- SEC and New York split $70 million penalty from Barclays
- Swiss lender owes $84.3 million in private trading settlement
Barclays Plc and Credit Suisse Group AG agreed to settle allegations by New York’s top cop and the U.S. Securities and Exchange Commission that they misled investors on how they managed their private trading platforms.
Barclays will pay $70 million, split evenly between the two enforcers, the largest fine levied on a dark pool operator, the SEC said Sunday in a statement. Credit Suisse will pay $84.3 million, according to the statement. That payment includes $24.3 million to the SEC for disgorgement and interest, with the remainder shared evenly between the two authorities.
The dispute centered on whether the banks disclosed enough to their clients about trading in their dark pools. Barclays misrepresented to clients how it monitored its dark pools for high-frequency trading, according to the statement. Credit Suisse systematically routed orders to its own dark pool, but told clients that it didn’t prioritize one trading venue over another, according to New York Attorney General Eric Schneiderman.
“These cases mark the first major victory in the fight against fraud in dark pool trading that began when we first sued Barclays: coordinated and aggressive government action, admissions of wrongdoing, and meaningful reforms to protect investors from predatory, high-frequency traders,” Schneiderman said. “We will continue to take the fight to those who aim to rig the system and those who look the other way.”
Barclays agreed to settle the charges by admitting that it misled investors and violated securities laws, according to the SEC statement. The London-based bank also agreed to install a third-party consultant to review how the firm manages certain aspects of its dark pools business.
“Barclays is pleased to have reached agreement with both the SEC and the New York Attorney General to conclude their investigations concerning our US equities ATS practices and Market Access controls,” Barclays’ spokesman Mark Lane said in an e-mailed statement.
Zurich-based Credit Suisse didn’t admit or deny wrongdoing in the settlement, which involved two of its trading platforms, Crossfinder and Light Pool. “We are pleased to have resolved these matters with the SEC and the New York attorney general,” Nicole Sharp, a bank spokeswoman, said in a statement.
Dan Mathisson, the executive who helped build Credit Suisse into an electronic-trading powerhouse over the past decade, is to leave the bank at the end of the month, people familiar with the matter said last month. Mathisson, most recently head of U.S. equity trading, made the decision to go, according to the people, who asked not to be identified discussing personnel matters.
“These largest-ever penalties imposed in SEC cases involving two of the largest ATSs show that firms pay a steep price when they mislead subscribers,” Andrew Ceresney, the director of SEC’s enforcement division, said in the statement.
The private trading venues are the first to be sanctioned by Schneiderman, who almost two years ago began investigating whether U.S. stock exchanges and Wall Street dark pools provide improper advantages to high-frequency traders. He sued Barclays in June 2014, alleging it lied to customers about what high-frequency trading firms were doing inside its platform in an effort to expand the venue’s business.
Dark pools sprung up in the 1980s to give market participants the ability to trade big blocks of stock without tipping off other traders. Over the years, they have garnered a greater portion of U.S. equity volume, accounting for almost 20 percent of the amount that changes hands daily. Hosted by some of the world’s biggest banks, dark pools allow traders to keep their offers to buy and sell stocks largely private.
The settlements will effectively establish the New York attorney general as an enforcer in the business of private trading venues, though he had been criticized for wading into the markets arena. Under the settlement, Barclays is acknowledging that the attorney general had jurisdiction under the Martin Act, a New York law that gives him broad powers to pursue white-collar crime.
For the SEC, the record dark-pool penalties serve as a counterpoint to critics who’ve said it has been lax in overseeing the U.S. equities market. In 2014, an SEC official publicly rebutted criticism that the agency wasn’t doing enough in the era of light-speed trading after the Schneiderman investigation began.
“The SEC will continue to shed light on dark pools to better protect investors,” SEC Chairman Mary Jo White said in the statement detailing the settlement.
The attorney general’s probe of Barclays was sparked by former bank employees who brought the allegations to him, people familiar with the matter said at the time. The SEC opened a parallel investigation.
The SEC and the Department of Justice also promised a broad inquiry into the fairness of rapid-fire trading after a flurry of attention to Michael Lewis’s “Flash Boys,” which alleged Wall Street firms were gaining an unfair edge by using computers that run hundreds of trades in the blink of an eye.
As part of that effort, White announced plans for greater oversight of stock trading in a June 2014 speech. The high-profile cases to date have focused not on the trading itself, but on disclosures and practices by those who cater to the firms.
In August, Investment Technology Group Inc. agreed to 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. Last January, UBS Group AG paid $14.4 million for lack of disclosures about how its dark pool operated.
Bloomberg News parent Bloomberg LP owns a stake in Bids Trading LP, which operates a dark pool.
(An earlier version of this story was corrected to remove amount of trading in U.S. stock market.)