Published On: Thu, Jun 26th, 2014

Eric Schneiderman sues Barclays Bank over the use of its “dark pool” trading venue methods

Schneiderman, Attorney General  for New York State has sued the one of the world’s international banks over allegations that they tended to favor high-speed traders using what is known  as “dark pool” trading in preference to institutional investors.

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Eric Schneiderman, the New York State attorney-general, is in the process of suing Barclays Bank, the British multinational banking and financial services company, over allegations that the bank had continuously violated New York’s powerful Martin Act, been purposely misleading investors through allowing them to trade large blocks of shares anonymously, with the actual share prices only being posted publicly after the deals were completed.

According to Mr Schneiderman’s allegations, Barclays Bank, through its  LX division  had created what he described as a “dark pool”,  a way for institutional investors to place large share purchase orders without placing themselves at a disadvantage through giving indications to the general exchange of large and potentially market-moving trades.

Details of the lawsuit, which was filed in New York on Wednesday, show that Barclays allegedly distorted details of the marketing materials circulated to institutional investors concerning its “surveillance” system , which went under the label of “Liquidity Profiling, ” which they claim informed investors would be able to rapidly identify  and curtail what has been described as predatory trading and would lead to the banning of traders trading out with the norms of conventional business practice.

Financial analysts have suggested that by allowing institutional investors to dive into what has been described as “ the safe waters  of a dark pool” they were creating an unfair advantage, whilst enjoying the profits, which has seen Barclays Bank’ LX division expand rapidly to a level that it has now become one of the largest off-exchange venues. “

Bank regulators, among them the Securities and Exchange Commission (SEC), are reportedly becoming increasingly concerned over the growing practice of establishing “dark pools” with around 50 venues currently in operation, which they claim are working with insufficient supervision or transparency.

On the news of  Eric Scheiderman’s proposed legal actions a spokesperson for  Barclays responded by stating that the bank has taken  the allegations very seriously and have been co-operating with the New York attorney-general as well as the SEC, in addition to instigating an internal investigation of the matter.

The move against Barclays Bank  is the first made by Mr Schneiderman   since the New York state attorney-general began to  raise questions over the practice of  high-speed trading, although he did recently Institute  an inquiry into whether US stock exchanges and other trading platforms had been giving these so-called “high-speed traders” an unfair advantage over their traditional rivals. According to details of the lawsuit, six high-frequency trading firms, as well as Barclays, have been subpoenaed as part of its investigation.

Schneiderman, a member of the Democratic Party, was appointed to the role of  65th New York Attorney General in January of 2011.

 

Eric Schneiderman graduated from Trinity School in 1972, Amherst College in 1977, and from Harvard Law School in 1982.

Schneiderman began his professional career serving as  Deputy Sheriff in Berkshire County, Massachusetts later moving on to work as court clerk  for the Southern District of New York.

Taking some time out from his stint in public service, Eric Schneiderman joined  the Pittsburgh-based law firm of Kirkpatrick and Lockhart, eventually rising to the position of partner, before moving back into the public sense sector, representing the 31st District in the New York State Senate, which principally comprised Manhattan’s Upper West Side, as well as a number of other districts in the Borough as well as part of the Bronx.

 

 

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