A US district court judge has thrown out a lawsuit brought against Barclays and a number of US exchanges that accused the bank of rigging its dark pool in favour of high frequency traders (HFTs).
The suit was filed in the Southern District of New York court by the city of Providence and a number of investors and is one of many inspired by the best selling book Flash Boys: A Wall Street Revolt in which author Michael Lewis claimed that stock exchanges and private trading venues known as 'dark pools' were giving faster data feeds to HFTs thereby giving them an unfair advantage over ordinary investors.
Judge Jesse Furman ruled that the plaintiffs had failed to show their complaints were "legally sufficient" and did not allege any actions that met the defintion of "manipulative acts". In a statement Barclays declared itself "pleased with the court's thorough and well-reasoned decision".
The merits of dark pools, which operate off-exchange and grant users more anonymity, continues to be a divisive issue among investors. While its operators argue that they provide protection to firms looking to trade large amounts without alerting the market to their intentions, mainstream investors believe their lack of transparency leaves them open to abuse.
The case is one of many lawsuits against brokers and exchanges over dark pools and HFT sparked by Lewis's book including one brought by the New York attorney general in June 2014 which accuses Barclays of misleading investors about the level of protection it would receive against HFTs in its dark pool Barlcays LX, and engaging in a "persistent pattern of fraud and deceit".
Barclays has argued for these allegations to be dismissed and may be emboldened by its recent success however judge Furman did not rule out the possibility of the plaintiffs amending their complaint and refiling.
He also accepted that the Flash Boys book "may well highlight inequalties in the structure of the nation's financial system" but "these questions are not for the courts but for commentators, private and semi-public entities (including stock exchanges) and the political branches of government".