Citigroup To Shutdown Its LavaFlow ECN

In another example of the cracking base around high-speed and unregulated trading, Citigroup will be joining Wells Fargo and Goldman Sachs in closing down its in-house stock trading venue. These “venues” display orders whereas “dark pools” are off-exchange locations where large size orders are traded between institutions and high-net worth individuals as a means to avoid market disruptions caused by the sale or purchase of large orders.

Since Haim Bodek went on a crusade to reign in the practice of using undisclosed order-types, the industry has been shaken to the core as public outrage has sparked regulators to direct greater scrutiny to the operation of off-exchange or “Dark” venues.

As recently as October this year Wells Fargo closed shop on its dark pool, Liquidity Tracker. In April Goldman Sachs was first in line to announce it would close its SigmaX dark pool.

Barclays dark pool, Barclays LX, was expected to close following an investigation in 2014 but that plan never manifested as the pool still operates. Barclays was the subject of a lawsuit from New York’s Attorney General into the practice of lying to non-HFT (high-frequency trading) clients about the presence of HFT on its platform in an effort to draw more HFT to take advantage of the unsuspecting non-HFT clients.

Lavaflow has faced its own troubles after the ECN failed to protect client confidential information from March 2008. Citigroup was accused sending orders to be filled to venues that it had previously sent orders that were not to be displayed on the order book. . Non-displayed orders are used in dark pools and on exchanges and ECNs. These are orders designed to be hidden from the public view, they are offered special “characteristics”, which allow speed players with deep pockets to take special advantage of the slower and less-abled traders (or retail investor).

It’s likely Citigroup may not want to be operating the very product that regulators are just now realizing has annoyed traders for the better half of a decade. Shares of Citigroup traded up almost 1.30 percent to $54.01 in Tuesday’s afternoon session.