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Credit Suisse, Barclays to pay $154.3mn to settle 'Dark Pool' probe

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February 1
5:02 AM 2016

Credit Suisse Group AG and Barclays Plc have agreed to pay $154.3 million together to settle down regulatory investigations into their 'dark pools.' This is considered to be a major success against fraud in dark-pool trading. The New York Attorney General is keen on continuing fight against the fraud and rigging in the trading mechanism. The US Securities and Exchange Commission (SEC) said that Barclays and credit Suisse failed to police their trading venues and misled their clients.

The record settlements of Credit Suisse Group AG and Barclays Plc are with the US Securities and Exchange Commission (SEC) and New York attorney general. SEC said that Barclays and Credit Suisse have provided inaccurate information to their clients. This falls under violation of SEC rules ensuring market transparency. The previous major settlement was $20.3 million by New York-based brokerage firm Investment Technology Group. 

The Wall street Journal (WSJ) reports that the New York attorney general Eric T. Schneiderman said that the fight against those who aim to rig the system and those who look the other way, would continue. The SEC's enforcement chief, Andrew Ceresney, said in a separate statement: "The penalties show firms pay a steep price when they mislead subscribers."

This system lacks pre-trade price information and this will be advantageous for institutional investors in trading large blocks without the market moving against them. Credit Suisse has agreed to pay settlement, but neither admitted nor denied the allegations against it. Schneiderman's office filed a lawsuit against Barclays in June 2014. 

It's also observed that Credit Suisse executed 117 million illegal sub-penny orders out of its dark pool trading known as 'Crossfinder,' as reported by Reuters. Dark pool accounts are such trading venues, which are different from public exchanges. In dark pool trading, the orders are not visible to other traders until they're executed. The Dark pool trading system mostly helps institutional investors.  

The New York attorney general said in a statement: "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."

On paper only, dark pools trading is claimed to protect investors from high-frequency trades, but in reality they have no clue about the pricing or any information. If high-frequency trading system can notice a large buy or sell orders, they can execute a trade in time to profit from the original order, according to a report by The Guardian.

Barclays and Credit Suisse have expressed a sigh of relief after the settlement with regulatory investigations. A Credit Suisse spokeswoman said the bank was "pleased to have resolved these matters with the regulators." Barclays said in a statement that "the agreement will enable us to focus all of our efforts on serving our clients."

Barclays and Credit Suisse provided false information related to trading volumes in dark pools and other high-speed electronic equities trading services. Credit Suisse as part of the settlement will pay $85 million including $30 million each to SEC and New York attorney general. Remaining $24.3 million as disgorged revenue and interest will be paid to the SEC. 

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