Barclays 'Dark Pool' Trading Falls 79% After US Lawsuit

Trading volume on Barclays' 'dark pool' platform has tumbled 79% only a few weeks after the New York Attorney General slapped the bank with a lawsuit centring on its high frequency trading (HFT) practices.

According to data from Wall Street regulator Finra, this shows a continual drop in equities trading on the platform, as volumes initially dropped by 37% in the week the legal proceedings were filed.

Sources say a bulk of clients have stopped trading shares on the platform after Schneiderman claimed Barclays lied to clients and didn't give them the best possible price on 25 June.

At the time, Barclays said "we take these allegations very seriously" while insisting it is cooperating with authorities and looking at the matter internally, and claiming that the integrity of markets is a top priority.

It has yet to respond to further claims through media sources that clients and traders raised concerns before the lawsuit was filed. The response will come in a legal filing.

What is the Lawsuit About?

New York Attorney General Eric Schneiderman based his securities fraud lawsuit around internal communications provided by former Barclays employees.

The lawsuit centres on claims that Barclays maximised profits by executing a bulk of transactions through HFT and on so-called 'dark pools' - trading platforms that do not disclose trade or party details publicly until after the transaction is completed.

The practice takes place despite the fact clients could have got a better deal on regular exchanges.

"The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit," said Schneiderman.

"Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays' dark pool was full of predators – there at Barclays' invitation," he said.

"No regulator – no matter how broad their authority – can succeed on its own. I want to personally thank those that have courageously reported wrongdoing to our office and encourage others to do the same."

Schneiderman added that Barclays claimed that dark pool trading allowed it to "protect" clients from "predatory traders" by using HFT speed to get better prices for customers, however he alleges that Barclays in fact used this practice to court the very traders it claimed to avoid.