Barclays PLC (ADR) (NYSE:BCS) and Credit Suisse Group AG (ADR) (NYSE:CS) have reached a settlement with authorities in the US over their dealings in dark pools. The settlement is between the two banks and the SEC and New York State Attorney.
Attorney General Big Win
The settlement is a big win for New York State Attorney General Eric Schneiderman having filed the lawsuit in June 2014. In the lawsuit, he alleged that Barclays PLC (ADR) (NYSE:BCS) mislead investors by telling them it had a liquidity profiling service that would have told them when to opt out of trade in case high-speed traders do so.
Schneiderman’s office alleges that the service was riddled in mystery and was only meant to benefit high-speed traders. The bank is also alleged to have provided exclusive trading materials to investors who intentionally deleted aggressive and large volume traders. Barclays PLC (ADR) (NYSE:BCS) tried to have the case dismissed last year, but its application never sailed through.
Dark pools are designed to help institutional investor’s trade large volumes of shares while averting the risk of market moving against them. Orders, in this case, are usually hidden from the public domain until they are executed.
Barclays bank has agreed to pay $70 million to settle claims it failed to protect traders from predatory high-frequency trading tactics. It has also agreed to install an independent monitor to ensure traders are protected from illegal trading activities going forward.
Credit Suisse, on the other hand, is to pay $60 million to settle similar claims. It is also to pay an additional $24.3 million for executing 117 million illegal sub-penny orders. The settlements did not target individuals at the two banks. However, Barclays PLC (ADR) (NYSE:BCS) says it has made personnel changes to its electronic trading group as it seeks to safeguard its credibility.
The settlements are the first of a kind for the SEC as it continues to pursue illegal trading systems. The agency chair, Mary Jo White says they will continue to shed more light on dark pools as one of the ways of protecting investors from illegal trading activities.
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