the loss of ability to conduct securities business in the 
United States, or the loss of ability to properly clear transactions through Depository Trust and 
Clearing Corporation.   
 
12. Between August 2012 and September 2020, ATSI failed to surveil any transactions 
executed on Global OTC for red flags of potentially suspicious conduct concerning the following 
types of potentially unlawful, manipulative transactions (see FINRA Regulatory Notice 19-18 
(May 2018), FINRA Regulatory Notice 09-05 (Jan. 2009)):  
 
a. Trading activity involving a significant volume of non-marketable orders on one side of the 
market (which later all cancel or expire unexecuted), with the price of the security swinging 
significantly in that direction, followed by the same customer executing a transaction, or 
series of transactions, on the opposite side of the market that day to seemingly take advantage 
of the significantly increased/decreased stock price (“spoofing”); 
 
b. Trading activity involving a frequent pattern of placing multiple limit orders on one side of 
the market at various price levels, followed by the customer entering orders on the opposite 
side of the market that are executed and the customer cancelling the original limit orders 
(“layering”); 
 
c. Trading activity involving a significant proportion of the daily trading volume in a thinly 
traded or low-priced security;  
 
d. Trading activity involving a sudden spike in investor demand for, coupled with a 
rising/decreasing price in, a thinly-traded or low-priced security; or 
 
e. Trading activity involving pre-arranged or other non-competitive securities trading, including 
wash or cross trades, with no apparent business purpose (“pre-arranged or wash trading”).  
 
13. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 
red flags, or file any SARs in connection with at least 99 separate instances of suspicious spoofing 
or layering activity on Global OTC.   
 

 
 
6 
14. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 
red flags, or file any SARs in connection with at least 133 separate instances of suspicious 
manipulative trading activity on Global OTC involving large volumes of thinly traded, low-priced 
securities.  This trading activity included aggregate purchases and sales of approximately 78 
million shares totaling approximately $19.5 million that accounted for over 50% of the overall 
daily market volume on particular trade dates in the same thinly traded, low-priced securities.    
 
15. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 
red flags, or file any SARs in connection with at least 197 separate instances of suspicious 
manipulative trading activity on Global OTC involving a sudden spike in investor demand for, 
coupled with a rising/decreasing price in, thinly traded, low-priced securities.  This trading activity 
involved an aggregate of approximately 178 million shares totaling approximately $4.3 million for 
which the consolidated daily volume exceeded 400% of the consolidated 30-day average daily 
volume.   
 
16. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 
red flags, or file any SARs in connection with at least 32 separate instances of suspicious 
manipulative pre-arranged or wash trading activity on Global OTC.  This trading activity involved 
an aggregate of approximately 300,000 shares totaling approximately $815,000 for which 
Subscribers acted in a principal capacity on both the buy and sell sides of the same trade with no 
apparent change in beneficial ownership.   
 
17. If ATSI had had reasonably designed AML policies and procedures to surveil 
transactions executed on Global OTC for red flags regarding potential suspicious trading activity 
between October 2017 and September 2020, it would have identified the above-referenced 
suspicious transactions concerning potentially unlawful and manipulative trading (including 
possible spoofing, layering, wash trading, pre-arranged trading, and sudden spikes in volume 
coupled with significant volatility) that would have required the filing of at least 461 SARs. 
 
18. In response to a deficiency letter sent to ATSI by the Commission’s Division of 
Examinations in May 2020, ATSI updated its AML Policies in August 2020.  ATSI’s updated 
AML Policies tailored FINRA guidance to its Subscriber business to include procedures for 
conducting surveillance of trades executed on Global OTC for certain red flags indicative of 
potential money laundering or other criminal or unlawful activity, including red flags specific to 
manipulative trading in OTC securities, including microcap and penny stock securities.  Starting in 
September 2020, ATSI began operating a post-trade monitoring system to surveil all transactions 
executed on Global OTC for potentially manipulative or suspicious trading activity and began 
filing SARs related to such activity, including potential wash trading, pre-arranged trading, 
spoofing, and sudden spikes in volume coupled with significant volatility.    
 
 
 
 
 

 
 
7 
Violations 
 
19. As a result of the conduct described above, ATSI willfully
3
 violated Section 17(a) 
of the Exchange Act and Rule 17a-8 thereunder, which require broker-dealers to comply with the 
reporting, record keeping, and record retention requirements of the BSA, including filing SARs as 
required by the SAR Rule, 31 C.F.R. § 1023.320(a)(2). 
 
