Barclays and Credit Suisse have agreed with US regulators to pay more than $150 million to settle charges that they have misled investors about their dark pool operations.
“These largest-ever penalties imposed in SEC cases show that firms pay a steep price when they mislead subscribers.”An investigation by the US Securities and Exchange Commission (SEC) and the New York Attorney General’s office found both firms made false statements to investors about their alternative trading systems, promising protection from the most aggressive and high-frequency traders.
“Dark pools have a significant role in today’s equity marketplace, and the firms that run these venues must ensure that they do no make misstatements to subscribers about their material operations,” said Andrew Ceresney, director of the SEC’s enforcement division.
Barclays admitted to breaking securities laws and agreed to pay $35 million to the SEC and $35 million to the state of New York. Credit Suisse—without admitting or denying any findings—will pay $64.3 million to the SEC in fines and disgorgement and $30 million to the New York Attorney General.
The two largest-ever penalties associated with dark pool investigations will show “firms pay a steep price when they mislead subscribers,” Ceresney continued.
Specifically, the New York Attorney General Eric Schneiderman alleged Barclays made “knowing and systematic misrepresentations” about how the firm operated its dark pool and overrode its liquidity profiling.
It also exposed its investors to the “predatory traders from whom it promised to protect them,” the February 2015 compliant to the New York Supreme Court claimed, which allowed Barclays’ dark pool to become the second largest in the US.
Credit Suisse also made misrepresentations on two of its dark pools, Crossfinder and Light Pool, the regulators said.
According to Schneiderman, the bank failed to be transparent and objective in their “alpha scoring” feature, which supposedly allowed clients to avoid high-frequency traders that were considered “detrimental to institutional investors.”
The violations were also concentrated in how Credit Suisse routed client orders and dealt with confidential client information.
Credit Suisse’s spokesperson said the firm is “pleased to have resolved these matters.” Barclays did not respond to request for comment by time of press.
Related: Fraud Charges Drain Barclays Dark Pool & Dark Pool Inquiry Spreads to UBS, Deutsche Bank