Barclays Bids To Halt High-Frequency Trading Class Action In Its Tracks

A high-profile class action against Barclays over so-called high-frequency trading is heading into a key phase this month, with the court set to decide plaintiffs' motion for class certification—a pivotal moment in the case's trajectory.

Strougo v. Barclays Plc, 14-cv-05797 (S.D.N.Y.) began in July 2014, when a Barclays purchaser of Barclays American Depositary Shares ("ADSs") filed a putative class action against the bank for violating the federal securities laws, alleging the bank made false or misleading statements about its operation of so-called dark pools that artificially inflated the ADSs' price. Dark pools are alternative trading venues where institutions trade massive quantities of securities anonymously, without revealing the quantity or price to the general public until the trade is complete. Dark pools tend to be fresh feeding grounds for high-frequency traders ("HFTs"), who utilize complex computer algorithms to move in and out of securities positions within fractions of a second. By employing their computer technology to gain access to information about trades occurring in dark pools before other investors do, HFTs have a key informational advantage which they can use to their benefit.

The Strougo plaintiffs alleged Barclays operated its dark pool—known as "Liquidity Cross," or "LX"—in a way that favored predatory high-frequency trading, while falsely overstating the safety and transparency of the LX trading environment. The plaintiffs said Barclays enticed HFTs into LX by offering them reduced fees and allowing them to place their computer servers close to Barclays' own systems in order to give HFTs a sneak preview of key trading data, all while consciously concealing these facts from the investing public. Because of these misrepresentations, Barclays ADSs allegedly traded at an artificially inflated price—until the New York attorney general ("NYAG") filed a complaint in 2014 detailing Barclays' alleged fraud, precipitating a massive ADS price decline.

The plaintiffs mostly survived Barclay's dismissal bid in April 2015, with New York District Judge Scheindlin holding that certain misstatements alleged in the complaint may have been material to investors (even if not material to Barclays)—a key element of the securities fraud cause of action. The plaintiffs then moved for class certification in July 2015, asking the judge to certify a class consisting of all persons who bought ADSs between August 2, 2011, and June 25, 2014.

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