Great Pacific Securities, Barclays clash over aggressive HFTs in dark pool case

Great Pacific Securities, a former customer of Barclays, continues to push with its civil action against the bank at the Ninth Circuit U.S. Court of Appeals. Great Pacific Securities is seeking to overturn a decision made by the United States District Court for the Central District of California in 2016 – back then, the District Court sided with Barclays Capital, Inc. and Barclays PLC (LON:BARC) and dismissed the complaint by Great Pacific Securities that Barclays had done harm by the way it operated and marketed its “Liquidity Cross” dark pool (LX).

The court battle goes on at the Ninth Circuit U.S. Court of Appeals, with the arguments now focused on the aggressive high-frequency traders in LX and the way the bank treated them. On Friday, December 1, 2017, Great Pacific Securities filed a Reply Brief with the Court. The document, seen by FinanceFeeds, seeks to rebuff Barclays’ earlier arguments that it did not conceal the extent of aggressive HFT in LX.

In its latest court filings, Great Pacific Securities argues that it was unaware of Barclays’ wrongful conduct and that it relied on the marketing materials received from Barclays, and would have behaved differently had the omitted information about HFT been disclosed.

One of the key moments in the dispute concerns the settlements that Barclays reached with the New York Attorney General (NYAG) and the US Securities and Exchange Commission (SEC) in January 2016 over the operations of LX. In these settlements, Barclays admitted that, from December 2011 through June 2014, it misled its clients and violated securities laws.

Barclays argues that Great Pacific Securities continued trading in LX after June 2014 and that this confirms the plaintiff’s lack of reliance. But the plaintiff notes that following the disclosure of Barclays’ wrongdoing in June 2014, Great Pacific Securities markedly curtailed its trading activity on LX. Moreover, Great Pacific Securities says, any such trading took place only because, immediately following the NYAG’s disclosure, Barclays let it be known to its clients, including the plaintiff, that it had addressed and remedied any perceived problems with LX.

The extent of aggressive trading in LX is a main point in the dispute. Great Pacific Securities argues that Barclays’ marketing materials were false and misleading because they concealed the true extent of “aggressive” trading in LX. Barclays contends the term “aggressive” is subjective, whereas the Plaintiff notes that the term “aggressive”—as utilized by Barclays itself in its marketing materials—was premised on objective, measureable criteria. For instance, Barclays represented that Liquidity Profiling created objective criteria to profile clients, such as “short‐term alpha, order size, provide vs. take ratio.”

Furthermore, according to the Plaintiffs, Barclays does not dispute that it manipulated its trading algorithms and Dynamic Router to favor LX. Rather, it argues that the plaintiff does not adequately allege reliance on its misrepresentations or that the misrepresentations had any impact on the plaintiff. But Great Pacific Securities used Barclays’ algorithms and Dynamic Router to seek best execution for its clients, whereas Barclays’ alleged manipulation of its algorithms and Dynamic Router to favor LX meant that it was not providing the best execution to Plaintiff and the Class. Great Pacific Securities notes it would not have utilized Barclays’ algorithms and Dynamic Router to execute its clients’ trades had it known these facts.

Barclays argues there is nothing false or misleading with regard to its catering to the aggressive HFTs. Great Pacific Securities stresses that Barclays told its clients one thing (“we will protect you from aggressive traders”), while in secret it did the complete opposite (catered to the aggressive traders to have them continue trading in LX).

The case is captioned Great Pacific Securities v. Barclays Capital Inc., et al (0:16-cv-56804).