Remedial Efforts 
 
20. In determining to accept ATSI’s Offer, the Commission considered remedial acts 
promptly undertaken by ATSI. 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest to 
impose the sanctions agreed to in Respondent ATSI’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
A. Respondent ATSI cease and desist from committing or causing any violations and 
any future violations of Section 17(a) of the Exchange Act and Rule 17a-8 promulgated thereunder. 
 
B. Respondent ATSI is censured.   
 
C. Respondent ATSI shall, within 30 days of the entry of this Order, pay a civil money 
penalty in the amount of $1,500,000.00 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;  
 
 
3
 “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).  The decision in The Robare Group, 
Ltd. v. SEC, which construed the term “willfully” for purposes of a differently structured 
statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting 
forth the showing required to establish that a person has “willfully omit[ted]” material 
information from a required disclosure in violation of Section 207 of the Advisers Act). 
 

 
 
8 
(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:  
 
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 
ATSI 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 Anne C. McKinley, Assistant Director, 
Division of Enforcement, Securities and Exchange Commission, 175 West Jackson Boulevard, 
Suite 1450, Chicago, IL 60604. 
 
D. 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 EXCHANGE ACT OF 1934 

Release No. 98234 / August 29, 2023 

 

ADMINISTRATIVE PROCEEDING 

File No.  3-21587 

 

In the Matter of 

 

ARCHIPELAGO TRADING 

SERVICES, INC. 

 

Respondent. 

 

 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO 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 Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”) against Archipelago Trading Services, Inc. (“ATSI” 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 Sections 15(b) and 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. 

 

 

 

 

 



 

 

2 

III. 

 

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

 

Summary 

 

1. This proceeding concerns ATSI’s failure to file Suspicious Activity Reports 

(“SARs”) between August 2012 and September 2020 related to suspicious transactions that were 

executed on its Alternative Trading System (“ATS”), Global OTC, which exclusively trades in 

Over-the-Counter (“OTC”) securities, many of which are considered microcap or penny stock 

securities, on behalf of its Subscribers, all of whom were U.S. registered broker-dealers. 2  As a 

registered broker-dealer, ATSI was required to comply with the Bank Secrecy Act (“BSA”) and its 

implementing regulations, and to file SARs relating to suspicious transactions executed through 

Global OTC that ATSI knew, suspected, or had reason to suspect involved the use of the trading 

platform to facilitate fraudulent activity or that had no business or apparent lawful purpose.  

However, until September 2020, ATSI failed to have or implement reasonably designed anti-money 

laundering (“AML”) policies and procedures to surveil transactions executed on Global OTC for 

possible red flags regarding suspicious trading activity.  Due to these deficiencies, ATSI failed to 

surveil for, investigate, or file SARs on numerous transactions that it had reason to suspect involved 

possible fraudulent activity or for which there was no business or apparent lawful purpose.  In 

particular, between October 2017 and September 2020, ATSI failed to surveil for, recognize, and 

investigate numerous red flags of potentially unlawful manipulative trading, including possible 

spoofing, layering, wash trading, and pre-arranged trading, related to approximately 15,000 

transactions executed on Global OTC, most of which involved microcap or penny stock securities.  

As a result, ATSI failed to file at least 461 SARs and, accordingly, willfully violated Section 17(a) 

of the Exchange Act and Rule 17a-8 thereunder. 

 

 

 

 
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 OTC securities are securities that are not listed on a national securities exchange.  The 

securities at issue here are primarily microcap and penny stock securities.  The term “microcap 

stock” generally refers to securities issued by companies with a market capitalization of less than 

$250 to $300 million.  See, e.g., U.S. Securities and Exchange Commission, Microcap Stock: A 

Guide for Investors (Sept. 18, 2013) at https://www.sec.gov/reportspubs/investor-

publications/investorpubsmicrocapstock and U.S. Securities and Exchange Commission, Investor 

Bulletin, Microcap Stock Basics (Sept. 30, 2016) at https://www.sec.gov/resources-

investors/investor-alerts-bulletins/microcap-stock-basics.  The term “penny stock” generally 

refers to a security issued by a very small company that trades at less than $5 per share.  See 

https://www.investor.gov/introduction-investing/investing-basics/glossary/microcap-stock; 

Section 3(a)(51) of the Exchange Act and Rule 3a51-1 thereunder.   



