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Credit Suisse (CS) Agrees With $10M Settlement for U.S. Probe

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Lately, legal hassles have heightened for Credit Suisse Group AG (CS - Free Report) , as the bank has been slapped with a fine of $10 million by the U.S. federal regulators. The company has been accused of malpractices related to its retail execution services business, including through Credit Suisse’s dark pool, amid ongoing scrutiny around the U.S. share trading industry.

The Swiss Bank’s settlement resolves accusations related to improper treatment of customer orders from mid-2011 through March 2015.

Allegations

Dark pools are private platforms wherein the secrecy of investors is guarded well in comparison to public exchanges. The crux of dark-pool trading is that there is lesser transparency in trading, minimizing the market impact. Further, price and volumes of trade are predetermined and are revealed only after the trade.

Per the U.S. Securities and Exchange Commission (SEC) and New York Attorney General Barbara Underwood, the Swiss bank's retail execution services business did not disclose the procedure of execution of orders to customers. Notably, orders were given less importance for which execution quality was not needed to be publicly detailed by the bank than orders exposed to such reporting. This business was shut down in 2015.

Furthermore, ordinary customers were promised to be accessed to broad liquidity in dark pools by the bank, including the company’s dark-pool trading platform, but minimum number of “held orders” was executed instantly at market prices, in the way it was promised.

“Credit Suisse gamed its publicly-reported statistics and misled customers,” Underwood said in a statement. “Wall Street firms cannot offer misleading assurances about the execution quality they provide their customers while engaging in electronic trading strategies that undermine those promises,” she further noted.

Notably, the bank has not denied or admitted any wrongdoings, and will pay $5 million each to the SEC and Underwood's office. Per Credit Suisse spokeswoman Nicole Sharp, the bank was satisfied with the settlement.

Similar Cases

Among other holders of the dark pool, Barclays PLC (BCS - Free Report) , Goldman (GS - Free Report) and UBS Group AG (UBS - Free Report) have been penalized since 2014 for their respective trading systems.

Bottom Line

Heightened investigations and lawsuits surrounding dark-pool trading and high-speed trading reflect efforts of the regulators and the government to bring transparency and stability in the trading industry and thereby, safeguard investors’ interests.

Though Credit Suisse has undertaken special measures to combat the rise in expenses, prevailing litigation issues may be a headwind for the company in the forthcoming quarters.

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