LONDON-- UBS AG and Deutsche Bank AG have been sucked into a
widening investigation into alternative trading platforms, with
both banks saying Tuesday that they're helping authorities with
their probes.
The two banks each disclosed in their second quarter results
that they are cooperating with regulators looking into high
frequency trading and "dark pool" trading venues.
Dark pools allow investors to buy and sell shares anonymously,
so that their trading activity is hidden from rivals who may be
betting against them. However, in recent months regulators in the
U.S. especially have focused on dark pools because of concerns
about the lack of transparency and worries that some traders may
get an unfair advantage.
Last month New York Attorney General Eric Schneiderman alleged
in a lawsuit that Barclays PLC favored high-frequency traders in
its dark pool, and then lied to clients about their participation
in the trading venue. Last week, Barclays filed a motion contesting
the claims, arguing that the U.S. Attorney General used misleading
information in its suit.
The allegations hit Barclays's dark pool, known as Barclays LX,
hard with several major clients pulling away. Since the suit was
filed in late June the number of trades in its dark pool has
roughly halved, according to the Financial Industry Regulatory
Authority.
The latest data from Finra, showed that UBS is currently the
largest U.S. dark pool operator by volume of trades, closely
followed by Credit Suisse Group AG.
UBS said those probing its dark pool operation include the
Securities and Exchange Commission, the Financial Industry
Regulatory Authority, or Finra, and the New York Attorney General.
UBS noted that similar investigations are being pursued
"industrywide," adding that it is one of "dozens of defendants'
named in related class action lawsuits. UBS doesn't disclose the
financial contribution of its dark pool, and a spokesman for the
bank said only that it is "not material" to overall results.
Credit Suisse, which operates one of the largest dark pools in
the U.S., didn't disclose specific requests for information when it
reported results recently. In comments made to reporters last week
about dark pools as part of the results presentation, Credit Suisse
Chief Executive Officer Brady Dougan cited "an accelerating level
of inquiry into these areas from the regulators," adding, "We've
been obviously cooperating on a lot of those discussions, and we'll
continue to."
Mr. Dougan said that, "We don't see any material impacts from
that, but obviously that may develop over time." A spokesman for
the Swiss bank declined to comment.
Deutsche Bank said Tuesday that it received requests for
information from certain regulatory authorities relating to high
frequency trading. The bank also added that it was a defendant in a
class action complaint alleging violations of U.S. securities law
linked to high frequency trading.
In 2011, Deutsche Bank said its dark pool system for trading
equities, dubbed SuperX European Broker Crossing System, was "the
largest pool of non-displayed liquidity in Europe," trading an
average of EUR363 million ($487.6 million) of shares a day during
December 2011.
The dark pool probe is being led out of the U.S. but it is
possible other authorities may also join in. The U.K.'s Financial
Conduct Authority said that it was looking into dark pools but
hadn't made a formal decision to investigate them. During a
briefing earlier this month FCA Chief Executive Officer Martin
Wheatley said the regulator was looking at the trading venue as
part of wider research into trading systems.
Write to Max Colchester at max.colchester@wsj.com, John Letzing
at john.letzing@wsj.com and Eyk Henning at eyk.henning@wsj.com
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