The private exchanges can benefit investors by limiting the amount of information published, allowing them to keep their investment decisions quiet and avoid moving markets with big sales or purchases.
But Barclays is accused of marketing its dark pool as a safe haven for investors, away from the predatory actions of high frequency traders and others – when in fact, it is alleged, the bank encouraged those traders onto its platform.
As a result, dark pools could be forced to publish more information in a crackdown by American regulators.
“Some light needs shedding on dark pools as they are something of the wild west of trading. The Securities and Exchanges Commission may want to implement new rules following its investigation into Barclays’ LX dark pool,” said Chen Yao, a professor of finance at Warwick Business School.
“The data on dark pools is limited, and more data needs to be made available to researchers to further examine the issue.”
Barclays is understood to have hired law firm Wilmer Cutler Pickering Hale and Dorr to investigate the matter internally. “We are undertaking a full internal investigation into these allegations, which will report directly to me,” said chief executive Antony Jenkins. The bank has 20 days from the law suit’s announcement last week to decide how to respond.