Dark Pool Investigation Expands

The New York Attorney General is apparently expanding his investigation into dark pools. Mr. Schneiderman has accused Barclays of falsely representing the concentration of high-frequency traders in its dark pool and providing investors with misleading marketing materials. The complaint against Barclays is available online. On Tuesday, UBS and Deutsche Bank of Germany became the latest banks to disclose that they were facing inquiries from regulators

Dark pools are trading venues which allow investors to trade, without doing so in the public markets. So, if you are an institution looking to buy a large block of shares, you know that your initial trades, if handled on the exchanges, are going to cause a price increase and thereby cost you more money. Dark pools allow investors to make those trades privately, and the pricing announced afterwards.

Of course, this is a problem since there is no reporting of the trade, or the pricing, which undermines the validity of the price of securities and the entire system lacks transparency. When shares trade on an exchange, orders are visible to everyone, and the executions are posted immediately. No so with a dark pool. The Pool will match buy and sell orders, but do not display the results.
The lack of transparency is an issue - and according to the Attorney General, there are claims that forty percent of all equity trades are executed in dark pools.
In the Barclays case, which also includes allegations regarding high frequency trading,  the attack is not on the dark pool itself, which is not illegal, but rather on the marketing of the dark pool.
The inquires at UBS and Deutsche Bank are reportedly into the same areas, but the details have not been disclosed.
For more information - UBS and Deutsche Bank Disclose New Inquiries Over 'Dark Pools'
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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

High Frequency Traders Subpoenaed

New York Attorney General Eric Schneiderman sent subpoenas to six high-frequencytrading firms seeking information about special arrangements they have with exchanges and dark pools as well as their trading strategies, according to a person familiar with the matter.

High-frequency trading (HFT) is a type of algorithmic trading, specifically the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. The concept is to use speed and position to capture trading profits of as little as a fraction of a cent on a trade.

Despite all of the recent publicity, HFT is not something new, or threatening. Back in 2009, studies suggested HFT firms accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012.

For more information, High-Frequency Traders Said to Be Subpoenaed in New York Inquiry 

Mark Cuban's Idiot's Guide to High Frequency Trading

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions  We represent investors, financial professionals and investment firms and brokers nationwide. For more information contact Mark Astarita at 212-509-6544 or email us.