Bar­clays, Credit Suisse strike record deals with SEC, NY over dark pools

The Pak Banker - - FRONT PAGE -

Bar­clays and Credit Suisse have set­tled fed­eral and state charges that they mis­led in­vestors in their dark pools, with Bar­clays ad­mit­ting it broke the law and agree­ing to pay $70 mil­lion, fed­eral and New York state of­fi­cials said to­day.

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

The amount to be paid, in fines and dis­gorge­ment, is a com­bined to­tal of $154.3 mil­lion. At the heart of the cases against both Bar­clays and Credit Suisse are al­le­ga­tions they mis­led in­vestors in the dark pools, say­ing they would be pro­tect- ed from preda­tory high-fre­quency trad­ing tac­tics.

Bar­clays will pay a $70 mil­lion fine split evenly be­tween the SEC and New York state, ad­mit it vi­o­lated se­cu­ri­ties laws and agree to in­stall an in­de­pen­dent mon­i­tor to en­sure that its dark pool "Bar­clays LX" op­er­ates prop­erly in the fu­ture.

Credit Suisse will pay a $60 mil­lion fine split be­tween the reg­u­la­tors, plus an ad­di­tional $24.3 mil­lion in dis­gorge­ment to the SEC for ex­e­cut­ing 117 mil­lion il­le­gal sub-penny or­ders out of its dark pool known as "Cross­finder."

Dark pools are trad­ing venues that dif­fer from pub­lic ex­changes be­cause or­ders are not vis­i­ble to other traders un­til they are ex­e­cuted.

The lack of pre-trade price in­for­ma­tion is de­signed to help in­sti­tu­tional in­vestors trade large blocks of shares with­out the mar­ket mov­ing against them.

As part of the set­tle­ment, Credit Suisse will nei­ther ad­mit nor deny the al­le­ga­tions. A Credit Suisse spokes­woman said the bank was pleased to have re­solved the mat­ters with the SEC and the New York at­tor­ney gen­eral.

A Bar­clays rep­re­sen­ta­tive said the bank was pleased to re­solve the case as it will en­able the com­pany to fo­cus its ef­forts on serv­ing clients.

The set­tle­ment with Bar­clays marks a dra­matic end to a high­stakes pub­lic le­gal bat­tle be­tween the bank and New York State At­tor­ney Gen­eral Eric Sch­nei­der­man.

Sch­nei­der­man's of­fice filed a law­suit against Bar­clays in June 2014 al­leg­ing fraud in its dark pool.

The law­suit al­leged that the bank told in­vestors it had a "liq­uid­ity pro­fil­ing" ser­vice that was meant to let tra­di­tional in­vestors opt out of trad­ing with high-speed traders.

In fact, Sch­nei­der­man's of­fice said, the pro­gram was rid­dled with "ex­cep­tions" that fa­vored high­speed traders.

The bank also dis­sem­i­nated trad­ing anal­y­sis ma­te­ri­als to in­vestors that in­ten­tion­ally deleted its largest and most ag­gres­sive trader, Sch­nei­der­man's of­fice said.

The law­suit came af­ter the furor over Michael Lewis' book "Flash Boys," which charged the stock mar­ket was rigged in fa­vor of high-fre­quency traders.

Bar­clays lost a bid to have the case dis­missed last year. "Th­ese cases mark the first ma­jor vic­tory in the fight against fraud in dark pool trad­ing that be­gan when we first sued Bar­clays," Sch­nei­der­man said in an emailed state­ment. "We will con­tinue to take the fight to those who aim to rig the sys­tem and those who look the other way."

SEC Chair Mary Jo White said in a state­ment: "Th­ese cases are the most re­cent in a se­ries of strong SEC en­force­ment ac­tions in­volv­ing dark pools and other al­ter­na­tive trad­ing sys­tems.

She added that the agency "will con­tinue to shed light on dark pools to bet­ter pro­tect in­vestors."

Reg­u­la­tors did not charge any in­di­vid­u­als at the banks in con­nec­tion with the two cases.

How­ever, Sch­nei­der­man's of­fice said that Bar­clays made per­son­nel changes af­ter the law­suit was filed by re­mov­ing two em­ploy­ees in the elec­tronic trad­ing group from their su­per­vi­sory roles.

Pres­i­dent Mam­noon Hus­sain giv­ing away Is­lamic Bank­ing & Fi­nance Awards 2015 on the oc­ca­sion of a Con­fer­ence on Po­ten­tials of Is­lamic Bank­ing.

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