Tags: Barclays | Attorney General | Dark Pool | lawsuit

Barclays Must Face NY Attorney General's 'Dark Pool' Suit

Saturday, 14 February 2015 10:56 AM

Barclays Plc lost a bid to dismiss a lawsuit by New York accusing the bank of misleading customers of its dark pool in order to boost its own profit.

Attorney General Eric Schneiderman sued the London-based bank in June, saying it bilked its own customers in order to expand its dark pool through a pattern of “fraud and deceit” that began in 2011.

The bank sought dismissal of the case, saying that claims under the state’s Martin Act must be tied to the sale of a particular security and that misrepresentations about the platform through which trading takes place aren’t covered by the law.

State Supreme Court Justice Shirley Kornreich in Manhattan denied the bank’s request to throw out the Martin Act claims on Friday, saying the choice of platform “can have a significant impact on the outcome of the trade” as a substantial percentage of securities trading is done by computer algorithms, with high-frequency trades implementing predetermined strategies in milliseconds.

“Much of the profitability of algorithmic trading is predicated on finding opportunities to profit on short-term market fluctuations in different venues, with the short term often being milliseconds in duration,” Kornreich said. “Consequently, trading decisions can be inexorably linked to the venue in which the trade occurs, because that venue will impact the profitability of a trade based on timing and counterparty.”

Kerrie Cohen, a spokeswoman for Barclays in New York, declined to comment on the ruling in an e-mail.

Schneiderman Spokeswoman

“We are pleased the court affirmed our ability to pursue a claim against Barclays, and we look forward to continuing to move this case forward,” Liz DeBold, a spokeswoman for Schneiderman, said in an e-mail.

Schneiderman has taken a leading role in seeking to reform equities trading in the $23 trillion U.S. stock market, examining whether exchanges and dark pools give unfair perks to high-frequency traders.

Kornreich granted Barclays’s request to dismiss Schneiderman’s claim under a state law that allows the attorney general to seek an order blocking “any repeated or persistent fraudulent or illegal conduct of a business,” as well as restitution, damages, disgorgement and costs.

The justice said the law doesn’t create independent claims but allows the attorney general to seek relief in cases “involving persistent fraud or illegality.”

Kornreich’s decision only deals with the original suit filed in the case and doesn’t address an amended complaint filed this month by the attorney general saying that several bank executives were aware the bank was falsely representing how algorithms in its dark pool worked and how client orders were routed.

Dark pools are private stock markets usually operated inside large banks. Unlike exchanges such as the New York Stock Exchange, dark pools keep supply and demand private until after a trade is executed.

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Barclays Plc lost a bid to dismiss a lawsuit by New York accusing the bank of misleading customers of its dark pool in order to boost its own profit.
Barclays, Attorney General, Dark Pool, lawsuit
Saturday, 14 February 2015 10:56 AM
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