Banks reach $154.3 million settlement on “dark pool” fraud

Barclays will pay 70 million dollars (£49m) to settle a case brought by United States authorities over allegations the bank “misled” users of its “dark pool” trading system. In the case of Barclays, it is believed a larger proportion of its settlement will go to the New York Attorney General, Eric Schneiderman.

“These cases mark the first major victory in the fight against fraud in dark-pool trading that began when we first…”

Credit Suisse will pay a $US60 million fine split between the regulators, plus an additional $US24.3 million in disgorgement to the SEC for executing 117 million illegal sub-penny orders out of its dark pool known as “Crossfinder”.

Independent Monitor Barclays agreed to settle the charges by admitting that it misled investors and violated securities laws, according to the SEC statement.

The record settlements are with the U.S. Securities and Exchange Commission and the NY attorney general. The New York Attorney Generals office said its investigation found that Credit Suisse misrepresented the protections offered to clients on its dark pools. The bank also failed to warn investors of a separate programme that alerted high-frequency traders to activities taking place in its dark pool.

Named after their lack of transparency, dark pools are private trading exchanges where orders made are not visible to others until after they have been executed.

Dark pools sprung up in the 1980s to give market participants the ability to trade big blocks of stock without tipping off other traders.

For example, a system that Credit Suisse said would “kick out” opportunistic activity was not even in use in the dark pool’s first year, the SEC said in its filing. Half of the amount Barclays is paying will go the SEC and half to the NY attorney general.

He added that “co-ordinated and aggressive government action” had led to “admissions of wrongdoing, and meaningful reforms to protect investors from predatory, high-frequency traders”.

The lawsuit said Barclays deceived investors about its dark pool, an electronic operation where trades take place out of public view. The SEC opened a parallel investigation.

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