An SEC examination and investigation of UBS revealed that the firm failed to properly disclose to all subscribers the existence of an order type that it pitched almost exclusively to market makers and high-frequency trading firms. 

  

The order type, called PrimaryPegPlus (PPP), enabled certain subscribers to buy and sell securities by placing orders priced in increments of less than one cent. However, UBS was prohibited under Regulation NMS from accepting orders at those prices. By doing so the firm enabled users of the PPP order type to place sub-penny-priced orders that jumped ahead of other orders submitted at legal, whole-penny prices. 

The SEC investigation found that UBS similarly failed to disclose to all subscribers a “natural-only crossing restriction” developed to ensure that select orders would not execute against orders placed by market makers and high-frequency trading firms. This shield was only available to benefit orders placed using UBS algorithms, which are automated trading strategies. UBS did not disclose the existence of this feature to all subscribers until approximately 30 months after it was launched

In addition to UBS’s disclosure failures that violated Section 17(a)(2) of the Securities Act of 1933 as well as its acceptance of sub-penny-priced orders that violated Regulation NMS, the SEC outlined several other violations of the federal securities laws by UBS in its order instituting a settled administrative proceeding.

UBS consented to the SEC’s order without admitting or denying the findings.  The order censures the firm and requires payment of $2,240,702.50 in disgorgement, $235,686.14 in prejudgment interest, and the $12 million penalty.