The
settlements between the banks and the U.S. 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 protected 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 high-stakes 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 high-speed 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.
By: Sarah N. Lynch ( Washington Reuters).
Reporting: Sarah N. Lynch (Washington) and Herbert Lash (New York).
Editing: Andrea Ricci, Jonathan Oatis and Dan Grebler.
Review: Emerging Market Formulations & Research Unit, Flagship Records.
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