Barclays Dark Pool, China Forex, Swaps Report: Compliance

Barclays Plc was so bent on lifting its private trading venue to the upper ranks of Wall Street dark pools that it lied to customers and masked the role of high-frequency traders, according to New York’s attorney general.

Barclays falsified marketing materials to hide how much high-frequency traders were buying and selling, according to a complaint filed yesterday by Eric Schneiderman. Barclays runs one of Wall Street’s largest dark pools, a private trading venue where investors can trade stocks mostly anonymously.

Schneiderman has taken a leading role in seeking to reform how equities trade in the $23 trillion U.S. stock market, examining whether exchanges and dark pools give unfair perks to high-frequency traders. His suit against Barclays says clients such as institutional investors were the losers, led to believe they were safe from predators on a trading venue where aggressive trading strategies were in fact encouraged.

In a statement, Mark Lane, a spokesman for London-based Barclays said: “We take these allegations very seriously. Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”

Florence Harmon, a spokeswoman for the U.S. Securities and Exchange Commission, declined to comment on the case.

SEC Chairman Mary Jo White on June 5 voiced concern about the level of trading on venues where bids and offers are kept private, masking the true depth of demand for shares. On June 24, the SEC said it would test a program to limit the amount of trading -- now roughly 40 percent of volume -- handled off public exchanges such as the New York Stock Exchange and Nasdaq Stock Market.

The test will prevent trading outside U.S. stock exchanges unless a competing venue or broker offers a significantly better price or size lot to investors, according to an order posted on the SEC’s website June 24.

For more on the Barclays suit, click here. For more on the SEC’s pilot program, click here.

Compliance Action

BNP Said to Face Yearlong Dollar-Clearing Curb in U.S. Case

BNP Paribas SA, seeking to settle claims it violated U.S. sanctions, is close to an agreement with New York state’s top banking regulator that would curtail some of its dollar-clearing operations for as long as a year, according to a person familiar with the matter.

The talks with state and federal authorities, which continue to include a penalty that may reach a record $9 billion, could be completed as soon as next week, said the person, who asked not to be identified because the discussions are confidential.

The ban on dollar clearing could affect specific business, such as oil and gas transactions, and certain offices, such as Geneva, where the alleged illegal transactions took place, the person said. Cesaltine Gregorio, a BNP Paribas spokeswoman in New York, declined to comment.

At the center of the BNP investigation are alleged sanctions violations involving Sudan, Iran and Cuba dating from 2002 to 2009, though some transactions continued until 2011, a person familiar with the matter has said.

Prosecutors from the Manhattan District Attorney’s office and the U.S. Attorney’s office for the Southern District of New York, along with the superintendent of New York’s Department of Financial Services, Benjamin Lawsky, have all been investigating BNP.

China to Increase Forex Derivative Products, Regulator Says

China’s State Administration of Foreign Exchange will increase foreign currency exchange hedging tools led by options, according to a statement posted on the regulator’s website. Banks will be allowed to conduct “diversified” options trading with clients based on genuine needs, the administration said.

More forms of principal swap will be added in currency swaps trading, according to the statement.

China will also relax entry requirements for the foreign exchange options market.

BOJ Announces New Joint Committee With FSA on Financial System

The Bank of Japan and the nation’s Financial Services Agency held the first meeting of a committee of the agency and a communications committee of the central bank, the two bodies said yesterday in statement.

Bank of Japan Deputy Governor Hiroshi Nakaso and FSA Commissioner Ryutaro Hatanaka will be the lead members of the committee.

The group plans to discuss various issues concerning the financial system and markets and will meet about every six months.

Comings and Goings

Bharara’s Criminal Chief Reisner to Leave Post After Two Years

Lorin Reisner, who has led Manhattan U.S. Attorney Preet Bharara’s criminal investigations for the past two years, is stepping down next month.

He will be succeeded by Bharara’s chief counsel, Joon Kim, according to Jim Margolin, a spokesman for the office. Daniel Stein, a partner at Richards Kibbe & Orbe LLP, will replace Kim, Margolin said. Reisner hasn’t announced future plans.

As the criminal chief for the Southern District of New York, Reisner has supervised investigations ranging from securities fraud and public corruption to organized crime and narcotics. The office has prosecuted dozens of high-profile insider trading cases in recent years and is leading negotiations with BNP Paribas SA in what could become the biggest settlement ever for violating U.S. economic sanctions.

Before joining Bharara’s office, Reisner served as deputy director of enforcement at the Securities and Exchange Commission, where he managed some of the agency’s highest-profile cases to come from the 2008 financial crisis.


Banks May Lose $4.5 Billion a Year on Swaps Shift, McKinsey Says

Banks stand to lose as much as $4.5 billion in annual revenue as regulations aimed at improving financial stability alter how interest-rate swaps are bought and sold, according to a report from McKinsey & Co.

That’s equal to 35 percent of the $13 billion in revenue banks worldwide earn each year from rate derivatives and comes at a time when their fixed-income, currencies and commodities businesses are flagging, McKinsey’s Roger Rudisuli and Doran Schifter said. The driving force is the requirement that most swaps trade on electronic systems rather than over the phone, with more price transparency and competition eating profits.

Swaps are the largest part of the $710 trillion over-the-counter derivatives market, which has come under U.S. oversight for the first time. While banks dominated the market before and after the financial crisis, the new rules shine a light on trades that were always done in private.