Crossfinder dark pool in the New York Attorney General’s crosshairs.
As first reported by Fox Business News, the Empire State’s yearlong investigation into high-frequency trading and now dark pools looks to have a second dark pool and operator in its sights. 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, which could be announced in the coming weeks.
This follows the office’s investigation into Barclays and its LX dark pool, which was accused of missteps and non-disclosure regarding the bank’s practice of “latency arbitrage.”
Crossfinder is widely regarded as the U.S. equity market’s top and largest dark pool by volume of shares traded. It was consistently ranked at the top of several major consultancy’s volume reports until it stopped voluntarily its volume data back in April of 2013. It resumed reporting its volumes in June 2014 when Finra mandated these private venues report their volume data, albeit on a two-week delayed basis.
Largest Dark Pool Goes Dark on its Data
Fox Business News added that 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.
Schneiderman’s investigation comes in response to public and private questions raised after the May 2010 Flash Crash – such as; do dark pools provide the high-frequency traders an unfair speed advantage in order to get order flow? And does this increased liquidity beget more liquidity unfairly and put these trading venues and select traders who can operate in them quietly and speedily put others at a trading disadvantage?
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.
Credit Suisse’s Crossfinder Top Dark Pool During First Finra Reporting Period
Credit Suisse and Barclays are not the only one major Wall Street bulge bracket trading firms that operate dark pools – UBS, Morgan Stanley, Goldman Sachs and Bank of America also do, not to mention independent run venues from Liquidnet, LeveL ATS, ITG, BIDS Trading and others.
Dark pool trading has been under fire because they often provide more secrecy when a trader uses them, which often translates into better execution as an order’s nature is not publicly known. Trading in the dark can also mean getting more shares executed per trade in private than in public – such as on the NYSE or Nasdaq.
The Securities and Exchange Commission is also examining dark pools and potential abuses by high-frequency trading firms following the 2014 publication of the book “Flash Boys” by financial journalist Michael Lewis, who alleged that the nation’s stock markets were being rigged by high-speed trading.