 

 

3 

Respondent and Relevant Entity  

 

2. Archipelago Trading Services, Inc. is a Florida corporation with its principal 

place of business in Chicago, Illinois.  ATSI has been registered with the Commission as a broker-

dealer since 1985.  ATSI’s sole line of business is to operate and provide trading access for other 

broker-dealers to its OTC equity securities platform known as Global OTC.  ATSI generates 

revenue from the fees charged for its services.  ATSI is an indirect, wholly-owned subsidiary of 

Intercontinental Exchange, Inc.  

 

3. Global OTC is an ATS operated by ATSI for OTC securities, which are securities 

not listed on any national stock exchanges in the United States.  Global OTC is one of three inter-

dealer quotation systems for OTC securities in the United States.  ATSI permitted its Subscribers, 

all of whom were U.S. registered broker-dealers, to trade securities through Global OTC.  Global 

OTC is not a stock exchange or self-regulatory organization.    

 

Background 

 

4. The BSA and implementing regulations promulgated by the U.S. Treasury 

Department’s Financial Crimes Enforcement Network (“FinCEN”) require broker-dealers such as 

ATSI to file SARs with FinCEN to report, among other things, a transaction (or a pattern of 

transactions of which the transaction is a part) conducted or attempted by, at, or through the 

broker-dealer involving or aggregating funds or other assets of at least $5,000 that the broker-

dealer knows, suspects, or has reason to suspect:  (1) involves funds derived from illegal activities 

or were conducted to disguise or hide funds or assets derived from illegal activities; (2) is designed 

to evade any requirement of the BSA; (3) has no business or apparent lawful purpose or is not the 

sort in which the particular customer would normally be expected to engage and the broker-dealer 

knows of no reasonable explanation for the transaction after examining the available facts; or (4) 

involves the use of the broker-dealer to facilitate criminal activity. 31 C.F.R. § 1023.320(a)(2) (the 

“SAR Rule”). 

 

5. To be liable for failing to file a SAR, a broker-dealer must know, suspect, or have 

reason to suspect that a transaction falls into one of the four categories of suspicious activity in 31 

C.F.R. § 1023.320(a)(2).  FINRA and FinCEN long have highlighted in regulatory guidance red 

flags specifically related to penny stock transactions and FINRA has cautioned firms that its 

examples of red flags are “merely illustrative” and that other situations may arise that require 

further investigation.  See FinCEN’s The SAR Activity Review Trends Tips & Issues, Issue 15, “ln 

Focus: The Securities and Futures Industry;” FINRA’s Updated Small Firm Template Anti-Money 

Laundering (AML) Program (updated January 2010); FINRA Regulatory Notice 09-05 (Jan. 

2009).  In May 2019, FINRA issued Regulatory Notice 19-18, which included a list of previously 

identified red flags and provided additional examples of red flags potentially indicative of 

suspicious activity, including examples of manipulative trading of microcap and penny stock 

securities.  FINRA Regulatory Notice 19-18 (May 2019), at 3–11. 

 



 

 

4 

6. The BSA and FinCEN require the filing of a SAR within 30 calendar days after a 

broker-dealer determines the activity is “suspicious” within the meaning of the SAR Rule.  If no 

suspect is identified on the date of such initial detection, a broker-dealer may delay filing a SAR 

for an additional 30 calendar days to identify a suspect, but in no case shall reporting be delayed 

more than 60 calendar days after the date of such initial detection.  31 CFR 1023.320(b).   

 

7. Exchange Act Rule 17a-8 requires broker-dealers registered with the Commission 

to comply with the reporting, record-keeping, and record retention requirements of the BSA.  The 

failure to file a SAR, including continuing activity SARs, as required by the SAR Rule is a 

violation of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.  See SEC v. Alpine Sec. 

Corp., 308 F. Supp. 3d 775, 798–800 (S.D.N.Y. 2018), aff’d, 982 F.3d 68 (2d Cir. 2020), cert. 

denied, Alpine Sec. Corp. v. SEC (2021), No. 19-3272, 595 U.S. (2021).  

