Big clients take flight as Barclays accused of 'dark pool' deception

Reports claim broker-dealers including Deutsche, Royal Bank of Canada and ITG have all removed their connections to Barclays LX

Associate Business Editor

Barclays was facing an exodus of big US clients last night after allegations it deceived them by allowing predatory high-frequency traders to use its "dark pool" share trading facility despite claiming it would keep them out.

Nearly £2.4bn was wiped from Barclays' stock market value, and shares in other banks with dark pools – which allow big investors to trade anonymously with each other – were also hit after the accusations of fraud in a lawsuit filed by the New York Attorney General. They include Credit Suisse, UBS and Deutsche Bank. But Barclays, whose shares fell, 14.16p to close at a 215.84p , was by far the biggest faller amid fears it could now take a "mega penalty" to settle the case.

Reports last night said broker-dealers including Deutsche, Royal Bank of Canada and ITG had all removed their connections to Barclays' dark pool, called Barclays LX.

US fines for European banks have recently undergone a step change, with France's BNP expected to pay up to $9bn (£5bn) to settle charges of sanctions busting.

Barclays LX shot from being a middle-of-the-pack player in 2011 to the number two in the market by last year.

The activities of high-frequency traders (HFTs) came to prominence earlier this year when they were the subject of Flash Boys, an exposé by Michael Lewis. They use sophisticated computer-based trading strategies – often holding shares for far less than a second – and exploit high-speed data feeds to gain access to information more quickly than ordinary investors.

According to filings by the Attorney General, Eric Schneiderman, Barclays relied on "false" and "misleading" marketing material promising that investors would be protected with the help of "built- in safeguards" against "toxic", "predatory" and "aggressive" HFTs.

But the pool's largest participant was an HFT and the bank, according to the complaint, admitted internally that it was "taking liberties" with the truth to "help ourselves", as it sought to increase the size of its dark pool. The bank, it is alleged, misled clients because it had identified a "growth opportunity" of up to $50m a year if it could move its "dark pool" towards the top of the pack.

Staff were allegedly given incentives to grow the pool "at all costs", in the words of one former senior director. A vice president responsible for selling the dark pool to clients allegedly told colleagues they had always "liked the idea that we were being transparent" but were "happy to take liberties" with the data and marketing materials "if we can all agree".

According to the complaint: "Barclays' head of product development said of a chart used to market the service that 'the accuracy is secondary to objective' of showing clients that Barclays was overseeing trading and 'so if you want to move/kill certain bubbles it doesn't really matter'. Barclays' head of equities sales responded: 'Yes! U smart'."

In another email the complaint details, the head of equities sales noted that some in the industry viewed Barclays' dark pool as "toxic landfill".

Barclays said: "We take these allegations very seriously. Barclays has been co-operating with the New York Attorney General... and the SEC and has been examining this matter internally. The integrity of the markets is a top priority."

Helen Roberts at the National Association of Pension Funds, said: "The allegation that investors have been misled is clearly not acceptable. Conflicts of interest need to be addressed and there should be a level playing field for all investors."

Barclays' US dark pool operates separately from its facilities here and the Financial Conduct Authority has not been involved in the investigation. But The Independent understands the results of the FCA's "thematic review" of dark pools in the UK could come as soon as next week.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?