- New York AG, SEC said to be focusing on client disclosures
- Accord over private trading venue expected by early October
Credit Suisse Group AG will pay more than $80 million to settle state and federal authorities’ allegations that it didn’t fully disclose to its clients how it operated its dark pool, according to a person familiar with the matter.
The Swiss bank will pay more than $50 million in fines and disgorgement in what would be a record dark-pool settlement with the Securities and Exchange Commission, as well as around $30 million to the New York Attorney General, said the person, who asked not to be named because the discussions are private.
Dark pools, where supply and demand is kept private and only details of executed trades are made public, account for nearly one-fifth of trading in the $23 trillion U.S. stock market. Credit Suisse’s Crossfinder platform is the largest alternative trading system in the U.S.
An accord is expected by early October, the person said, to settle claims that the Zurich-based bank misrepresented certain aspects of how it managed its platform.
Credit Suisse, the SEC and the New York Attorney General’s office declined to comment through spokesmen.
Such a settlement would be the first for New York Attorney General Eric Schneiderman, as part of his 18-month investigation into whether U.S. stock exchanges and Wall Street dark pools provide improper advantages to high-frequency traders. He also sued Barclays Plc in June 2014, alleging it lied to its customers about what high-frequency trading firms were doing inside Barclay’s platform.
Schneiderman announced the inquiry during a flurry of attention to Michael Lewis’s “Flash Boys,” which alleged such firms were gaining an unfair edge by using high-speed computers that run hundreds of trades in the blink of an eye. In the following weeks, the SEC and the Department of Justice also pledged to investigate.
Given the industry’s complicated and opaque nature, law enforcers and regulators have struggled to bring cases. A handful of dark pool operators have settled with the SEC since Chairman Mary Jo White announced new plans for greater oversight of stock-trading in a June 2014 speech.
The deal will be the second time in a few weeks that the SEC has set a record payout in a dark pool case. Last month, Investment Technology Group Inc. said it would pay $20.3 million for operating a proprietary trading desk that used knowledge of customers’ requests to trade for its own benefit, among other infractions. In January, UBS Group AG paid $14.4 million for lack of disclosures about how its dark pool operated.
The two recent SEC settlements, which covered activities through 2011, haven’t put a damper on the total amount of trading done in dark pools. The platforms accounted for 17.8 percent of total U.S. trading in July, a record, according to latest figures from Rosenblatt Securities Inc.
The SEC and Schneiderman’s office are both looking into how Barclays represented its dark pool to clients. Schneiderman’s suit claimed the British bank bilked customers to expand the venue’s business. The SEC opened its own investigation around the same time.
Barclays, which declined to comment, has publicly denied the charges and has been fighting the case in court.
Schneiderman and Barclays are negotiating a possible settlement, according to a person with knowledge of the matter. The SEC could settle with the bank ahead of the attorney general’s office, this person said.
Bloomberg News parent Bloomberg LP owns a stake in Bids Trading LP, which operates a dark pool.
Authorities’ approach in the recent settlements suggests that they are not focusing on the mechanics of dark-pool trading, or on which parties may stand to lose from activities there, according to the Healthy Markets Association, which wants to give investors a greater voice in the debate over reforming U.S. financial markets.
“The dark pool cases to date demonstrate that regulators (and the SEC in particular) are focused on treating dark pool abuses as predicated largely on inadequate disclosures, filing violations, and books and records violations, rather than on unfair practices,” said a Healthy Markets report set to be released tomorrow examining past and current investigations.
“Investors and their brokers must revise their own practices and expectations to better protect themselves from dark pool abuses,” the report said.
For Related News and Information:
Barclays Executives Identified in New Dark Pool Complaint
SEC Fines UBS Dark Pool More Than $14 Million for Breaking Rules
Barclays Hid Trader Role After Questions, Schneiderman Says
Dark Pools Face Up to More Transparent Future as Threats Mount
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