Barclays, Credit Suisse settle with SEC over dark pools with huge fines

Barclays and Credit Suisse have settled federal and state charges that they misled investors in their dark pools with the US Securities and Exchange Commission (SEC); Barclays admitted it broke the law and agreed to pay $70m, while Credit Suisse will pay a $60m fine, plus an additional $24.3m in disgorgement to the SEC for executing 117 million illegal sub-penny orders out of its dark pool known as "Crossfinder". This marks the two largest fines ever paid in connection with cases involving dark pools. Both banks said they were pleased to resolve the matter. 

Barclays and Credit Suisse has been fined $154m (£108m) following an investigation into the banks’ “dark pools” private trading exchanges exploited by “predatory, high-frequency traders” at the expense of the bank’s traditonal customers.



Eric Schneiderman, attorney general of New York state, said the fines were a “major victory in the fight to combat fraud in dark pool trading” and would help protect investors from “the most aggressive and predatory high-speed traders”.

Barclays will pay $70m, the largest ever fine for operating a dark pool, and has admitted that it misled investors and violated securities laws and has agreed that it will install an independent monitor to oversee its “Barclays LX”.

The fine settles a high profile lawsuit Schneiderman brought against Barclays in June 2014 as part of his office’s “Insider Trading 2.0” crackdown on electronic trading in the wake of Michael Lewis’s bestselling book and blockbuster movie Flash Boys.

Dark pools are private exchanges for trading stocks and bonds, but unlike traditional markets there are no public prices and trades can be carried out in secret which can favour high speed traders.

Schneiderman said Barclays had told its dark pool clients that it monitored for high-speed trading, but it didn’t and it actually favoured high-speed traders. This meant that traditional players thought they were only up against other traditional traders when actually they were facing “the most aggressive and predatory high-speed traders,” he said.

Barclays and Credit Suisse each made “false statements and omissions in connection with the marketing of their respective dark pools and other high-speed electronic equities trading services,” Schneiderman said in his news release.

“This effort, which began when we first sued Barclays, includes co-ordinated and aggressive government action which forced admissions of wrongdoing from the parties,” Schneiderman said. “We will continue to take the fight to those who aim to rig the system and those who look the other way.”

Mary Jo White, the chair of the Securities and Exchange Commission (SEC), said: “These cases are the most recent in a series of strong SEC enforcement actions involving dark pools and other alternative trading systems.” White said the SEC would continue in its efforts to “shed light on dark pools to better protect investors”.

Andrew Ceresney, director of the SEC’s enforcement division, said: “Dark pools have a significant role in today’s equity marketplace, and the firms that run these venues must ensure that they do not make misstatements to subscribers about their material operations.”

Barclays, which has a big operation in New York, said the bank was pleased to resolve the case. “The agreement will enable us to focus all of our efforts on serving our clients,” the bank said.

Credit Suisse was fined $60m fine split between the SEC and NY attorney-general’s office, as well as a further $24.3m in disgorgement — which is designed to make it pay back ill-gotten gains - in relation to its dark pool called “Crossfinder”.