Barclays Capital Inc. and Credit Suisse Securities settled allegations by the Securities and Exchange Commission and the New York State Attorney General related to their operation of automated trading systems known as “dark pools.” The banks settled the allegations by agreements to pay penalties in excess of US $154 million in aggregate to both regulators. The regulators claimed the banks made false statements and omissions in the marketing of their dark poolsSpecifically, the regulators alleged that, from December 2011 through June 2014, Barclays, in connection with its ATS known as “Barclays LX,” told clients it used a “sophisticated surveillance framework” to prevent clients from predatory trading by high-speed traders when it did not do so consistently, and failed to run surveillance reports on a weekly basis to ensure there was no “toxic flow in [LX’s] book,” after telling clients it would conduct such oversight continuously. Similarly, the regulators claimed that, at various time from January 2011 to April 2013, Credit Suisse, through its ATS known as “LightPool,” offered clients an opportunity to avoid trading with certain counterparties, such as high-speed traders. To fulfill this promise, said the regulators, Credit Suisse claimed it would constantly score participants using objective and transparent measures. In fact, alleged the regulators, Credit Suisse performed categorizations on an ad hoc, not on a regular, basis; considered multiple subjective not objective factors when rating participants; and gave some high-speed traders warnings in advance when they might be rated unfavorably. The regulators also alleged that Credit Suisse violated applicable laws in connection with its ATS known as “Crossfinder” at various times from April 2009 through April 2014. Among other things, the regulators claimed that Credit Suisse improperly used Crossfinder's subscribers' confidential trading information for two firm applications. Additionally, Credit Suisse accepted and ranked orders on Crossfinder in less than one-cent increments, in violation of applicable law aimed at preventing orders from trading ahead based on “insignificant sub-penny differences in their prices,” said the regulators. (Click here for background on the NYS AG lawsuit against Barclays in the article, “Barclays Charged by New York State in Connection With the Marketing and Operation of Its Dark Pool” in the June 29, 2014 edition of Bridging the Week.)