Investors were this morning waiting to see how shares in Barclays would perform after they slumped over 6.5 per cent yesterday in the wake of news that the UK-listed firm is being sued by authorities in New York. It is claimed the bank falsified marketing materials to mislead clients into investing into a "dark pool" operation.

Investors were this morning waiting to see how shares in Barclays would perform after they slumped over 6.5 per cent yesterday in the wake of news that the UK-listed firm is being sued by authorities in New York. It is claimed the bank falsified marketing materials to mislead clients into investing into a "dark pool" operation.

Separately, Reuters reported today that the bank is starting an internal investigation into the matter.

The claims from New York are particularly bitter for a bank that has sought to repair its image following its role - among with those of other banks - in rigging interbank interest rates such as LIBOR.

Dark pool trading operations allow clients to trade shares while keeping prices private until the deal is completed. They have been criticised for their lack of transparency and hurting the ability of the market to accurately price securities.

New York attorney general Eric Schneiderman said in a statement that despite claims from Barclays that safeguards were in place to protect clients, the bank had operated its dark pool to favour high-frequency traders.

“The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,” said Schneiderman.

“Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays’ dark pool was full of predators – there at Barclays’ invitation,” he added.

Shares in the bank yesterday closed down 6.52 per cent, at 215 pence per share and today stand at 216 pence per share. The price is down about 24 per cent on the same date last year; on June 27, 2013, it traded around 286 pence per share.

The developments are a blow to the efforts of Antony Jenkins, CEO for over a year, who had taken over from Bob Diamond, the high-profile chief executive who resigned in 2012 after the LIBOR affair. Barclays has, it says, sought to tighten up on compliance controls. Barclays had, most famously, recruited former Financial Services Authority CEO Hector Sants to head compliance and regulatory efforts, but Sants subsequently resigned from the post due to health-related stress.

Late last night, Senator Carl (Democrat, Michigan), commented on the affair. He has been a high-profile figure in the regulatory surge since 2008, and who recently chaired a Senate Permanent Subcommittee on Investigations hearing on conflicts of interest, loss of investor confidence and high-speed trading. He spoke about the Barclays case.

“Our recent hearing highlighted some significant conflicts of interest in our stock market, and today’s action by Attorney General Schneiderman alleges more. The behavior described in this complaint would put a bank’s financial interest in marketing its dark pool and profiting by providing access to predatory high-speed traders ahead of the interests of investors. Action is needed to end conflicts of interest in the US stock market," Levin said.

Today, Reuters reported that Jenkins told staff in an internal memo: "I will not tolerate any circumstances in which our clients are lied to or misled and any instances I discover will be dealt with severely. The success of our business depends crucially on our clients being able to rely absolutely on our honesty and integrity."  

View more details on the case here.  

Ongoing efforts

The US Securities and Exchange Commission announced earlier this month it was targeting high-speed trading and dark pools with a new sweeping set of initiatives.

Chair Mary Jo White said that, amongst regulatory proposals in the works, was an anti-disruptive trading rule to rein in aggressive short-term trading by high-frequency traders as well as a plan to force more proprietary trading shops to register with regulators and open their books for inspection.

She also highlighted a number of transparency measures, including one rule that require greater disclosure from alternative trading venues such as dark pools and brokerage internalizers.

“I am recommending additional measures to further promote market stability and fairness, enhance market transparency and disclosures,” said White.

“Transparency has long been a hallmark of the US securities markets, and I am concerned by the lack of it in these dark venues. Transparency is one of the primary tools used by investors to protect their own interests, yet investors know very little about many trading venues that handle their orders,” she added.