Credit Suisse, Deutsche Bank and UBS hit by Barclays dark pool lawsuit

New York’s decision to sue Barclays over its alleged dark pool trading conduct has led to other major banks withdrawing from the anonymous trading venue and wiped billions off the value of bank equity.

Barclays is accused of having favoured High Frequency Traders (HFTs) using its dark pool trading venue and of misleading institutional investors with exposure to the venue.

According to Eric Schneiderman, New York attorney general: “contrary to Barclays’ representations that it implemented special safeguards to protect clients from aggressive, predatory, or toxic high frequency traders, Barclays has operated its dark pool to favour high frequency traders. Barclays has actively sought to attract such traders to its dark pool, and it has given them advantages over others trading in the pool.”

As the Financial Times reports, the news has led big banks such as Credit Suisse, Deutsche Bank and UBS to pull their business out of Barclays dark pools, leading to $13bn being wiped off the market value of the ten biggest dark pool owners.

At the time of writing, Barclays share had fallen by more than 6%. Amongst the banks with exposure to the Barclays dark pools, Credit Suisse has been hardest hit, with shares falling by 3.59% between 25 and 26 June. Both UBS and Deutsche Bank shares declined by more than 2% in the same period.

According to Investopedia, the definition of a dark pool is “The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges.”

Institutional investors rely on dark pools to make trading of large blocks of shares more efficient. The information about pricing is shielded as part of this process. However, dark pool providers are also meant to keep out ‘undesirable’ investors, such as high frequency traders, precisely because these can skew pricing, thus undoing the efficiencies that the main users rely on.

The core of the allegations put forward by the New York attorney general’s office, is that Barclays failed to keep out the undesirable elements, and did not inform the existing users of their presence.



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