Barclay’s ‘dark pool’ exodus as New York regulator sues

Big banks have started pulling their business out of Barclays’ “dark pool” after the British bank was sued by New York’s top securities regulator for allegedly misleading institutional investors over its anonymous trading venue.

Deutsche Bank and Credit Suisse were among the institutions that yesterday withdrew from Barclays’ LX dark pool in the wake of the lawsuit from Eric Schneiderman, the New York attorney-general. Barclays said any drop in trading volumes at LX might be due to a technical glitch.

More than $13 billion was wiped off the market value of the 10 biggest dark pool owners, as analysts assessed who US prosecutors might target next. Shares in Barclays lost more than 6 per cent, while shares in other operators, including Credit Suisse, UBS and Deutsche Bank, also fell.

Investors called for a management shake-up at Barclays’ equity trading business, and said that the US lawsuit underlined the challenge for Antony Jenkins, chief executive, to change the bank’s culture.

Mr Schneiderman cited a pattern of “fraud and deceit” by Barclays starting in 2011. He accused the bank of lying to clients about the level of protection they would receive in its dark pool from high-frequency traders aiming to profit from their speed advantage.

Dark pools allow investors to trade large blocks of shares anonymously, with prices posted publicly only after deals are done. They were created as a way for institutional investors to place large orders without disadvantaging themselves by signalling to the wider market any market-moving trades.

But regulators are concerned they may allow high-frequency traders to exploit other investors’ orders to profit in an unregulated venue. The SEC is investigating.

In 2012, Barclays agreed a £290 million settlement in the Libor rate-fixing scandal and last month paid a £26 million fine after one of its traders manipulated the London gold fix. – (Copyright The Financial Times Limited 2014)