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By John McCrank
NEW YORK, Oct 7 (Reuters) - Barclays PLC on Tuesdayurged a New York court to toss the state attorney general'sfraud case over how the bank ran its private U.S. trading venue,saying the case oversteps state securities laws and offers noproof any investors were hurt.
New York Attorney General Eric Schneiderman filed a lawsuiton June 25 accusing the London-based bank of giving an unfairedge to high-frequency traders and lying to other customersabout it. It is the highest-profile case in arecent raft of investigations by authorities into the fairnessof high-speed, automated trading practices and alternativetrading systems, or "dark pools."
Barclays said in its court filing that Schneiderman wastrying to dramatically expand the powers of a New York statuteknown as the Martin Act, which aims to protect investors whenthe purchase, sale, or exchange of a security is misrepresented.It said Schneiderman had conceded in an earlier filing that thelawsuit was based on claims that Barclays had misrepresented howit operated its dark pool rather than about any particularsecurity transaction.
"The NYAG's reading of the Martin Act would render the Actvirtually unlimited in scope," Barclays said in the filing, aresponse to Schneiderman's Sept. 16 filing disputing an earliermotion to dismiss the case.
Schneiderman spokesman Matt Mittenthal declined comment.
Dark pools are used to trade big blocks of shares anonymously. The market is not informed of the trades until theyare completed, minimizing the risk that others will get wind ofthe trade and move against it.
Barclays had promised investors they would be protected from"predatory" and "toxic" trades inside its dark pool.Schneiderman said he had evidence the bank falsified marketingmaterials and misled big institutional clients in an effort togrow its dark pool to increase revenues and bonuses.
The Barclays filing said Schneiderman's arguments were"creating a perception of wrongdoing where none exists," andsaid that nowhere in the lawsuit does the attorney generalallege Barclays' customers failed to get quality executions.
It pointed to one example in which the attorney general saidBarclays had told clients that no more than 6 percent of tradingin its dark pool was "aggressive," while separately telling somehigh frequency traders that 25 percent of the orders that tookliquidity, or bought shares, were "aggressive."
Barclays said Schneiderman failed to distinguish thedifference between liquidity-taking orders in the later figure,versus all trading activity in the former figure.
"This is akin to the NYAG bringing a fraud claim against agrocer who tells one customer that 6 percent of all food hesells are apples, and another customer that 25 percent of allfruit he sells are apples. There is simply no fraud," Barclayssaid. (Reporting by John McCrank; additional reporting by KarenFreifeld)
