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Fraud Charges Drain Barclays Dark Pool

Trading volume plummeted 37% at Barclays following allegations of “systematic fraud and deceit,” yet order flows largely shifted to other major banks’ dark pools.
Reported by Featured Author

Late last month, Barclays’ dark pool saw a 37% drop in trading volume following New York Attorney General Eric Schneiderman’s announcement of a lawsuit against the bank for allegedly defrauding clients.

Schneiderman had accused Barclays of selling the dark pool to investors as a safe haven, while simultaneously selling out those very investors to the high-frequency traders (HFT) it claimed to be protecting them from. This notion burst into public consciousness in March via Michael Lewis’ Flash Boys, which described the US stock market as steeped in the practice.

A total of 312 million shares changed hands in 1.65 million transactions on the Barclays platform during the week of June 16, according to data from the Financial Industry Regulatory Authority (FINRA), making it the second-largest dark pool by volume. 

The following week, Barclays fell to fifth place, moving 197 million shares across just over one million trades.

The number of shares exchanged across all 40 or so dark pools tracked by FINRA declined by a relatively modest 5%. 

Orders largely shifted to the embattled bank’s closest peers. Dark pools belonging to Credit Suisse, Deutsche Bank, and UBS all facilitated trading of millions more securities in the week of the lawsuit than the one prior.   

IEX, an investor-owned dark pool launched less than a year ago to combat predatory HFT, notably did not see any uptick in trading volume following the Barclays allegations.

According to FINRA figures, investors exchanged 121.7 million shares in 403,880 transactions through IEX during the week of the lawsuit. The week before, 137.3 million securities swapped ownership through 415,819 deals. This 11% decline more than doubled the trading slow-down shown across dark pools in aggregate between the weeks of June 16th and 23rd.

Since then, IEX has experienced some of its heaviest trading days so far. The statistics page on its website has July 9th highlighted as IEX’s largest market share to date: 0.845%. 

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