February 1, 2016
Two of the world’s major financial firms, Barclays Capital, Inc and Credit Suisse Securities, LLC have agreed to pay more than $150 million to settle securities law violation charges brought against them by the U.S. Securities and Exchange Commission in regards to “dark pools violations”

Barclays agreed to pay a combined $70 million to the SEC and New York Attorney General’s office, while Credit Suisse will pay a total of $84.3 million in fines to the SEC and the NYAG’s office of which $30 million will be paid to the SEC, plus a $24.3m in disgorgement and prejudgment interest. NYAG’s office will receive the remaining $30 million.

The penalties, the largest ever imposed by the SEC involving alternative trading systems violations, highlight the high price that firms often pay when they mislead their customers, says director of the SEC’s Enforcement Division, Andrew Ceresney.

“Dark pools have a significant role in today’s equity marketplace, and the firms that run these venues must ensure that they do not make misstatements to subscribers about their material operations,” said Mr. Ceresney,

The cases, brought against the firms by the SEC and the NYAG’s office, are the most recent in a series of enforcement actions taken by the SEC against financial firms in the past months relating to securities law violations and it part of an ongoing efforts by the SEC to better protect investors from predatory trading.

According to the SEC’s charges, both Barclays and Credit Suisse skewed their dark pool subscribers about the firms’ dealings in alternative trading systems.

Barclays misled its customers about a feature called “Liquidity Profiling” in its trading system, which it purported would monitor order flow in its LX dark pool around the clock for predatory trading, and run “surveillance reports every week” for toxic order flow; neither of which the firm did. Barclays also did not tell its customers that it sometimes overrode trading in the dark pool by moving some subscribers from the most aggressive categories to the least aggressive, or that it used a combination of direct data feeds and other slower feeds in the dark pool when it should have used a direct feeds from exchanges to deter latency arbitrage.

“Barclays misrepresented its efforts to police its dark pool, overrode its surveillance tool and misled its subscribers about data feeds at the very time that data feeds were an intense topic of interest. Investors deserve for and equitable markets without this misbehavior.”

Credit Suisse for its part failed to inform subscribers that a feature in its dark pool system called Alpha Scoring, which is meant to characterize subscriber’s order flow monthly in a neutral and transparent way, included significant intuitive elements and that the firm’s order router systematically prioritized its own order over other venues.
Barclays admitted to wrongdoing and agreed to settle the charges. Credit Suisse agreed to settle the charges.

SEC Chair Mary Jo White said the “SEC will continue to shed light on dark pools to better protect investors.”


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