Barclays and Credit
Barclays and Credit Suisse will pay a combined $154.3 million <[IS THIS O.K. SINCE WE SAY THREE GRAFS DOWN THAT $24.3 MIL IS FOR OTHER TRADING VIOLATIONS? SHOULD IT BE A COMBINED $130 MILLION, OR IS THE $24.2 MILLION ALSO RELATED TO DARK POOLS?] to settle allegations that they misrepresented their private stock trading services.] The systems, known as dark pools, are supposed to offer a haven to traditional traders and investors from predatory trading behavior.
The settlement was being completed on Sunday and was scheduled to be announced on Monday at a joint news conference by the New York attorney general, Eric T. Schneiderman, and the Securities and Exchange Commission.
Barclays, which is based in London, will admit in the settlement that it misled customers and violated securities laws, the New York attorney general’s office said. The bank is paying $70 million and has agreed to appoint an independent monitor for its electronic trading operations.
Credit Suisse Securities, which was not sued, is paying $60 million. It is also paying $24.3 million in disgorgement and interest to the S.E.C. over other trading violations.
“These cases mark the first major victory in the fight against fraud in dark pool trading that began when we first sued Barclays: coordinated and aggressive government action, admissions of wrongdoing, and meaningful reforms to protect investors from predatory, high-frequency traders,” Mr. Schneiderman said. “We will continue to take the fight to those who aim to rig the system and those who look the other way.”
Barclays declined to comment.
Barclays and Credit Suisse are two of the largest operators of dark pools, which are private electronic trading sites where buyers and sellers are supposed to be able to make transactions without the interference of high-speed traders. Mr. Schneiderman filed suit against Barclays in 2014, saying that its dark pool actually welcomed high-speed traders rather than kept them out.
The settlement will be the latest in Mr. Schneiderman’s efforts to clamp down on Wall Street’s trading activities. Two years ago, he announced what he called his “Insider Trading 2.0” initiative, which was focused on ensuring fairness in electronic trading markets, where regular investors often come toe-to-toe with high-speed professionals.
The settlement also comes in the face of a fierce debate over the application of the electronic trading upstart Investors Exchange, which is trying to become an official stock exchange. IEX, as it is called, proposes to be an alternative to the established exchanges, which have policies that often favor high-speed traders over others, and one of its features is a speed bump that will slow down all traders. Its application, which has been pending for months at the S.E.C., has provoked dozens of comment letters.
Barclays told clients of its dark pool, Barclays LX, that it monitored for high-speed trading activities on the site, but it did not. It also favored high-speed traders on the platform. As a result, traditional traders who thought they were trading only against other traditional traders were instead facing off against “the most aggressive and predatory high-speed traders,” Mr. Schneiderman said.
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Barclays had already suspended its head of electronic trading when the suit was filed and removed the top deputy in that group from supervisory roles. The issues were brought to the attorney general by whistle-blowers inside the company.
The investigation also focused on Credit Suisse’s Crossfinder and Light Pool trading sites, which are operated by Credit Suisse Advanced Execution Services. According to the bank’s marketing materials, customers were supposed to have the ability to avoid trading with high-speed firms, whose trading was considered opportunistic. The system was supposed to tag participants as opportunistic or non-opportunistic.
Instead, Credit Suisse’s system rated some high-speed firms as non-opportunistic, and it did not block others, as it said it would. Credit Suisse also did not keep track of participants in its dark pool as often as it said it did.
Mr. Schneiderman said Credit Suisse also made its dark pool a priority by sending it trade orders instead of sending them to other trading sites. It secretly allowed two high-speed trading firms to trade directly with its other customer orders through an undisclosed order matching platform. It did not fully disclose that it transmitted confidential client information outside its dark pool, he said.