NEW YORK
New
York prosecutors have sued British bank Barclays for fraud, saying it
ran a "dark pool" securities trading operation to the benefit of
"predatory" high-frequency traders.
Attorney General
Eric Schneiderman said Barclays promised clients that it would protect
them from aggressive high-speed trading firms in the dark pools but at
the same time took steps that benefited these firms.
"The
facts alleged in our complaint show that Barclays demonstrated a
disturbing disregard for its investors in a systematic pattern of fraud
and deceit," said Schneiderman.
"Barclays grew its dark
pool by telling investors they were diving into safe waters. According
to the lawsuit, Barclays' dark pool was full of predators -- there at
Barclays' invitation."
A Barclays spokesman said the British banking giant was cooperating with Schneiderman, the top prosecutor for New York State.
"We
take these allegations very seriously," he added. "Barclays has been
cooperating with the New York attorney general and the SEC and has been
examining this matter internally."
The spokesman stressed that "the integrity of the markets is a top priority of Barclays."
The
suit comes amid criticism that high-frequency traders skim profits from
clients who order a stock at one price, only to end up paying more than
the quoted amount after the high-frequency firm pushes up the price
through a series of lightning-quick transactions.
Such aggressive manoeuvers are often characterized as predator" behaviour.
Schneiderman
said Barclays heavily promoted to its clients a "liquidity profiling"
surveillance service it said would identify and hold accountable traders
who engaged in predatory practices.
But Barclays has not prohibited any traders from participating in its dark pool, regardless of how predatory they were.
Schneiderman
said Barclays gave high-frequency traders "systematic advantages" over
others in the pool and falsely underreported the number of aggressive
high-frequency traders in the dark pool.
Transactions
on "dark pools" take place on a private stock trading platform where
there is little pre-trade pricing transparency.
Mary Jo
White, who chairs the US Securities and Exchange Commission, signalled
in an early June speech plans to stiffen scrutiny on both high-frequency
traders and dark pools.
White acknowledged concerns
that high-frequency traders have attained an unfair advantage over
rank-and-file investors, saying she was worried "dark pool" trading
volumes have become large enough to threaten the viability of "lit"
venues like the New York Stock Exchange.
Concerns about
high-speed trading rose on the public agenda after author Michael Lewis
in March argued in a best-selling book that markets were "rigged" in
favor of high-speed traders.
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