Key Takeaways:
- tZERO to pay $800K in penalties to the US Securities after settlement with SEC over late filings under ATS rules.
- The penalties should be paid without admitting or denying the findings.
According to an order issued on January 10, the SEC claims that tZERO made several errors in its disclosure filings. tZERO is a decentralized trading system with filing requirements that differ from a traditional stock exchange.
According to the order, tZERO failed to promptly disclose several changes to its operations. These include using non-U.S. trading information from Blue Ocean Financial Technology, the publication of tZERO’s security token pricing on a subscribing broker’s platform, and the way it was vetting user access to the platform itself.
The order explained that from approximately December 2014 until at least September 8, 2017, Respondent did not make all required disclosures to the Commission concerning a third party’s display of order book information for certain NMS stocks. Secondly, from approximately December 2016 until April 24, 2019, Respondent did not make all required disclosures to the Commission concerning its subscriber’s display of order book information for certain Digitally Enhanced Securities. Finally, in June 2017, and again from February 2020 until June 12, 2020, Respondent had the requisite percentage of trading activity in one or more non-NMS securities to require that it comply with the Fair Access Rule. Still, it did not establish written standards for granting access to the ATS.
Respondent denied by saying that Respondent is a broker-dealer registered with the Commission with its principal place of business in New York. It was formerly known as Pro Securities LLC. From 2014 through May 2021, it has operated one or more alternative trading systems. Respondent is a wholly-owned subsidiary of tZERO Group, Inc., a Delaware corporation with its principal place of business in New York. tZERO Group was formerly known as t0.com, Inc.
The order requires tZERO to pay $800,000 in penalties to the US Securities and Exchange Commission without admitting or denying the findings. It issues a cease and desist order for future violations. Overall, it is a relatively minor fine, but it may signal increased expectations for alternative trading systems to maintain consistent reporting in the future.
Despite earlier hype surrounding security token offerings, or STOs, the market has been plagued by a lack of trading venues. tZERO is one of the largest such platforms, but most of its volumes still come from its own digitized securities or those of its affiliate Overstock. Overstock has previously been the subject of SEC investigations.
