Barclays, Credit Suisse Settle 'Dark Pool' Probes for $154M

Barclays PLC BCS and Credit Suisse Group AG CS have agreed to settle probes by the U.S. regulators related to their ‘dark pools.' Per the settlement terms with the U.S. Securities and Exchange Commission ("SEC") and the New York Attorney General ("NYAG"), both companies will pay $154.3 million in aggregate.

Of the total amount, Barclays will be paying $70 million of fine, to be equally divided between the SEC and the NYAG. On the other hand, Credit Suisse has agreed to pay $60 million as fine (to be evenly split between the two regulators) and $24.3 million in disgorgement.

New York Attornet General Eric Schneiderman said in an email statement, "These cases mark the first major victory in the fight against fraud in dark pool trading that began when we first sued Barclays. We will continue to take the fight to those who aim to rig the system and those who look the other way."

The probes pertained to allegations that Barclays and Credit Suisse had made false representations about protecting investors' interest in the dark pools from high-frequency traders. Notably, Barclays was sued by the NYAG in Jun 2014 over the issue.

The lawsuit had accused Barclays of misleading investors by presenting tampered information and assuring them that their orders were spread across trading exchanges. However, the company had instead channeled maximum orders into the dark pool without informing investors about the same.

Additionally, Credit Suisse – one of the largest dark pool operators in the U.S. – came under the regulatory scanner in Aug 2014. The company was accused of offering undue advantages to a few traders and also found to violate rules that prohibited pricing of stocks. On top of that, the company failed to inform investors comprehensively about the workings of Crossfinder.

Further, as part of the settlements, Barclays admitted to misleading investors and also violating several securities laws. Moreover, the company agreed to hire an independent monitor to conduct a review of its electronic trading operation. Credit Suisse, whose two trading venues – Crossfinder and Light Pool were probed – neither admitted nor denied any allegation.

In Aug 2015, Investment Technology Group Inc. ITG had agreed to pay $20.3 million to the SEC over similar allegations and also admitted to wrongdoings. Prior to this, in Jan 2015, the SEC had slammed UBS Group AG UBS with a $14.4-million fine for failing to comply with rules that ensure fair trading on its dark pool platform.

Increased regulatory scrutiny, investigations and lawsuits surrounding dark pool trading reflect efforts on part of the regulators as well as the government to facilitate transparency and stability in the trading industry. This, in turn, will help safeguard investors' interest, going forward.

For Barclays and Credit Suisse, the latest settlement brings a relief. The companies have been striving hard to move past its legal headwinds and focus on operations.

Currently, Barclays carries a Zacks Rank #3 (Hold) and Credit Suisse holds a Zacks Rank #4 (Sell).

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