Molecule Software Blog

The Molecule Software ETRM/CTRM Blog

First Dark Pool Fraud Suit (of Many?)

Last Thursday, the NY State AG filed a securities fraud lawsuit against Barclays, alleging that the bank promised to get the best possible prices for customers in its LX dark pool, but instead got the best profits for itself. Looking at this a little closer, the allegation is that Barclays told its customers there would be no sharks in the pool, but then it tried to attract predatory traders to the pool. Barclays does claim it allows its customers to only trade with certain counterparties, and I'm sure more defensive arguments will come out. {rubs hands together with anticipation}

So, in reality, this is not a lawsuit that is questioning the general incentive issues around predatory HFT trading and dark pools, but pertaining to the issue that Barclays said one thing and did another. And we all know it's also fueled by Flash Boys. It will be an interesting case to follow, as it seems this is what the government has decided to use as its first step to regulate. We wonder when front-running charges will follow.