Regulatory / Compliance

Updated Tuesday, July 29, 2014 as of 10:56 PM ET

Practice - Regulatory/Compliance

UBS Says SEC Has Been Investigating its Dark Pool Since 2012

(Bloomberg) -- UBS said the U.S. Securities and Exchange Commission has been investigating its dark pool since early 2012, the first time the Swiss bank has acknowledged the probe now in itsthird year.

The investigation concerns some features of the private trading venue that were discontinued two years ago, including “certain order types and disclosure practices,” the Zurich- based bank said in the litigation note in its quarterly report today. UBS said it has also received inquiries from the New York attorney general and the Financial Industry Regulatory Authority. It said it is cooperating with all the investigations.

UBS’s dark pool was the second-biggest by total U.S. shares traded in the week starting July 7 behind that of Credit Suisse Group AG, according to data published by Finra yesterday. Credit Suisse Chief Executive Officer Brady Dougan said last week there has been a “significant increase” in inquiries on dark pools recently and the bank is cooperating with them.

Barclays Plc is fighting allegations it lied to customers and masked the role of high-frequency traders as it sought to boost revenue at what used to be Wall Street’s second-largest private-trading venue.

UBS said it’s also among “dozens of defendants,” including broker dealers, exchanges, high-frequency trading firms and dark pool sponsors named in putative class actions pending in New York federal court, which allege that the defendants’ equities order handling practices favored high- frequency traders at the expense of other market participants. The litigation is in “very early stages,” the bank said.

Dark pools are alternative trading systems where transactions are concealed from the public. They were created as a haven for institutional investors seeking to trade large blocks of shares in secret, hoping to minimize their impact on prices so they can get a better deal on their trades.

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