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Lawsuit Results in Fall for Barclays Dark Pool Trading

New York’s Attorney General has accused British bank Barclays of mis-leading its customers and giving an unfair edge to high-speed traders.

According to data, it was shown on Monday the volume in Barclays’ “dark pool” electronic trading venue has plummeted by 79% in the week and a half immediately after New York Attorney General, Eric Schneiderman filed a lawsuit against the bank.

The number of shares traded in Barclays LX which is an alternative trading system dropped 66% in the week of June 30th, this is according to the data released by FINRA, Wall Street’s self-funded regulator. This also followed a decline of 37%  in the week that the probe was announced.

Equities

A number of clients had stopped trading equities with Barclays in the wake of the damaging allegations, or they changed how they trade, like by not allowing orders to be directed to its dark pool, or increasing the minimum order size to avoid high-speed traders who typically trade in small chunks, according to industry sources, who also claim that this had occurred in Asia, Europe and the United States.

The week of June 30th, Barclays’ dark pool was the 12th largest in the United States; down from what was the second largest just two weeks prior. The lawsuit that was filed on June 25th by Schneiderman had said that Barclays had lied to their clients and gave their high-frequency traders an unfair advantage by using advanced computer systems and algorithms to trade securities in milliseconds.

Dark Pools

Dark pools allow for a large number of shares to be traded anonymously so that the market is not informed until completion in order to minimise the risk of the price moving to the disadvantage of an investor, should the market get wind of the trade before it is executed.

Barclays promised investors that they would be protected from “predatory” traders but Schneiderman said he had evidence that the bank falsified their marketing material and misled their big institutional clients in an effort to grow its dark pool to increase revenues and bonuses.

Worries

The retreat of the clients will be a worry for Barclays as it contrasts with when it was the first bank to be fined for alleged rigging of Libor benchmark interest rates when a small number of clients stopped trading, according to sources.

Barclays has released a statement that they are conducting an internal investigation into the allegations and has hired external lawyers to help. They have said that they are still working on their response which is due by July 25th, but that is a deadline that could be extended.

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Barclays Dark Pool Trading

About the author

Daniel Lee

Company Director

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