 

Facts 

 

8. Since at least 2003, ATSI has operated Global OTC, one of the largest ATSs for 

trading OTC securities in the United States.  As an ATS for OTC securities, Global OTC plays a 

significant role in executing trades of microcap and penny stock securities.  Microcap and penny 

stock securities tend to be high-risk securities because they typically lack public information, have 

no minimum listing standards, lack liquidity, and have high volatility.  Global OTC matches 

buyers and sellers, with ATSI acting as the buyer for each seller, and the seller for each buyer, for 

each transaction on Global OTC.  Between October 2017 and September 2020, Global OTC 

executed approximately 23,000 transactions per day in approximately 1,000 different OTC 

securities on behalf of its Subscribers, which accounted for approximately 13% of the average 

daily transactions in OTC securities.  Despite thousands of higher risk microcap and penny stock 

securities transactions executed daily on the ATS, until September 2020, ATSI failed to establish 

an AML surveillance program for its transactions.  

 

9. Until approximately September 2020, ATSI’s AML department consisted of its 

Compliance Director, who was also designated as the anti-money laundering compliance officer 

(the “AMLCO”), and a Compliance Manager.  ATSI’s AML policies and procedures (“AML 

Policies”) specified that the AMLCO and Compliance Manager were responsible for investigating 

reports of suspicious trading activity and the AMLCO was responsible for filing SARs.  Although 

ATSI’s AML Policies acknowledged that “suspicious activity could arise at any time during a 

Subscriber’s relationship with ATSI”, the AML Policies had no description, discussion, or any 

guidance concerning red flags specific to possible manipulative trading of OTC securities, 

including microcap and penny stock securities.  During this time period, ATSI’s AML Policies 

also provided in relevant part that “[a]s the Firm does not carry customer accounts, does not 

maintain customer assets and does not engage in transactions involving cash or cash equivalents… 

it is not anticipated that any suspicious activity would occur on the ATS platform.” 

 

10. While ATSI’s AML Policies stated that ATSI’s personnel were trained to monitor 

for and where appropriate, report, certain red flags indicative of money laundering to ATSI’s 

AMLCO, ATSI did not include any discussion of red flags specific to manipulative trading of OTC 



 

 

5 

securities, including microcap and penny stock securities, in its AML training or reasonably tailor 

its training to ATSI’s business.  Between August 2012 and September 2020, ATSI did not have 

any automated surveillance or other systems reasonably designed to identify potentially suspicious 

trades executed on Global OTC, nor did it reasonably conduct manual surveillance of the 

transactions executed on Global OTC for potentially suspicious activity.  

 

11. Instead, until September 2020, ATSI’s AML program relating to Global OTC was 

limited to:  (1) “know your subscriber” due diligence conducted as part of its onboarding 

procedures for new Subscribers; and (2) ongoing sanctions screenings for any U.S. Department of 

the Treasury Office of Foreign Assets Control (“OFAC”) economic or trade sanctions or 

significant regulatory enforcement matters, which included money laundering charges, links to 

terrorist financing, links to drug trafficking, the loss of ability to conduct securities business in the 

United States, or the loss of ability to properly clear transactions through Depository Trust and 

Clearing Corporation.   

 

12. Between August 2012 and September 2020, ATSI failed to surveil any transactions 

executed on Global OTC for red flags of potentially suspicious conduct concerning the following 

types of potentially unlawful, manipulative transactions (see FINRA Regulatory Notice 19-18 

(May 2018), FINRA Regulatory Notice 09-05 (Jan. 2009)):  

 

a. Trading activity involving a significant volume of non-marketable orders on one side of the 

market (which later all cancel or expire unexecuted), with the price of the security swinging 

significantly in that direction, followed by the same customer executing a transaction, or 

series of transactions, on the opposite side of the market that day to seemingly take advantage 

of the significantly increased/decreased stock price (“spoofing”); 

 

b. Trading activity involving a frequent pattern of placing multiple limit orders on one side of 

the market at various price levels, followed by the customer entering orders on the opposite 

side of the market that are executed and the customer cancelling the original limit orders 

(“layering”); 

 

c. Trading activity involving a significant proportion of the daily trading volume in a thinly 

traded or low-priced security;  

 

d. Trading activity involving a sudden spike in investor demand for, coupled with a 

rising/decreasing price in, a thinly-traded or low-priced security; or 

 

e. Trading activity involving pre-arranged or other non-competitive securities trading, including 

wash or cross trades, with no apparent business purpose (“pre-arranged or wash trading”).  

