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UBS and Deutsche Bank embroiled in 'dark pool' probe

The announcements came just a day after Lloyds was fined £218 million over Libor rigging

Scandal engulfed the European banking sector for a second straight day after UBS and Deutsche Bank admitted they had been dragged alongside Barclays into an escalating probe into high-frequency “dark pool” traders.

The announcements came just a  day after Lloyds was fined £218 million over Libor rigging and was savaged by watchdogs for attempting to fix interest rates in a bid to duck fees due to  the taxpayer for participating in the  Bank of England’s “special liquidity scheme”.

UBS, fined nearly £1 billion for its central role in Libor interest-rate fixing, today said it was “responding to inquiries” from US regulators as well as the New York Attorney General, Eric Schneiderman, over the operation of its “dark pool”.

It also admitted to being named alongside “dozens” of others — including high-frequency traders, brokers and other “dark-pool sponsors” — in a number of class-action lawsuits filed by investors in the US.

Deutsche, meanwhile, said it had received “a number of requests from regulatory authorities related to high-frequency trading” while also being named in lawsuits. The bank says it is co-operating.

Video: 'Dark pools are not new'

Dark pools are supposed to allow big investors such as pension funds to trade big parcels of stock without other traders knowing what they are doing.

But there is controversy over the role played by high-frequency traders who trade rapidly in and out of shares, within them.

The dark pool scandal was kicked off when Schneiderman last month claimed Barclays had misled investors into believing they would be protected from high-frequency traders.

Barclays last week hit back and filed a motion to dismiss the claims, saying they had “fatal flaws”, but not before trading at its dark pool had dried up with the bank falling from second to 12th in the market within days.

UBS, which reported a 15 per cent rise in its profits for the second quarter to  Swfr792 million (£516 million), said today it had paid €302 million  (£177.9 million) to settle a German tax-evasion investigation.

Meanwhile, Deutsche warned that litigation would have “a significant impact” on its future performance as the bank said that net profit fell by 29 per cent €237 million in the second three months of 2014.