FOX Business Network’s (FBN) Charlie Gasparino reports that “New York Attorney General (AG) Eric Schneiderman’s office is preparing a civil case against Credit Suisse, the operator of the Crossfinder dark pool, that could be announced in the coming weeks.” Gasparino went on to report, “The case would mark the second major civil action filed by the AG’s office since regulators launched their probe into deceptive practices in these markets last year.”
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NY AG Preps Case Against Credit Suisse Dark Pool
On the New York Attorney General’s office preparing a civil case against Credit Suisse:
“The New York Attorney General’s office is taking aim at its next target in its year-long inquiry into high-frequency trading abuses through lightly regulated stock markets known as ‘dark pools.’ The FOX Business Network has learned that New York Attorney General Eric Schneiderman’s office is preparing a civil case against Credit Suisse AG (CS), the operator of the Crossfinder dark pool, that could be announced in the coming weeks. The case would mark the second major civil action filed by the AG’s office since regulators launched their probe into deceptive practices in these markets last year.”
On Crossfinder:
“By some measurements, Crossfinder is considered Wall Street’s largest dark pool, trading more so-called Tier 1 stocks (those that appear in major indexes like the Standard & Poor’s 500) than any other private exchange. The exact nature of the attorney general’s case against Credit Suisse is unclear; but according to one person with knowledge of the matter, it would be similar to the civil action Schneiderman’s office took against the dark pool operated by Barclays (BSC) that involved what’s known as ‘latency arbitrage.’”
On dark pools:
“Because high-frequency traders have a speed and information advantage over other traders in a dark pool, they can take advantage of the slowness or latency of these other participants and thus have an unfair advantage in buying and selling stocks. At issue for Schneiderman’s office: Do dark pools like the ones operated by Barclays and possibly Credit Suisse provide the high-frequency traders this unfair advantage in order to attract their order flow of trades to its trading venue? Since the high-frequency orders are often undisclosed, such a move enhances the dark pool’s profitability because it would drive other players to trade through the venue because of its increased liquidity. A spokesman for the attorney general’s office declined to comment on the matter. A spokeswoman for Credit Suisse also declined comment but wouldn’t deny that the firm is a target in a dark pool probe with the AG’s office that is in its end stages. It’s unclear if Schneiderman’s office and Credit Suisse will reach a settlement in the matter, or whether regulators will file charges without one, as they did against Barclays AG for similar alleged abuses in its dark pool.”
On Barclays:
“In June of last year, Schneiderman filed a civil fraud case against Barclays alleging that the bank concealed the level of high-frequency trading in its dark pool to other investors, and allowed high-frequency traders to benefit from a situation where other traders relied on information provided at a much slower speed. Because high-frequency traders process orders at super-fast speeds, they can front run orders by other participants, and earn huge trading profits. Barclays has denied the charges and has asked a New York state Supreme Court judge to dismiss the case. In February, Judge Shirley Werner Kornreich denied the bank’s motion for dismissal but also alerted Schneiderman’s office to provide more definitive proof that Barclays misled other investors about the nature of the high-frequency trading in its dark pool. Credit Suisse and Barclays are among several operators of dark pools that have come under scrutiny over the past year. Other firms under include UBS, Morgan Stanley and Goldman Sachs.”