The latest round of penalties over “dark pools” highlights how reliant banks and exchange operators have become on business from high-frequency traders — even on platforms that promised to blunt their advantage, the Wall Street Journal reported today. Dark pools were advertised to mutual funds and other traditional money managers as a place where they could trade in secret and avoid giving away their moves to computer-driven traders. New settlements with two of the biggest dark-pool operators, Credit Suisse Group AG and Barclays PLC, showed that the banks were quietly catering to high-frequency traders at the same time. The reality beneath those practices is that high-frequency traders account for the bulk of bids and offers that keep the market running — about two-thirds of the total — a source of business that can be hard to pass up. Credit Suisse and Barclays catered to them by concealing the role of speedy traders on their platforms and going back on promises to protect clients from predatory trading, according to the settlements with the Securities and Exchange Commission and New York Attorney General.
