NYS Attorney General Sues Large Bank for Dark Pool Fraud
The New York State Attorney General filed a fraud lawsuit against a large international bank, alleging misrepresentations in the operation of its dark pool. The NYS Attorney General alleges that the bank’s marketing materials included false statements about special safeguards it had put into place to protect against predatory high frequency traders. The Attorney General claims that the bank never prohibited any high frequency trading firms but, rather, solicited them by offering “systematic advantages.” The suit also asserts that the bank, contrary to its marketing statements, favored its own dark pool when routing orders.
OUR TAKE: This is the first in what we expect will be a series of state and federal regulatory actions against dark pool operators where the regulators allege lack of operational transparency. Compliance officers are now tasked with learning trading algorithms and IT to ferret out potential misstatements about how their firms operate dark pools.