The largest regulatory action against dark pools before Sunday's settlement was the $20.3 million fine leveled against Investment Technology Group in August after the firm profited off confidential consumer information by opening a secret trading desk within its own dark pool. The incident coincided with a reduced interest in the firm's Posit dark pool.
Dark pools are intended to help asset managers trade large blocks of shares without moving the market against them. They have seen increased scrutiny after the critical portrayal in Michael Lewis' book "Flash Boys," which makes the case that dark pools have allowed high-frequency traders to rig the market against customers.
Barclays and Credit Suisse allegedly made "false statements and omissions" in the marketing of those pools, in some cases suggesting that they would protect customers against predatory traders without doing so, according to the New York attorney general.
"These largest-ever penalties imposed in SEC cases involving two of the largest [alternative trading systems] show that firms pay a steep price when they mislead subscribers," Andrew Ceresney, director of the Securities and Exchange Commission's Enforcement Division, said in a statement.
Barclays agreed to admit wrongdoing and pay about $70 million to settle the charges, while Credit Suisse will pay about $84 million (including some money related to other violations). According to internal documents cited by the New York attorney general, Barclays anticipated making an additional $37 million to $50 million every year from growth in its dark pool.
Despite the controversy, dark pools seem to be offering a service that entices traders away from the open exchanges. In a statement, SEC agency Chair Mary Jo White said that the settlements were one in a series of strong enforcement actions involving dark pools.
"The SEC will continue to shed light on dark pools to better protect investors," she said.
