On July 25, 2014, the Securities and Exchange Commission announced that it was settling an administrative proceeding against LavaFlow, Inc., an alternative trading system (ATS), for failing to protect the confidential information of its subscribers. According to the SEC, LavaFlow violated Rule 301(b)(10) of Regulation ATS by allowing an affiliate smart order router system to access the order information of its customers without obtaining customer consent. Rule 301(b)(10) requires an ATS to establish safeguards and procedures to protect subscribers’ confidential information.

The $5 million settlement included a $2.85 million penalty – the largest fine of an ATS to date, disgorgement of $1.8 million, and prejudgment interest of $350,000.