Exclusive: Barclays Lawsuit Will Focus On Steering Clients To "Dark Pool"

The New York State Attorney General’s lawsuit suit will also include allegations that Barclays misrepresented to clients how their trades would be routed and what protections they would have.

New York state Attorney General Eric Schneiderman's civil suit against Barclays will include allegations that the giant British bank routed more trades through its "dark pool" — a stock-trading venue outside major exchanges — than it told clients, according to a person familiar with the planned lawsuit.

The suit will allege that Barclays' stock trading clients, who traded through the bank, had their trades routed through its dark pool, despite the bank's telling the clients that it would route the trades to wherever they could be best executed, the person said.

The suit will also allege, as Bloomberg first reported Wednesday, that clients of Barclays' dark pool were told they would be protected from high-frequency traders, and actually gave preferences and advantages to those traders, the person said.

Schneiderman will sue under the Martin Act, the wide-ranging New York state law that has allowed many New York Attorneys General, most notably Eliot Spitzer, go after Wall Street for misrepresentations.

A Barclays "dark pool" — an alternative stock trading venue where bids for stocks aren't publicly available — had the second largest share trading volume of any of the over 40 dark pools that trade stocks in the U.S, with over 282 million shares traded in the week ending June 2, according to data collected by FINRA, the securities industry self-regulator. At times, it's been the largest dark pool in the country. Dark pools account for nearly 40% of all U.S. equities trading.

The increasingly fractured market structure for trading stocks has come under regulatory scrutiny, with the Justice Department investigating some high-speed traders and the Securities and Exchange Commission chair Mary Jo White said while announcing a set of market structure in a speech earlier this month that that she is "concerned by the lack of [transparency] in these dark venues." Schneiderman's office has also reportedly subpoenaed several high speed traders and requested information from some banks that run dark pools.

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