Barclays has filed a motion to dismiss a lawsuit from New York's Attorney General regarding its high frequency trading (HFT), amid controversy around the practice popularised by Michael Lewis' book Flash Boys: A Wall Street Revolt.
Lewis's book claims that, with the use of expensive fibre optic lines, high frequency traders are able to get ahead of the regular buyer's order, allowing them to profit from knowledge of prices in slower feeds.
In other words, those people with the means at their disposal can essentially rig the markets.
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.
"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.
Barclays said the lawsuit should be dismissed because "many allegations were taken out of context and Schneiderman misconstrued parts of its marketing material" for its dark pool trading platform.
It added that Schneiderman "does not have the authority to accuse the bank of fraud and deceit under New York's Martin Act" - which aims to protect investors when the purchase, sale or exchange of a security is misrepresented.
Check out Schneiderman's allegations in the video below: