November 16, 2011

Pipeline Financial Group announced a management shakeup yesterday to restore credibility to its alternative trading system, Pipeline ATS, naming Jay Biancamano as its new executive chairman, replacing Alfred Berkeley. Biancamano was previously global head of marketplace and corporate strategy at Liquidnet, and prior to that a VP and director at ITG.

The management changes are an attempt to rebuild the firm’s business with buy-side customers after the SEC charged the company on Oct. 24 with failing to disclose that it matched customer orders against an internal trading affiliate – and not against natural flow in the dark pool as advertised. [See Pipeline's Bombshell Hurts All Dark Pools]

As part of the house cleaning, Pipeline has ousted both Berkeley, who, according to the press release, has “retired,” and Fred Federspiel, who has resigned all positions at Pipeline Financial Group and its subsidiaries to pursue new opportunities.

The company paid a $1 million fine to the SEC to settle multiple charges that it violated Reg ATS, and that it compromised the confidentiality of buy-side orders by matching them against an internal affiliate that traded ahead of customers orders.

In tapping Biancamano who has worked at two institutional agency brokers, Liquidnet and ITG, that operate successful dark pools with liquidity from natural counterparties, Pipeline is turning to someone who can reach out to customers and establish new ethical standards.

“He is widely admired in the industry for his deep understanding of market structure, his history of successful innovation, and his personal integrity. Under his leadership, we will offer our customers innovative products that provide excellent execution, and work hard to earn their renewed trust,” stated Reid Curley, COO of Pipeline Financial Group, Inc.
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While the management changes are positive step for Pipeline, clearly Biancamano has his work ahead of him to restore trust and confidence with institutional customers. Many customers feel they were deceived by Pipeline, which was apparently exposing their orders to a quasi-proprietary trading firm, Milstream Strategy Group, LLC, owned and operated by Pipeline.

Also, sources tell me that the SEC’s investigation of Pipeline was going on for one-year and was possibly precipitated by a sell-side that provided order flow to the ATS, but couldn’t get answers to questions it was asking of Pipeline. “I don’t see how they survive this. It was intentionally deceptive,” said a sell side source, who wasn’t a customer of Pipeline.

Interestingly, the press release announcing the management changes makes no mention of the words “ATS” or “dark pool.”

Judging from the release, Pipeline intends to focus on “unique” order arrival analysis, predictive switching between algorithms and post-trade TCA. I suspect that Pipeline is closing its ATS in the wake of the scandal and that liquidity has left the pool as buy side customers pulled the plug. If that is the case, the company should come clean and announce that. Either way, let’s hope that the new management team is more open and transparent to institutional customers and cuts down on the marketing hype.

ABOUT THE AUTHOR
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...