September 28, 2018/US SEC
The Securities and Exchange Commission today announced that Credit Suisse Securities (USA) LLC has agreed to settle charges brought by the SEC and the Office of the New York Attorney General regarding material misrepresentations and omissions made in connection with its now-closed Retail Execution Services (RES) business’ handling of certain customer orders. The settlements require Credit Suisse to pay $5 million to the SEC and $5 million to the NYAG for a total of $10 million.
According to the SEC’s order, Credit Suisse created the RES desk to execute orders for other broker-dealers that handle order flow on behalf of retail investors. The SEC’s order finds that although RES promoted its access to dark pool liquidity to customers, the firm executed an exceedingly minimal number of held orders – orders that must be executed immediately at the current market price – in dark pools from September 2011 to December 2012.
The SEC’s order also finds that although Credit Suisse touted “robust” and “enhanced” price improvement on orders, RES’s computer code treated orders for which execution quality is required to be publicly reported differently from orders for which execution quality is not publicly reported. The SEC’s order finds that from mid-2011 to March 2015, retail customers did not receive any price improvement from RES on their non-reportable orders, which Credit Suisse failed to disclose. The SEC’s order also finds that for these non-reportable orders, RES disproportionately used a routing tactic that generally caused market impact and resulted in less favorable execution prices for customers, despite claiming to benefit RES’s customers. The use of this routing tactic provided RES an opportunity to profit from its execution of the final portions of those customer orders internally.
“Market makers that handle retail orders must be transparent with their customers about how orders will be executed and how the market maker will profit from their customers’ trades,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “The settlement holds Credit Suisse accountable for failing to accurately disclose important information about the nature and quality of its execution of trades for retail investors.”
The SEC’s order finds that Credit Suisse negligently violated Section 17(a)(2) of the Securities Act. In addition to imposing the penalty, the SEC’s order censures Credit Suisse and requires that it cease and desist from further violations. Credit Suisse consented to the SEC’s order without admitting or denying the findings.
The SEC’s investigation was conducted by Howard Kim, David Oliwenstein, and Steven G. Rawlings with assistance from Ilan Felix in the New York Regional Office’s Examination Program and Lei Yu of the Division of Economic and Risk Analysis. The investigation was supervised by Lara Shalov Mehraban of the New York office and Joseph G. Sansone of the Market Abuse Unit. The SEC appreciates the assistance of the NYAG.