10.14.2014
By Terry Flanagan

OPINION: Mark Twain and Barclays LX

Mark Twain famously said “reports of my death are greatly exaggerated.” If Twain were alive today, could he say the same about Barclays LX dark pool?

Quite possibly, yes.

About 127 million shares changed hands on LX in the week of Sept. 22, up from 103 million in the previous week, according to Financial Industry Regulatory Authority data released this week. The volume was the 11th most among U.S. dark pools.

To be sure, while the week-over-week comp looks pretty, it’s not all sunshine and roses. Back in late June — before New York Attorney General Eric Schneiderman announced a lawsuit against Barclays for alleged malfeasance in its operations of LX — the dark pool ranked #2 in the U.S., with weekly volume a bit north of 300 million shares.

Schneiderman’s complaint seemed like it could have been a show-stopper, as the AG alleged the bank had lied to customers by marketing LX as a safe haven from predatory high-frequency traders, when at the same time it was duplicitously rolling out the red carpet for those same HFTs at a hidden back entrance.

If Barclays LX  was in fact nefarious and essentially betraying its customers, how could anyone send order flow there? How would the dark pool survive another week, let alone survive several months and even regain significant momentum?

Barclays LX can be likened to a publicly traded company whose accounting or operations is suddenly called into question — the stock may immediately decline from $10 to $2, but when it’s at $5 a few months later, it’s a sign that there was more smoke than fire.

There are still plenty of unanswered questions that presumably will be answered in time, and the $5 stock may still end up at $0. But at this point, the market is saying that Schneiderman overplayed his hand.

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