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December 1, 2012

After SEC Settlement, ATS Flies LeveL

By John D'Antona Jr.

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  • After SEC Settlement, ATS Flies LeveL

Despite some bumpy air and turbulence, LeveL ATS says its business has stabilized and that it is wooing clients back.

This comes after the dark pool's parent company agreed to pay a $800,000 fine in October in a case involving the protection of information about its customers' unexecuted orders.

Whit Conary

The company experienced a drop-off in order flow in the wake of the settlement between parent eBX LLC and the Securities and Exchange Commission on Oct. 3, LeveL chief executive Whit Conary told Traders Magazine. But the alternative trading system is seeing some lost order flow return as the dust settles.

"We've received tremendous customer support," Conary said of his clients. "And we're here for the long term."

However, LeveL has its work cut out for it. One senior trading desk head said he'd heard the ATS's volumes are down roughly 20 to 40 percent from presettlement levels. LeveL declined to provide trading volume figures.

In the five trading days preceding the settlement, LeveL reported on its Twitter feed that it executed trades involving anywhere from 76.2 million shares in a day to 92.1 million.

The firm stopped publishing statistics to its Twitter feed after Oct. 3.

But Conary told Traders Magazine that 75 percent of LeveL ATS customers are sending order flow, at this point. And the firm is working to get back 100 percent of the clients it had prior to the settlement's announcement, he added.

The firm receives order flow from more than 100 broker-dealers. Not all are sending orders, as the settlement fallout remains.

To combat that, Conary has been pounding the pavement and talking to his clients daily to regain lost order flow. He knows getting all his clients' orders back is paramount in today's low-volume trading environment.

According to an industry executive familiar with the operations of the alternative trading system, only 4 percent of all LeveL's executed trades were processed by the order router that came into question in the SEC's case.

While some clients withdrew business from LeveL because the SEC had cited it for not protecting customer information adequately, LeveL's situation is different from that of Pipeline Trading, which went out of business after the SEC said it failed to properly disclose where it was getting its order flow from, industry pros told Traders Magazine.

In the Pipeline case, one brokerage desk head said, the settlement was based on fraud and resulted in direct changes against individuals.

In that case, Pipeline failed to disclose that more than 97 percent of orders in its dark pool at times were filled by a trading operation affiliated with the firm.

The company agreed to pay a $1 million penalty. Two top Pipeline executives, founder Fred Federspiel and chairman Alfred Berkeley, each agreed to pay a $100,000 fine for their involvement, as well.

This is not the case with LeveL.