TMC Bonds LLC resolved charges with the Securities and Exchange Commission that, from at least January 2016 through June 2018, it held itself out as an anonymous trading platform for certain taxable and non-taxable fixed-income securities, when it was disclosing the identities of certain subscribers to other subscribers without their consent. TMC is a registered broker-dealer and operates as an alternative trading system. The firm was acquired by the Intercontinental Exchange as of July 23, 2018.
The SEC claimed that, during the relevant time, TMC’s marketing and operating procedures generally noted that its subscribers’ identities would remain confidential. However, alleged the SEC, on approximately 2,600 occasions, TMC employees disclosed identities of certain firms attempting to trade on the firm’s platform; these firms were large retail broker-dealers. The SEC said that, in most cases, disclosure of the retail broker-dealer was made when the opposite side failed to confirm a transaction timely. TMC purportedly disclosed the names to facilitate confirmation because other platform subscribers “were generally more willing to trade with retail brokerage firms than other professional traders.”
The SEC charged that TMC failed to notify its subscribers that its platform was not totally anonymous, and failed to amend filings with it to correct prior disclosure that its ATS was anonymous. The SEC also claimed that TMC’s written supervisory procedures only addressed anonymity and subscriber confidentially in general terms, and the firm’s training on the matter was also deficient.
TMC agreed to pay a fine of US $2.1 million to resolve the SEC’s enforcement action. In accepting this settlement, the SEC acknowledged the firm’s numerous remedial measures, including upgrading its procedures and providing compliance training regarding the firm’s anonymity policy, and its cooperation with the SEC’s investigation.
Compliance Weeds: To be effective, a registrant’s policies and procedures should reflect the precise businesses conducted by the firm. Generic procedures are typically not useful. The more specific procedures are, the more likely they will be helpful. Moreover, training too should be aligned with the actual business conducted by a firm. An effective tool for training is using interactive techniques that engage participants based on fact patterns that employees have or may realistically address that amplify important legal or regulatory principles. The challenge is always conveying useful information in a manner that is actually absorbed by the intended audience.