#LIGHTSPEED TRADING SOFTWARE#
Lightspeed re-engineered its software protocols so that when a customer in Lightspeed Trader directed an order to NASDAQ, ARCA, or EDGX, Lightspeed redirected the order to Routing Broker. To send orders to Routing Broker, Lightspeed treated directed orders as non-directed orders. Routing Broker was not an option on Lightspeed Trader, so customers could not select Routing Broker or direct their trades to Routing Broker. Lightspeed never listed Routing Broker on its dropdown menu as a trade destination or route. But Lightspeed did so in contravention of its customers’ express directions. In 2013, Lightspeed started sending to Routing Broker a significant number of equity orders that customers had placed using its Lightspeed Trader platform. Lightspeed intended to make money by sending its customer orders to the new Routing Broker, which would charge either no market center fees or lower fees than the venues to which Lightspeed’s customers could direct their orders using Lightspeed Trader. Routing Broker was formed from a registered broker-dealer Lightspeed’s parent no longer utilized. In early 2012, Lightspeed’s parent company entered into a joint venture with a hedge fund to create a routing broker to monetize its order flow. Lightspeed sought to route orders to brokers or trading venues that would either compensate Lightspeed for its customers’ orders or reduce Lightspeed’s trading costs. Lightspeed heavily marketed this option, which it referred to as “direct market access” or “DMA.” It represented that its customers could “direct your order to the destination of your choice.” Lightspeed promoted the benefits of direct market access and advertised direct market access as a distinguishing and material feature of its Lightspeed Trader platform.īy January 2012, the company had decided to change its business model and profit from its order flow.
Lightspeed represented to its customers that they could access the liquidity displayed at a specific exchange to receive the best fill for their orders. Lightspeed advertised that it charged its customers a commission on each trade and passed through other fees, such as “market center” fees, to its customers on a per share basis. Lightspeed’s misconduct violated Section 17(a)(2) and 17(a)(3) of the Securities Act.Īs of 2012, Lightspeed offered customers “Lightspeed Trader,” a trading platform through which investors could trade equity securities. Despite misdirecting its customers’ orders, Lightspeed still charged its customers the fees for the market centers that they had selected, even though Lightspeed incurred lower fees or no fees at all.Īs a result, from December 2015 through July 2016, Lightspeed received more than $300,000 from overcharging its customers in connection with the offer and sale of securities. Lightspeed failed to disclose the Routing Broker’s involvement and never disclosed to its customers that it routed their orders in contravention of their directions. In reality, Lightspeed disregarded many of its customers’ directions and instead sent those orders to an affiliated broker-dealer (the “Routing Broker”), which routed the customer orders for execution and generally charged Lightspeed no or low market center fees. Lightspeed told its customers they could direct their orders to the trading venues of their choice and they would be charged the market center fees that Lightspeed incurred in executing their orders.
The SEC proceedings arise from the misrepresentations and omissions that, Lightspeed Trading, LLC, an introducing broker, made to its customers about how it would direct their orders to trade equity securities and the fees it would charge for executing such orders (“market center fees”). The Securities and Exchange Commission (SEC) has agreed to accept a settlement offer proposed by Lightspeed Trading, LLC.
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