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BUSINESS
Federal Bureau of Investigation

High-frequency trading firm to pay $16M penalty

Kevin McCoy
USA TODAY
Financial traders working on the floor of the New York Stock Exchange in 2010.

A New York-based high-frequency trading firm was hit with a record $16 million settlement penalty Wednesday for violating a federal rule that requires all broker-dealers to maintain minimum levels of net liquid assets or net capital.

Latour Trading operated without maintaining the required net capital on 19 of 24 reporting dates during a two-year period — falling below the mark by as much as $28 million — the Securities and Exchange Commission announced in an administrative proceeding.

Latour's trading during the 2010-2011 period at times accounted for as much as 9% of the trading volume in equity securities for the entire U.S. market, the SEC said.

The $16 million settlement Latour agreed to pay tops the previous $400,000 high for a violation of the net capital rule, the SEC said. Additionally, Nicolas Niquet, Latour's chief operating officer when the violations began, agreed to pay a $150,000 penalty to settle the charges against him.

"This record sanction reflects the seriousness of Latour's violations of the net capital rule, which is a critical broker-dealer financial responsibility requirement," said Andrew Ceresney, director of the SEC's enforcement division.

Latour, an affiliate of Tower Research Capital, also based in New York City, said it "has fully remediated the problems described in the Commission order, and we are pleased to put them behind us."

"We take our regulatory obligations seriously, strive to continuously enhance our compliance infrastructure, and are committed to complying with all rules and regulations applicable to our businesses," the company said.

The SEC has been seeking information on 10 registered broker dealers, including Latour, as part of a broad investigation of high-frequency trading, Reutersreported in July. The Commodity Futures Trading Commission, FBI and New York Attorney General's office are also examining high-frequency trading and automated trading practices.

Separately, financial website Zero Hedgereported that Latour had traded 484.6 million shares in principal strategies during the week before Oct. 10, 2011, taking the automated program-trading crown from longtime leader Goldman Sachs.

According to the SEC, broker-dealers are required to take percentage deductions known as "haircuts" from the firm's proprietary securities and other positions. The deductions are used to account for the market risk inherent in the company's trading positions and create a liquidity buffer to protect against other securities business risks.

Latour "repeatedly miscalculated" its net capital amounts by failing to make proper haircut deductions. Niquet designed the processing code that calculated the haircut deductions and caused the net capital violations, the SEC said.

There were no allegations that Latour tried to manipulate markets or "advantage itself" in trading by deliberately missing the net capital minimum, Ceresney said. He added that the large volume of Latour's trading and market positions made correct calculations important both for the firm and the protection of other market participants.

Latour is a limited liability company formed in Delaware in 2009, Financial Industry Regulatory Authority records show. The firm was censured and fined $15,000 by the Chicago Board Options Exchange in 2012 for failing to include 14 brokerage accounts in a review of outside brokerage accounts and other infractions, the records show.

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