(Bloomberg) — Additional actions are likely against private trading venues run by some of Wall Streets biggest banks, the nations top securities regulator and New York states attorney general said Monday night as they announced record settlements with two global banks over their so-calleddark pools.
Solidifying their oversight of these trading platforms, the U.S. Securities and Exchange Commission and New York Attorney Generals office announced that Barclays Plc andCredit Suisse Group AG would pay more than $154 million in allto settle allegations that they misled investors about how their venues were managed.
New York Attorney General Eric Schneiderman and the SECs enforcement director, Andrew Ceresney, said their agencies continue to focus on such venues, where about 20 percent of shares in the U.S. change hands.
We do have ongoing investigations intodark pools, Schneiderman said at a Manhattan news conference announcing the settlements, without providing further details. Ceresney declined to comment on any active investigations. This is an area where both of our institutions are focused, Ceresney said.
Barclays will pay $70 million, split evenly between the two enforcers,the largest fine levied on adarkpool operator, the SEC said in a statement. Credit Suisse will pay $84.3 million, according to the SEC. That payment includes $24.3 million to the SEC for disgorgement and interest, with the remainder shared evenly between the two authorities.
The dispute centered on whether the banks disclosed enough to their clients about trading in theirdark pools. Barclays misrepresented to clients how it monitored itsdark poolsfor high-frequency trading, according to the SECs statement. Credit Suisse systematically routed orders to its owndarkpool, but told clients that it didnt prioritize one trading venue over another, Schneidermans office said.
These cases mark the first major victory in the fight against fraud indarkpool 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,Schneiderman said in a statement. We will continue to take the fight to those who aim to rig the system and those who look the other way.
Barclays agreed to settle the charges by admitting that it misled investors and violated securities laws, according to the SEC statement. The London-based bank also agreed to install a third-party consultant to report to the SEC and New York Attorney General how the firm manages certain aspects of itsdark poolsbusiness.
Barclays is pleased to have reached agreement with both the SEC and the New York Attorney General to conclude their investigations concerning our U.S. equities ATS practices and Market Access controls, Barclayss spokesman Mark Lane said in a statement e-mailed on Sunday after details of the settlements became public.
Zurich-based Credit Suisse didnt admit or deny wrongdoing in the settlement, which involved two of its trading platforms, Crossfinder and Light Pool. We are pleased to have resolved these matters with the SEC and the New York attorney general, Nicole Sharp, a bank spokeswoman, said in a statement on Sunday.
These largest-ever penalties imposed in SEC cases involving two of the largest ATSs show that firms pay a steep price when they mislead subscribers, Ceresney said in the statement.
The private trading venues are the first to be sanctioned by Schneiderman, who almost two years ago began investigating whether U.S. stock exchanges and Wall Streetdark poolsprovide improper advantages to high-frequency traders. He sued Barclays in June 2014, alleging it lied to customers about what high- frequency trading firms were doing inside its platform in an effort to expand the venues business.
Dark poolssprung up in the 1980s to give market participants the ability to trade big blocks of stock without tipping off other traders. Over the years, they have garnered a greater portion of U.S. equity volume, accounting for almost 20 percent of daily trading. Hosted by some of the worlds biggest banks,dark poolsallow traders to keep their offers to buy and sell stocks largely private.
The settlements will effectively establish the New York attorney general as an enforcer in the business of private trading venues. Under the settlement, Barclays is acknowledging that the attorney general had jurisdiction under the Martin Act, a New York law that gives him broad powers to pursue white- collar crime.
For the SEC, the recorddark-poolpenalties serve as a counterpoint to critics whove said it has been lax in overseeing the U.S. equities market. In 2014, an SEC official publicly rebutted criticism that the agency wasnt doing enough in the era of light-speed trading after the Schneiderman investigation began.
The SEC will continue to shed light ondark poolsto better protect investors,SEC Chairman Mary Jo White said in the statement detailing the settlement.
White announced plans for greater oversight of stock trading in a June 2014 speech.The high-profile cases to date have focused not on the trading itself, but on disclosures and practices by those who cater to the firms.
In August, Investment Technology Group Inc. agreed to pay $20.3 million for operating a proprietary trading desk that used knowledge of customers requests to trade for its own benefit, among other infractions. Last January, UBS Group AG paid $14.4 million for lack of disclosures about how itsdarkpool operated.
Bloomberg News parent Bloomberg LP owns a stake in Bids Trading LP, which operates adarkpool.