After surviving a media storm in the past three months over an SEC settlement disclosing that buy side orders were matched outside of its dark pool with an affiliated trading entity, Pipeline Trading Systems LLC is looking for a second chance.
The company said yesterday that it has changed the name of the business to Aritas Securities LLC, replacing Pipeline Trading Systems. The new identity is the culmination of a number of steps it has taken since a settlement was announced on Oct. 24 with the SEC requiring it to pay a $1 million fine for violations related to Reg ATS and the confidentiality of customer information.
Here are the major steps:
After severing ties with senior management (a.k.a. Fred Federspiel, a founder and CEO and Alfred Berkeley, its former chairman), the board hired Jay Biancamano in November as executive chairman to restore credibility with institutional customers and get the business back on track. The company also discontinued operations of its controversial affiliate Milstream Securities, a wholly owned trading entity that traded against buy-side order flow without their knowledge and matched 80 percent of the orders in Pipeline’s BlockBoard ATS. Management has also completed work on a new version of its product Alpha Pro, updated its Algorithm Switching Engine and reorganized its internal structure.
In the European Union, Aritas Financial Ltd. will succeed Pipeline Financial Group Ltd., where it will offer updated versions of Alpha Pro and the Algorithmic Switching Engine.
Aside from revamping its products, the company is counting on new leadership under Biancamano to rectify mistakes from the past and chart a new path.
“Of all that we’ve done here in the past three months, the most important thing is to dedicate ourselves to doing business with the utmost integrity,” said Aritas Executive Chairman Jay Biancamano. “Pipeline created great, game-changing technology, and clients continue to see the value in that technology. With a fresh commitment to serving our customers transparently, Aritas will offer them a new opportunity to take advantage of our unique offerings. The popularity of Alpha Pro was growing rapidly prior to Pipeline’s SEC agreement. We believe we can regain that momentum and build on it in 2012.”Aritas Financial Ltd. is also looking to regain momentum in the European Union where it will offer a multilateral-trading-facility (MTF) block liquidity, not related to the ATS in the US.
Obviously, the board of directors is eager to put the past behind it. But can a new name erase this painful episode? That’s a difficult question. It will be interesting to see if institutional traders feel comfortable enough to trust their order flow to the new Aritas. In the meantime, Aritas continues to operate its ATS "as an alternative to blotter scraping" — which is a reference to Liquidnet. But will Aritas be prepared to scrap its U.S. equities dark pool if it doesn’t attract enough liquidity? In a previous interview shortly after he was appointed executive chairman, Biancamano said that Pipeline generated about 30 percent of its revenues from the ATS and 70 percent from software. While Aritas software products, AlphaPro and the algo switching engine, are evidently most important to its future revenues, the company's future will depend on regaining trust with clients.