Chris Dolmetsch New York
BARCLAYS lost a bid to dismiss a lawsuit by New York accusing the bank of misleading customers of its dark pool in order to boost its own profit.
Dark pools are private stock markets usually operated inside large banks. Unlike exchanges such as the New York Stock Exchange, dark pools keep supply and demand private until after a trade is executed.
New York attorney-general Eric Schneiderman sued the London-based bank in June, saying it bilked its own customers in order to expand its dark pool through a pattern of “fraud and deceit” that began in 2011.
The bank sought dismissal of the case, saying that claims under the state’s Martin Act must be tied to the sale of a particular security and that misrepresentations about the platform through which trading takes place were not covered by the law.
State Supreme Court Justice Shirley Kornreich in Manhattan denied the bank’s request to throw out the Martin Act claims on Friday, saying the choice of platform “can have a significant impact on the outcome of the trade” as a substantial percentage of securities trading was done by computer algorithms, with high- frequency trades implementing predetermined strategies in milliseconds.
“Much of the profitability of algorithmic trading is predicated on finding opportunities to profit on short-term market fluctuations in different venues, with the short term often being milliseconds in duration,” Kornreich said. “Consequently, trading decisions can be inexorably linked to the venue in which the trade occurs, because that venue will impact the profitability of a trade based on timing.”
Kerrie Cohen, a spokeswoman for Barclays in New York, declined to comment on the ruling.
Liz DeBold, a spokeswoman for Schneiderman, said: “We are pleased the court affirmed our ability to pursue a claim against Barclays, and we look forward to continuing to move this case forward.” Schneiderman has taken a leading role in seeking to reform equities trading in the $23 trillion (R268 trillion) US stock market. – Bloomberg