Banks reach $154.3 million settlement on “dark pool” fraud

Barclays was sued over the issue by the NY attorney general’s office in 2014 on allegations that its dark pool setup was misleading investors by favouring high-speed traders while, at the same time, telling other investors they could opt out of dealings with such traders.

The settlements between the banks and the US Securities and Exchange Commission and the NY state attorney general mark the two largest fines ever paid in connection with cases involving dark pools.

While in August 2015, it was reported that both the banks were in talks with the regulators, Barclays now seems to have settled the claims by agreeing to pay a fine of $70m evenly between the SEC and New York State. In the case of Barclays, it is believed a larger proportion of its settlement will go to the New York Attorney General, Eric Schneiderman.

As part of the settlement, the statement says Barclays admitted that it misled investors and violated securities laws.

The banks left their customers on these private exchanges vulnerable to “predatory, high-frequency traders” that could intercept and profit off their financial transactions, despite assurances by Barclays and Credit Suisse to the contrary, according to a draft statement from the New York Attorney General obtained by The Associated Press.

A Credit Suisse spokeswoman said the bank was “pleased to have resolved these matters” with the regulators. A Barclays representative, however, did not provide any statements on the issue.

Dark pools sprung up in the 1980s to give market participants the ability to trade big blocks of stock without tipping off other traders.

The banks have agreed to pay $154.3m (£108.3m) between them.

Spokesmen for Barclays and Credit Suisse did not comment. Half of the amount Barclays is paying will go the SEC and half to the NY attorney general.

The lawsuit said Barclays deceived investors about its dark pool, an electronic operation where trades take place out of public view. This was promoted by investment bankers as the lack of pre-trade price information allowed an investor to buy or sell large volumes of shares without having an impact on the movement of the market.