Barclays Capital Inc. and Credit Suisse Securities agreed Monday to pay a combined $154.3 million to the state of New York and the Securities and Exchange Commission to settle investigations into false statements and omissions relating to the marketing of their dark pools and other high-speed electronic equities trading services.
Under the settlement, Barclays will pay a penalty of $70 million, split equally between New York and the SEC, and will install an independent monitor to ensure proper operation of its electronic trading division.
Credit Suisse will pay a penalty of $60 million split equally between New York and the SEC and will pay a further $24.3 million in disgorgement and prejudgment interest to the SEC relating to other violations.
The New York attorney general and the SEC have both censured Barclays and Credit Suisse for their misconduct.
“These cases mark the first major victory in the fight to combat fraud in dark pool trading and bring meaningful reforms to protect investors from predatory, high-frequency traders,” said Attorney General Eric Schneiderman, in a statement. “This effort, which began when we first sued Barclays, includes coordinated and aggressive government action which forced admissions of wrongdoing and record fines. We will continue to take the fight to those who aim to rig the system and those who look the other way.”
SEC Chairwoman Mary Jo White added in her own statement that “these cases are the most recent in a series of strong SEC enforcement actions involving dark pools and other alternative trading systems,” adding that the agency “will continue to shed light on dark pools to better protect investors.”
White announced last June that the agency would require proprietary traders who use computers to buy and sell stocks in milliseconds to register with the SEC.
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,” added Andrew Ceresney, director of the SEC’s Enforcement Division. “These largest-ever penalties imposed in SEC cases involving two of the largest ATSs [alternative trading systems] show that firms pay a steep price when they mislead subscribers.”
The joint action against Barclays and Credit Suisse comes on the heels of the recent SEC charges against UBS Securities LLC, which agreed on Jan. 15 to pay more than $14.4 million to the SEC to settle charges related to disclosure failures and other securities law violations regarding the operation and marketing of its dark pool. Schneiderman launched in March 2014 an effort to crack down on “fundamentally unfair and potentially illegal” arrangements that give certain traders early access to market-moving information at the expense of the rest of the market, and at the time began investigating Credit Suisse and Barclays, the largest and second largest dark pool operators at the time, in order to “expose illegal practices and ensure a level playing field for all investors.”
Since that time, Schneiderman has reached agreements with the news service Thomson Reuters, the press release service Business Wire and others to end business practices that provided high-frequency traders an unfair advantage.
According to the complaint, Barclays admitted to core facts set forth in Schneiderman’s complaint from June 2014 alleging misrepresentations about how it operated its dark pool, Barclays LX, including that it misled investors and violated securities laws.
The attorney general’s investigation found that Credit Suisse made misrepresentations concerning two equities trading venues, Crossfinder and Light Pool, operated by Credit Suisse’s Advanced Execution Services division, as well as the manner in which AES routed client orders and handled confidential client order information.
As set forth fully in the agreement, Credit Suisse promoted an “alpha scoring” feature, which, according to Credit Suisse’s marketing, gave clients the ability to avoid trading with counterparties, such as certain high-frequency trading firms, whose order flow Credit Suisse considered “opportunistic” and detrimental to institutional investors.
— Check out UBS’ Dark Pool Was Shady on ThinkAdvisor.