A New York-based subsidiary of the Intercontinental Exchange (ICE) has agreed to pay $8 million as part of a settlement with the Securities and Exchange Commission (SEC) for compliance deficiencies related to its provision of securities quotes to subscribers.
ICE Data Pricing & Reference Data, a registered investment adviser, failed to adopt “reasonably designed” policies and procedures to address the risk associated with valuing securities based on one source. The company’s policies and procedures were designed to create alerts when single-source quotes on securities were unchanged for more than 40 days. In practice, however, the alerts were ignored. Even when the policy was enhanced to produce alerts at 20 days, little changed in practice, the SEC said.
“ICE Data Pricing & Reference Data’s compliance failures created a risk of, and in some cases resulted in, its delivery to clients of inaccurate prices,” Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said in a press release Wednesday.
Without admitting or denying the findings, ICE Data agreed to cease and desist from future violations, to be censured, and to pay the $8 million penalty.
ICE Data provides “global securities pricing, evaluations, and other information to its advisory clients” through a subscription-based service, according to the SEC’s order. From 2015 through September 2020, ICE Data delivered a quote for 46,000 fixed-income securities based on a single market participant, also known as a “single broker quote,” the SEC said.
ICE Data accessed these quotes “through 360View, as well as other web-based or file-transfer service products,” the SEC said. The company did not disclose the source of its quote to its subscribers, nor the date it was obtained. In July 2019, ICE Data stopped single-sourcing quotes for most types of fixed-income securities and halted the practice altogether in September 2020.
The lax procedures ICE Data employed often allowed single-broker quotes to remain unchanged for days, weeks, and even months, the SEC said.
“It was difficult, and at times not possible, for (ICE Data) clients to determine the age of a single broker-quoted price,” the SEC wrote. “This meant that clients could have unknowingly relied upon prices for, among other things, trade decisions and account statement values that may have been up to a month old, and not taken into account recent market events.”
ICE Data had policies and procedures in place to produce red flags when a price remained unchanged for more than 40 days and enhanced that policy in April 2019 to produce the red flag when the price was unchanged for 20 days.
However, the SEC noted that “there was no policy in place requiring an evaluator to take any action in response to an ‘unchanged value’ notification. In practice, since at least October 2017, the evaluator responsible for index-linked notes waited until 30 business days after the last quote was received before beginning the process for discontinuing the provision of the price, which included first giving the quote provider notice and an opportunity to submit an updated quote.”
For some securities, ICE Data would only receive a quote once a month.
ICE Data “did not adopt any policies or procedures to assess the reliability of the quotes it received from market participants,” the SEC said, and “did not consider other market information, when available, such as trades or quotes from other sources, as a check on whether the quotes being received reasonably reflected a security’s value.”
When quotes were challenged by subscribers through a special “Security Pricing Evaluation Request” portal, most were dismissed without any investigation, the SEC said. When an evaluator did look into the complaint, the process usually involved the evaluator simply checking the quote with the source and dismissing the challenge.
The SEC said ICE Data’s written policies and procedures for single broker-quoted prices “were neither reasonably designed, nor adequately implemented.”
A spokesman for ICE Inc., parent company of ICE Data Pricing & Reference Data, declined to comment.