Barclays, Credit Suisse Fined $154M Over Dark Pools

The SEC and New York State allege the banks misrepresented that they would keep high-frequency traders out of their alternative trading systems.
Matthew HellerFebruary 2, 2016

Barclays and Credit Suisse have agreed to pay a combined $154 million to settle charges that they failed to exclude high-frequency traders from their “dark pool” alternative trading systems.

The settlements are with the U.S. Securities and Exchange Commission and the New York attorney general’s office, which alleged the banks misrepresented to dark pool investors that they could make transactions without interference from high-frequency traders.

Barclays will pay $70 million, which New York Attorney General Eric Schneiderman said is the largest penalty ever levied on a dark pool operator, and Credit Suisse will pay $60 million in penalties and $24.3 million in disgorgement and prejudgment interest for a total of $84.3 million.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“These cases mark the first major victory in the fight to combat fraud in dark pool trading and bring meaningful reforms to protect investors from predatory, high-frequency traders,” Schneiderman said in a news release.

Dark pools are private exchanges for trades that are not viewable by the general public and are completed outside of public stock exchanges. “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,” said Andrew Ceresney, director of the SEC’s Enforcement Division.

Barclays and Credit Suisse are two of the largest operator of dark pools. According to the SEC, Barclays misrepresented to investors that a feature called Liquidity Profiling would “continuously police” order flow in its LX dark pool and that the firm would run “surveillance reports every week” for toxic order flow.

As a result, traditional traders who thought they were trading only against other traditional traders were facing “the most aggressive and predatory high-speed traders,” Schneiderman said.

Regulators also investigated Credit Suisse’s Crossfinder and Light Pool trading sites, finding, among other things, that the bank misrepresented it would use “Alpha Scoring” to identify “opportunistic” traders and kick them out of Light Pool.

In fact, the SEC said, a subscriber who scored “opportunistic” could continue to trade using other system IDs.