26th Jun 2014 07:39
LONDON (Alliance News) - New York state's top law enforcer Wednesday filed fraud charges against Barclays PLC over its dark pool, LX Liquidity Cross, alleging that the bank has favoured high-frequency traders at the expense of other investors.
Eric Schneiderman, the state attorney-general, accused Barclays of demonstrating a "disturbing disregard" for its investors in a "systematic pattern of fraud and deceit". The complaint alleges that Barclays has actively sought to attract high-frequency traders by giving them "systematic advantages" over others trading in its own dark pool.
"Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays? dark pool was full of predators ? there at Barclays? invitation," Schneiderman said in a statement.
Dark pools are networks where orders are not reported publicly, and are favoured for large, block orders due to the anonymity granted. Trade information is made public only after deals are completed.
The complaint alleges that Barclays falsified marketing material purporting to show the extent and type of high frequency trading in its dark pool. As an example, it said that Barclays removed from a marketing document intended for institutional investors the dark pool?s then-largest participant, which was a high-frequency trading firm. According to the complaint, Barclays knew the removed firm engaged in predatory behaviour in the dark pool.
The regulator said that its investigation was aided significantly by a number of former Barclays? employees. The development is just the latest setback for Barclays, which has been caught up in Libor manipulation and received a recent fine in the UK after one of its former traders sought to manipulate the price of gold.
A Barclays spokesperson said the bank takes the allegations very seriously.
"Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays," the spokesperson said in a statement.
Dark pools and high frequency trading have been thrown under the public and regulatory microscope in the wake of Michael Lewis publishing his book, 'Flash Boys', in which he argued that high-frequency traders are able to gain an advantage over other investors by executing trades ahead of them.
The complaint against Barclays has been made under Schneiderman's Insider Trading 2.0 initiative, which he launched over a year ago under a crackdown on early access to market-moving information.
Barclays shares were down 5.5% at 217.65 pence at the open Thursday, the biggest loser in the FTSE 100.
By Samuel Agini; [email protected]; @samuelagini
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