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Barclays and Credit Suisse to pay biggest ever fines for dark pool trading Barclays and Credit Suisse pay biggest ever fines for dark pool trading
(about 20 hours later)
Barclays and Credit Suisse are paying more than $150m (£105m) to settle charges that they misled investors who used their dark pool trading platforms, according to reports. Barclays and Credit Suisse has been fined $154m (£108m) following an investigation into the banks’ “dark pools” private trading exchanges exploited by “predatory, high-frequency traders” at the expense of the bank’s traditonal customers.
The US Securities and Exchange Commission and the New York attorney general are expected to announce the settlement on Monday. The two banks are paying the biggest ever fines for operating dark pools, which critics say allowed some market players to exploit investors. Eric Schneiderman, attorney general of New York state, said the fines were a “major victory in the fight to combat fraud in dark pool trading” and would help protect investors from “the most aggressive and predatory high-speed traders”.
According to Reuters, Barclays will pay a $70m fine split evenly between the SEC and New York state, admit it violated securities laws and agree to install an independent monitor to ensure that its dark pool “Barclays LX” operates properly in the future. Barclays will pay $70m, the largest ever fine for operating a dark pool, and has admitted that it misled investors and violated securities laws and has agreed that it will install an independent monitor to oversee its “Barclays LX”.
Credit Suisse will pay a $60m fine split between the regulators, plus an additional $24.3m in disgorgement to the SEC for executing 117 illegal sub-penny orders out of its dark pool known as Crossfinder. The fine settles a high profile lawsuit Schneiderman brought against Barclays in June 2014 as part of his office’s “Insider Trading 2.0” crackdown on electronic trading in the wake of Michael Lewis’s bestselling book and blockbuster movie Flash Boys.
Dark pools are a type of private market that allow investors to trade without revealing their identities. Investment banks promoted them as a way to buy or sell large amounts of shares without moving the market, as transactions are only published once they’re completed. Related: Michael Lewis: 'I knew Flash Boys would be a bombshell'
On paper, dark pools were meant to protect investors from predatory high-frequency trading tactics. But in 2014, New York attorney general Eric Schneiderman accused Barclays of misleading investors, and allowing them to be lose out to professional high-frequency traders lurking in its dark pool. Dark pools are private exchanges for trading stocks and bonds, but unlike traditional markets there are no public prices and trades can be carried out in secret which can favour high speed traders.
Schneiderman said the settlement with Barclays and Credit Suisse was an important landmark in the fight against fraudulent trading. Schneiderman said Barclays had told its dark pool clients that it monitored for high-speed trading, but it didn’t and it actually favoured high-speed traders. This meant that traditional players thought they were only up against other traditional traders when actually they were facing “the most aggressive and predatory high-speed traders,” he said.
“These cases mark the first major victory in the fight against fraud in dark pool trading that began when we first sued Barclays,” Schneiderman said on Sunday night. “We will continue to take the fight to those who aim to rig the system and those who look the other way.” Barclays and Credit Suisse each made “false statements and omissions in connection with the marketing of their respective dark pools and other high-speed electronic equities trading services,” Schneiderman said in his news release.
Critics of dark pools say they are open to abuse from high-frequency traders. If a HFT system can see large buy or sell orders going through the system, they can execute a trade in time to profit from the original order. In 2014, Schneiderman accused Barclays of concealing the presence of “predatory” high-frequency traders in its dark pool exchange. “This effort, which began when we first sued Barclays, includes co-ordinated and aggressive government action which forced admissions of wrongdoing from the parties,” Schneiderman said. “We will continue to take the fight to those who aim to rig the system and those who look the other way.”
Dark pools hit the headlines after Michael Lewis, author of Liar’s Poker and The Big Short, published Flash Boys: A Wall Street Revolt. It outlined how HFT operators were using powerful algorithms and high-powered computers to trade ahead of large orders, pushing up the price paid by buyers and pocketing a profit. Mary Jo White, the chair of the Securities and Exchange Commission (SEC), said: “These cases are the most recent in a series of strong SEC enforcement actions involving dark pools and other alternative trading systems.” White said the SEC would continue in its efforts to “shed light on dark pools to better protect investors”.
Andrew Ceresney, director of the SEC’s enforcement division, said: “Dark pools have a significant role in today’s equity marketplace, and the firms that run these venues must ensure that they do not make misstatements to subscribers about their material operations.”
Barclays, which has a big operation in New York, said the bank was pleased to resolve the case. “The agreement will enable us to focus all of our efforts on serving our clients,” the bank said.
Credit Suisse was fined $60m fine split between the SEC and NY attorney-general’s office, as well as a further $24.3m in disgorgement — which is designed to make it pay back ill-gotten gains - in relation to its dark pool called “Crossfinder”.