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High-Frequency Firm Tradebot Swam in Barclays Pool, N.Y. Says

New York Attorney General Eric Schneiderman
Eric Schneiderman, attorney general of New York. Photographer: Louis Lanzano/Bloomberg

New York Attorney General Eric Schneiderman’s complaint against Barclays Plc names just one outside high-frequency trader, Tradebot Systems Inc., as operating in its dark pool. In keeping with the document's tone, the firm is referred to more than once as “toxic.”

Schneiderman’s complaint, filed with the Supreme Court of New York today, alleges that Barclays executives lied to clients about high-frequency traders in its LX platform, one of the biggest private U.S. equity venues. In particular, London-based Barclays hid that Tradebot was “one of the largest and most toxic participants.”

The complaint recounts an analysis conducted by the bank for large clients that showed trading patterns and participants on the platform. Despite representing that it portrayed the top 100 LX clients, the presentation omitted Tradebot, according to Schneiderman, who cites an internal e-mail.

“Tradebot Systems had historically been, and was at that time, the largest participant in Barclays’ dark pool, with an established history of trading activity that was known to Barclays as ‘toxic,’” according to Schneiderman’s complaint.

The changes “had the effect of obscuring the amount of high frequency trading activity in the dark pool by disguising the total number of high frequency trading firms, and deleting one significant firm altogether,” according to the complaint.

Reached by phone, Dave Cummings, founder and chairman of Kansas City, Missouri-based Tradebot, declined to comment on the complaint.

‘U Smart’

Tradebot buys and sells shares of more than 5,000 companies each month, according to its website. The firm, which has about 60 associates, focuses on stock trading in the U.S. and Canada.

Cummings has played a central role in shaping today’s U.S. equity market. In 2005, he founded the Lenexa, Kansas-based stock exchange Bats Global Markets Inc., which today commands similar market share to Nasdaq OMX Group Inc. and Intercontinental Exchange Inc.’s New York Stock Exchange. Cummings left Bats in 2007, and his firm today has a 4 percent stake in the exchange operator, according to Randy Williams, a Bats spokesman.

The complaint outlines how some Barclays employees objected to Tradebot’s removal from the client presentation, which showed the dark pool’s participants in circles. The objections were dismissed by management, Schneiderman said.

Schneiderman writes that the head of product development at Barclays said of the chart, “the accuracy is secondary to [the] objective” of showing clients that Barclays monitors the trading in its dark pool. “So if you want to move/kill certain bubbles, it doesn’t really matter.”

In response, according to the complaint, Barclays’ head of equities sales responded, “Yes! U smart.”

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