Now that Pipeline Trading has cut off controversial affiliate Milstream Securities from its dark pool, the company is hoping to woo back users who left following a settlement with regulators.
Last month, Pipeline agreed to pay $1 million to settle charges brought by the Securities and Exchange Commission that it failed to disclose Milstream’s role in providing most of the liquidity in Pipeline’s U.S. dark pool. Company founder Fred Federspiel and Chairman Alfred Berkeley also paid fines and have since both left the company.
“We’re still at the point where we’re talking with our clients,” said Jay Biancamano, the new executive chairman Pipeline brought on board last week. “Nothing’s really changed that much in the last few weeks, but I think we’re getting good responses.”
According to the SEC, Milstream took the other side of the trade about 80 percent of the time during Pipeline’s seven-year history. Now, however, Milstream is being banned from the dark pool and spun off by Pipeline.
Biancamano emphasized that all liquidity in Pipeline’s U.S. dark pool will be provided by subscribers from now on, not by affiliates of the firm. The company plans to commission third-party audits of trading records to reassure users that no affiliate of the firm is participating in trades.
“We still have a substantial amount of buyside users,” Biancamano said. “We do fill a piece of the market – the active block trading market – that doesn’t seem to get covered by a lot of people.”
Still, Biancamano admitted the firm has an uphill battle in winning back the trust of its clients. That could take a while, but he said the firm is financially sound and he is confident it can remain in business.
“There are a few things we have to solidify, but we have some really good products,” Biancamano said. “We have great people here, we have great technology, and I believe there are a few things we’ve been working on that people will find very compelling.”