Tags: Schneiderman | dark pool | Barclays | trading

Dark Pools Begin to Drown

By    |   Friday, 27 June 2014 08:22 AM

Recently, the Financial Industry Regulatory Authority began publicly reporting dark pool activity.

The top five firms control approximately 50 percent of this alternative trading market. In descending order, they are: Credit Suisse, Barclays, UBS, Merrill Lynch and Morgan Stanley.

Dark pools permit secretive trading of publicly traded securities. This non-competitive environment favors certain actors with disregard to the general investing public.

This week, New York Attorney General Eric Schneiderman sued Barclays for allegedly misleading the investing public about how it operates LX, its dark pool, and favoring high-frequency trading clients.

Schneiderman alleges Barclays 1) misrepresented the extent to which algorithmic traders participate in this venue, 2) provided high-frequency firms with unfair competitive advantages, including how LX operated, 3) deceived clients with respect to their order routing and 4) diverted client trades to the dark pool, despite more favorable pricing and execution at other venues.

More than a dozen high-frequency firms trade extensively in Barclays' LX dark pool, including Citadel LLC, Jump Trading and Virtu Financial Inc.

The suit also alleges that Tradebot, historically the largest participant in Barclays' LX alternative trading venue, was removed from the chart that lists all of its clients.

Opacity remains prevalent in the market. Greater opacity protects the select few, increasing the difficulty of disrupting the system.

Schneiderman is courageously pursuing transparent markets. Transparency can help restore confidence in fair market mechanisms that greatly benefit all in society.

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Recently, the Financial Industry Regulatory Authority began publicly reporting dark pool activity.
Schneiderman, dark pool, Barclays, trading
Friday, 27 June 2014 08:22 AM
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