Volume in Barclays Plc's private U.S. trading venue, or "dark pool," fell 79 percent in the week and a half after the New York attorney general accused the British bank of giving an unfair edge to high-speed traders, according to data released on Monday.
The number of shares traded in Barclays' LX (BARC.L), an alternative trading system, dropped 66.3 percent in the week of June 30 to around 66.4 million shares from around 197 million shares the previous week, according to a report by the Financial Industry Regulatory Authority. The report from FINRA, Wall Street's self-funded regulator, included only the most widely traded securities.
The drop followed a 37 percent decline in the week the probe was announced.
Dark pools are broker-run trading venues where investors trade shares anonymously and trading data is only made available afterward, reducing the chance of information leaking about large orders. The lack of transparency has drawn the scrutiny of regulators.
New York Attorney General Eric Schneiderman said on June 25 that he had evidence that Barclays' staff had falsified marketing materials and misled big institutional clients in an effort to expand its dark pool and increase revenues. He accused the British bank of giving an edge to brokers and proprietary trading firms that use aggressive high-frequency trading strategies while telling other clients it was protecting them from such tactics.
Deutsche Bank (DBKGn.DE), Credit Suisse (CSGN.VX), Royal Bank of Canada (RY.TO) and Investment Technology Group (ITG.N) were among several brokers and banks that said they had stopped routing orders to Barclays' dark pool after the securities fraud lawsuit was filed.
For the week of June 30, Barclays' dark pool was the twelfth-largest in the United States, down from the second-largest two weeks earlier.
Dark pools run by Credit Suisse, UBS UBSN.VX, Bank of America's (BAC.N) Merrill Lynch, Deutsche Bank, Morgan Stanley (MS.N), Goldman Sachs (GS.N), JPMorgan (JPM.N), KCG (KCG.N), Citigroup (C.N), IEX, and ITG had more volume.
In early June, dark pool operator Liquidnet paid $2 million to the U.S. Securities and Exchange Commission to settle charges that the electronic trading network had improperly used its subscribers' confidential trading information to market its services.
On July 1, Goldman Sachs agreed to pay an $800,000 fine to FINRA to settle a case over pricing rule violations in its dark pool.
(Reporting by John McCrank in New York; Editing by Dan Grebler)