Barclays Dark Pool Shunned by Clients

Money managers and brokers shunned Barclays Plc (BARC)’s dark pool, and Chief Executive Officer Antony Jenkins pledged an urgent inquiry, after the bank was accused of lying to clients about high-frequency trading on the venue.

Deutsche Bank AG, Royal Bank of Canada (RY), Sanford C. Bernstein & Co. and Investment Technology Group Inc. are among brokerages that disconnected from the Barclays LX platform after New York Attorney General Eric Schneiderman sued the bank yesterday, according to people with knowledge of the matter. Barclays falsely assured investors they would be protected from high-frequency traders while it simultaneously aided predatory tactics, Schneiderman’s office wrote in the complaint.

“These are serious charges that allege a grave failure to live up to our values and to the culture at Barclays which we are trying to create,” Jenkins, 52, wrote in a memo to employees today. “If there has been wrongdoing we will address it quickly and decisively.”

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Jenkins, who took over as CEO in 2012 after the firm was fined for rigging benchmark interest rates, is trying to overhaul a culture that veered into arrogance, greed and ethical ambiguity, according to a company-commissioned study. In today’s memo, he said Barclays enlisted external resources for an objective review and that he will get findings directly.

The bank’s stock fell 6.5 percent today in London trading to 215 pence, the biggest drop since June 2012. LX handles about 282 million shares weekly, making it the second-largest U.S. dark pool behind only Credit Suisse Group AG’s Crossfinder, according to data from the Financial Industry Regulatory Authority. Each day, more than 6 billion shares change hands in the U.S. stock market, according to data compiled by Bloomberg.

Losses Seen

The Barclays venue suffered malfunctions amid disconnections this morning in New York, according to a person with direct knowledge of the matter. The dark pool went down for at least some clients, the person said. As of 1:30 p.m., the platform was operating normally again.

Private Stock Trading vs. Public Exchanges

Probes into private-trading venues known as dark pools and banks’ relationships with high-frequency trading firms may lead to $163 million in legal costs and penalties for Barclays, analysts at Zurich-based Credit Suisse estimated in a note to clients June 4, before Schneiderman’s lawsuit.

Barclays estimated that expanding the trading platform could generate as much as $50 million a year, according to Schneiderman’s complaint. The state is seeking unspecified damages, disgorgement and restitution.

Client’s Memo

Voya Financial Inc., the insurer and asset manager that was previously majority-owned by ING Groep NV, told brokers to cut off the dark pool to protect its investors, according to Dana Ripley, a spokesman for the New York-based company. He said Voya (VOYA) would monitor the situation.

“Given the news of the NY Attorney General investigation, we are instructing you effective immediately, to not route any of our Voya IM orders to Barclays LX dark pool or any Barclays venues,” Nanette Buziak, head of trading for Voya Investment Management, told brokers in an e-mail obtained today by Bloomberg News.

Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and JPMorgan Chase & Co. (JPM), the three largest equity traders among U.S. banks, already weren’t sending orders to the dark pool before the lawsuit, according to people with knowledge of the firms’ operations who asked to remain anonymous because the routing arrangements aren’t public.

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net; Stephanie Ruhle in New York at sruhle2@bloomberg.net; Sam Mamudi in New York at smamudi@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net; Nick Baker at nbaker7@bloomberg.net; Keith Campbell at k.campbell@bloomberg.net David Scheer, Steven Crabill

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