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Barclays and Credit Suisse to pay biggest ever fines for dark pool trading

New York state’s attorney general Eric Schneiderman announces a securities fraud lawsuit against Barclays in 2014. Photograph: John Minchillo/APNew York state’s attorney general Eric Schneiderman announces a securities fraud lawsuit against Barclays in 2014. Photograph: John Minchillo/AP

Barclays and Credit Suisse are paying more than $150m (£105m) to settle charges that they misled investors who used their dark pool trading platforms, according to reports.

The US Securities and Exchange Commission and the New York attorney general are expected to announce the settlement on Monday. The two banks are paying the biggest ever fines for operating dark pools, which critics say allowed some market players to exploit investors.

According to Reuters, Barclays will pay a $70m 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 $60m fine split between the regulators, plus an additional $24.3m in disgorgement to the SEC for executing 117 illegal sub-penny orders out of its dark pool known as Crossfinder.

Dark pools are a type of private market that allow investors to trade without revealing their identities. Investment banks promoted them as a way to buy or sell large amounts of shares without moving the market, as transactions are only published once they’re completed.

On paper, dark pools were meant to protect investors from predatory high-frequency trading tactics. But in 2014, New York attorney general Eric Schneiderman accused Barclays of misleading investors, and allowing them to be lose out to professional high-frequency traders lurking in its dark pool.

Schneiderman said the settlement with Barclays and Credit Suisse was an important landmark in the fight against fraudulent trading.

“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 on Sunday night. “We will continue to take the fight to those who aim to rig the system and those who look the other way.”

Critics of dark pools say they are open to abuse from high-frequency traders. If a HFT system can see large buy or sell orders going through the system, they can execute a trade in time to profit from the original order. In 2014, Schneiderman accused Barclays of concealing the presence of “predatory” high-frequency traders in its dark pool exchange.

Dark pools hit the headlines after Michael Lewis, author of Liar’s Poker and The Big Short, published Flash Boys: A Wall Street Revolt. It outlined how HFT operators were using powerful algorithms and high-powered computers to trade ahead of large orders, pushing up the price paid by buyers and pocketing a profit. – theguardian –

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