Pipeline Trading announced on Friday it will cut Milstream Securities off from its dark pool and divest itself of the controversial affiliate that had been supplying the bulk of liquidity in its block market.
Jay Biancamano, the former Liquidnet vet who took over as executive chairman of Pipeline on Wednesday, apologized to clients who were not comfortable with Milstreams activities and reassured them that Milstreams subscription to the companys block market has now been terminated.
We have to build trust and we have to build liquidity again, Biancamano told Traders Magazine. Its going to be difficult, but we plan on giving it our best shot.
In October, Pipeline agreed to pay $1 million to settle charges brought by the Securities and Exchange Commission that it failed to disclose Milstreams role in providing liquidity to its dark pool. Over the course of Pipelines history, Milstream allegedly took the other side of the trade about 80 percent of the time.
Biancamano said clients were very vocal after the SEC went public with its allegations and shutting off Milstream was the logical next step for the company as it strove to win back trust. He said he has already gotten several good responses to the move from the buyside, though Pipeline still has a long way to go in reaching out to customers.
We still have the majority of our clients logging in, so I think its a matter of making the right changes, getting the right message out there, and getting our clients back on board, said Biancamano. Unfortunately, were in an environment thats difficult for cash equities trading across the board, so it may be an uphill battle, but were willing to fight it.
Pipelines block trading activities in the U.S. make up about 30 percent of the companys business, but the Milstream scandal has affected other offerings as well, such as its switching engine and its analytic tool AlphaPro.
There were people that were on AlphaPro that put us on hold because of this, so were seeing some of the residual effects, said Biancamano
Still, Biancamano maintains the company is financially sound and will be able to continue to function without the Milstream affiliate.