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UPDATE 1-Dark pool settles SEC charges of failing to guard data

* SEC says eBX gave outside firm customer order data

* eBX to pay $800,000 to settle SEC charges

(Adds background, details of case)

By Sarah N. Lynch

WASHINGTON, Oct 3 (Reuters) - Boston-based dark pool operator eBX LLC agreed on Wednesday to pay an $800,000 penalty to settle civil charges that it had failed to protect its subscribers' confidential trading information.

It is the latest enforcement action by the U.S. Securities and Exchange Commission against a "dark pool" - a type of alternative trading system that lets investors anonymously trade larger blocks of stock without tipping their hand to the broader market.

The SEC alleged that eBX erroneously told its users that their buy and sell orders would not be shared outside the company, but an outside technology firm was allowed to use the data for its own business interests.

An attorney for eBX was not immediately available for comment. The SEC said eBX settled without admitting or denying the agency's allegations.

"Dark pools are dark for a reason: buyers and sellers expect confidentiality of their trading information," said Robert Khuzami, the head of the SEC's enforcement division.

"Many eBX subscribers didn't get the benefit of that bargain - they were unaware that another order routing system was given exclusive access to trading information that it used for its own benefit," Khuzami said in a statement.

The case against eBX comes as the SEC continues a broad review of market structure issues. Among the agency's areas of interest have included dark pools, and whether or not their lack of transparency may put some at a disadvantage.

In 2009, the SEC proposed a series of rules to help shed more light on dark pools, but they were never finalized.

Then last year, the SEC brought its first-ever action against a dark pool, Pipeline Trading Systems LLC. That case also centered on disclosure issues to customers.

Pipeline agreed to pay a $1 million penalty over allegations it never told customers that most of their orders were being filled by an affiliate.

In this latest case, the SEC said that eBX had hired an outside firm to help run its trading system known as LeveL ATS in a February 2008 agreement.

After that, the SEC said the outside firm's separate order routing business starting using some of LeveL's customers' private trading information. The outside firm later got access to all of the subscribers' data through another agreement.

The SEC said this gave the outside firm's order routing business "an information advantage" over eBX's subscribers because it could use that data to make routing decisions for its own customers.

The SEC did not disclose the name of the outside firm.

(Reporting By Sarah N. Lynch; Editing by Gerald E. McCormick and Tim Dobbyn)

((sarah.n.lynch@thomsonreuters.com)(202-354-5831))

Keywords: SEC DARKPOOL/