The U.S. Securities and Exchange Commission said on Wednesday that Latour Trading LLC would pay more than $8 million to settle charges that the high-frequency trading firm violated rules aimed at ensuring safe and efficient markets.
Latour, a unit of Tower Research, sent out millions of non-compliant orders to U.S. stock exchanges, many of which were executed at worse prices than were available elsewhere, between October 2010 through August 2014, the SEC said.
As a result, Latour, which uses high-frequency algorithms to trade equities for its own account, received executions and collected exchange rebates that it should not have and that other market participants might have received if not for the non-compliant orders, the SEC said.
The firm also failed to put in place adequate post-trade surveillance tools in place to detect its millions of non-compliant orders.
"Automated trading systems can pose significant risks to the market and must be designed and implemented correctly," Andrew Ceresney, director of the SEC’s Enforcement Division, said in a statement.
The non-compliant orders mainly resulted from a software coding change that Tower made without Latour's knowledge to a part of the trading infrastructure the firms shared, the SEC said. The coding change introduced an error into Latour's software.
Trading firms are required to have direct and exclusive control of their financial and regulatory risk management controls.
Latour agreed to pay a $5 million penalty, disgorgement of $2.8 million of gross trading profits and exchange-paid rebates, plus prejudgment interest of $268,564, without admitting or denying the charges.