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Credit Suisse admitted Thursday that it was under investigation by U.S. authorities for its use of "dark pools", becoming the latest in a string of European banks to be probed for use of the controversial alternative trading platform.
Earlier this week, Germany's Deutsche Bank and Switzerland's UBS said they were being probed by U.S. regulators, who are looking into whether their platforms gave an unfair advantage to high-frequency traders.
Meanwhile, Barclays has urged the dismissal of a U.S. investigation into allegations it misled clients about its dark pool, while Goldman Sachs has paid $800,000 to settle claims it failed to ensure trades on its platform took place at the best possible price. Goldman Sachs didn't admit nor deny the charges.
Here's a quick look at the dark pool trading platforms and why it's come under investigation.
What are 'dark pools'?
"Dark pools"—also known as "black pools", "dark liquidity" and "upstairs markets"—are private forums for trading securities which are not available to the public. The names refer to the trading venues' lack of transparency.
The trading platforms allow investors to make large trades anonymously and prices are only published after trades have been made. This reduces the chance of information leaking about trade orders and allows firms to avoid paying exchange fees.
These advantages have helped the increase of the use of dark pools in recent years. Last year, Rosenblatt Securities estimated that these trades rose to 33 percent of total U.S. equity volumes in 2012. Independent trading platform Liquidnet predict that around 11 percent of equity trades in Europe are competed with dark pools.
Why are they so controversial?
Though perfectly legal, dark pools have been blamed for the declining trading volumes seen in recent years – an argument many in the industry refute. And with the reduced transparency, regulators remain worried about market transparency and investor confidence.
In the case of Barclays, the bank is currently fighting claims that it lied to its institutional clients and gave high frequency traders - who use fast, sophisticated trading software - an unfair advantage.
Per Loven, the head of international corporate strategy at Liquidnet Europe, told CNBC that clients may well be concerned of a "conflict of interest," with banks executing the client trades but also offering these alternative trading platforms while executing its own deals at the same time.
"We really emphasize that dark pools are not created equally," he told CNBC via telephone. Loven is unsurprised by the recent announcements and called for more regulation to make sure there is a level playing field in the industry.
What about the investigations?
Ian Gordon, a securities specialist at Investec Bank in London, believes that the current round of investigations may inevitably start to resemble similar probes in the foreign exchange and rates markets. However, he believed that any resolution wouldn't be soon.
"I would have thought the investigation would broaden before there is resolution with any individual bank…my working assumption is, we won't really see any resolution this year or next year."
Nick Hirschey, a professor of finance at London Business School, told CNBC that the issue is becoming so politicized that it won't be long before we see further charges against other banks in the near future.
He forecast that a short-term decline in trading volumes in dark pools, as a result of these latest events, would be followed by structural changes to the market.
"I expect volume to shift to dark pools that are more transparent about the structure of the market and the types of traders who participate on it," said Hirschey.
"The more banks can do to educate customers about trading and to be more transparent, the better."
Investec's Gordon noted that Barclays' second-quarter results beat forecasts, suggesting markets might be overestimating the hit from declining off-exchange trade. Meanwhile, Liquidnet told CNBC that it expects a slight upturn in business with clients shying away from dark pools at big banks and instead opting for the independent platforms.