Barclays sued over dark pools by New York attorney general

The attorney general's office quoted one Barclays employee as saying: “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”

Another allegedly said: "If we can help ourselves we should; it's in our control."

Barclays heavily advertised a service called Liquidity Profiling, which it claimed was a "surveillance" system that tracked every trade in its dark pool in order to spot predatory traders.

The attorney general's office claimed that Barclays "has never prohibited any trader from participating in its dark pool, regardless of how predatory its activity was determined to be" and gave "safe" ratings to traders that were found to be toxic.

"Barclays operates its dark pool to favour high-frequency traders and has actively sought to attract them by giving them systematic advantages over others trading in the pool," it added.

The investigation into Barclays was "aided significantly" by "a number of former Barclays’ employees, who observed much of the conduct described in the complaint".

Joe Saluzzi, co-head of equity trading at Themis Trading, told Bloomberg: “This is obviously a breach of confidence, a breach of trust. It’s pretty obvious at this point that the Securities and Exchange Commission needs to come in, it needs to know what’s going on actually inside these boxes. Barclays - are they the only ones? We don’t know. I don’t know.”

Critics have attacked dark pools for making stock markets less transparent, with nearly 40pc of stock trades now taking place away from traditional exchanges, up from a little over 15pc six years ago.

Earlier this month, Mr Schneiderman revealed that his sweeping investigation into the US stock market will include whether dark pools are conducting themselves properly

Chad Johnson, head of the New York Attorney General's Investor Protection Bureau, said his office is looking into whether dark pools are operating in a way that is consistent with how they market themselves, that they have the interests of investors in mind, and that brokers directing trades to their own dark pools do so in a way that does not present conflicts of interest.

The Securities and Exchange Commission has also announced proposals to extend oversight of dark pools and their traders.

Chairman Mary Jo White said the SEC will work with the Financial Industry Regulatory Authority, Wall Street's regulator, to increase the disclosure of any trades.

To help craft the new rules, Ms White said she is creating a special new market structure advisory committee.

Barclays said in a statement: “We take these allegations very seriously. Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”

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