Citigroup Inc (NYSE:C) will close down LavaFlow, an alternative trading platform also known as electronic communications network (ECN). An exclusive report by Reuters divulged of the bank’s decision to re-align capital. efforts, and resources from LavaFlow ECN towards other units in Citi’s Equities Division.
LavaFlow ECN, currently one of the largest trading platforms within Wall Street, will be officially closing its doors by January 30 of next year. The Financial Industry Regulatory Authority (FINRA) ranked LavaFlow as the sixth largest alternative trading platform in terms of volume as of November 10. Early in July this year, LavaFlow agreed to pay the Securities and Exchange Commission an amount of $5 million, plus a penalty of $2,85 million, in settlement of a case arising from allegations that the platform neglected to protect its customers’ data.
Unlike other ATS such as dark pools, LavaFlow allows some information on pending orders to be displayed. Dark pools, on the other hand, allows traders to book anonymous orders and disclose data only after a transaction, negating the chance that prices can be moved against any particular trader in the system. Citigroup Inc (NYSE:C) also operates dark pools, namely Citi Cross, Citi March, and LIQUIFY.
According to SEC, Citigroup Inc (NYSE:C)’s LavaFlow allowed an affiliate to explore the system and mine confidential customer data relating to information about orders. Such data are not made available to the public. A subsequent letter in August from Citigroup Inc (NYSE:C)’s Americas equities unit head Daniel Keegan told the SEC that LavaFlow could help stimulate more trading by cutting as much as two thirds the amount levied to trade. Critics, however, say that participants in trading markets are overwhelmed by the complexity and costs brought about by alternative trading systems due to the resulting fragmentation.
Alternative Trading Systems were lately the subject of regulatory investigations, arising from concerns that ATS’ inherent anonymity takes too much volume away from traditional trading venues, thus tending to distort prices by making it hard for investors to gauge actual demand.
This article has been written by Nonito Guntan.