Barclays charged over 'dark pool' share scheme

Bank accused of giving a systematic advantage to high-frequency traders over others in its scheme

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The Independent Online

Civil fraud charges have been filed against banking giant Barclays by the New York attorney general alleging its “dark pool” anonymous trading venue was operated to benefit high frequency traders.

It said that a major investigation into the US stock market as a whole had discovered “an alleged pattern of fraud and deceit” and “misrepresentations to investors”.

Dark pools are perfectly legal, but Barclays is accused of giving a systematic advantage to high-frequency traders over others in its scheme.

Eric Schneiderman, the Attorney General, said: “The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit.

“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.”

In a statement, his office claimed that Barclays had “dramatically increased the market share of its dark pool through a series of false statements to clients and investors about how, and for whose benefit, Barclays operates its dark pool”.

“Contrary to Barclays’ representations that it has implemented special safeguards to protect clients from ‘aggressive’ or predatory high-frequency traders, Barclays is accused of operating its dark pool to favour high-frequency traders,” it added.

The complaint alleges Barclays “falsified marketing material” about its dark pool.

“For example, Barclays removed from a marketing document intended for institutional investors the dark pool’s then-largest participant – a high frequency trading firm Barclays knew engaged in predatory behaviour in the dark pool,” the statement said. 

“In response, one employee stated: ‘I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.’”

The Attorney General’s office said its investigation was helped “significantly” by a number of former Barclays’ employees.

“No regulator – no matter how broad their authority – can succeed on its own,” Mr Schneiderman said. “I want to personally thank those that have courageously reported wrongdoing to our office and encourage others to do the same.”

Barclays declined to comment when contacted by The Independent.