 

13. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 

red flags, or file any SARs in connection with at least 99 separate instances of suspicious spoofing 

or layering activity on Global OTC.   

 



 

 

6 

14. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 

red flags, or file any SARs in connection with at least 133 separate instances of suspicious 

manipulative trading activity on Global OTC involving large volumes of thinly traded, low-priced 

securities.  This trading activity included aggregate purchases and sales of approximately 78 

million shares totaling approximately $19.5 million that accounted for over 50% of the overall 

daily market volume on particular trade dates in the same thinly traded, low-priced securities.    

 

15. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 

red flags, or file any SARs in connection with at least 197 separate instances of suspicious 

manipulative trading activity on Global OTC involving a sudden spike in investor demand for, 

coupled with a rising/decreasing price in, thinly traded, low-priced securities.  This trading activity 

involved an aggregate of approximately 178 million shares totaling approximately $4.3 million for 

which the consolidated daily volume exceeded 400% of the consolidated 30-day average daily 

volume.   

 

16. Between October 2017 and September 2020, ATSI failed to surveil for, investigate 

red flags, or file any SARs in connection with at least 32 separate instances of suspicious 

manipulative pre-arranged or wash trading activity on Global OTC.  This trading activity involved 

an aggregate of approximately 300,000 shares totaling approximately $815,000 for which 

Subscribers acted in a principal capacity on both the buy and sell sides of the same trade with no 

apparent change in beneficial ownership.   

 

17. If ATSI had had reasonably designed AML policies and procedures to surveil 

transactions executed on Global OTC for red flags regarding potential suspicious trading activity 

between October 2017 and September 2020, it would have identified the above-referenced 

suspicious transactions concerning potentially unlawful and manipulative trading (including 

possible spoofing, layering, wash trading, pre-arranged trading, and sudden spikes in volume 

coupled with significant volatility) that would have required the filing of at least 461 SARs. 

 

18. In response to a deficiency letter sent to ATSI by the Commission’s Division of 

Examinations in May 2020, ATSI updated its AML Policies in August 2020.  ATSI’s updated 

AML Policies tailored FINRA guidance to its Subscriber business to include procedures for 

conducting surveillance of trades executed on Global OTC for certain red flags indicative of 

potential money laundering or other criminal or unlawful activity, including red flags specific to 

manipulative trading in OTC securities, including microcap and penny stock securities.  Starting in 

September 2020, ATSI began operating a post-trade monitoring system to surveil all transactions 

executed on Global OTC for potentially manipulative or suspicious trading activity and began 

filing SARs related to such activity, including potential wash trading, pre-arranged trading, 

spoofing, and sudden spikes in volume coupled with significant volatility.    

 

 

 

 

 



 

 

7 

Violations 

 

19. As a result of the conduct described above, ATSI willfully3 violated Section 17(a) 

of the Exchange Act and Rule 17a-8 thereunder, which require broker-dealers to comply with the 

reporting, record keeping, and record retention requirements of the BSA, including filing SARs as 

required by the SAR Rule, 31 C.F.R. § 1023.320(a)(2). 

 

Remedial Efforts 

 

20. In determining to accept ATSI’s Offer, the Commission considered remedial acts 

promptly undertaken by ATSI. 

IV. 

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

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

 

 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 

ORDERED that: 

 

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

any future violations of Section 17(a) of the Exchange Act and Rule 17a-8 promulgated thereunder. 

 

B. Respondent ATSI is censured.   

 

C. Respondent ATSI shall, within 30 days of the entry of this Order, pay a civil money 

penalty in the amount of $1,500,000.00 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;  

 

 
3 “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).  The decision in The Robare Group, 

Ltd. v. SEC, which construed the term “willfully” for purposes of a differently structured 

statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting 

forth the showing required to establish that a person has “willfully omit[ted]” material 

information from a required disclosure in violation of Section 207 of the Advisers Act). 

 



 

 

8 

(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:  

 

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 

ATSI 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 Anne C. McKinley, Assistant Director, 

Division of Enforcement, Securities and Exchange Commission, 175 West Jackson Boulevard, 

Suite 1450, Chicago, IL 60604. 

 

D. 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 

 

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