What good can come of something labeled a “dark pool”?
Barclays Barclays may find out the answer soon, and it may mean trouble.
New York Attorney General Eric Schneiderman is said to be preparing a lawsuit against the British bank over improper use of its dark pool, a private trading platform where activity is concealed from the public.
Schneiderman is expected to accuse Barclays of misrepresenting the number of high frequency traders in its dark pool platform, and lying about marketing materials. Further, he may argue the bank favors high frequency traders and tries to attract them by giving more advantages over other traders in the dark pool.
Dark pools have come under fire lately for their lack of transparency, and some argue the secretive trades can create price inefficiencies.
Proponents argue that dark pools offer institutional investors a place to buy and sell large amounts of stock without worrying about moving the market, or other traders shifting the price.
Schneiderman’s office appears to be looking at whether Barclays’s dark pool platform was actually behaving to protect investors in that manner, or using the system to its advantage for other purposes.
The NY AG is expected to make public details of the lawsuit against Barclays later this afternoon.
Barclays was the first big bank to get caught up in the global Libor rigging scandal back in July 2012. The firm paid $453 million to settle the case, and its CEO Bob Diamond was forced to resign over the matter