May 7, 2010, file photo. Traders work on the floor of the New York Stock Exchange the day after the "Flash Crash" and The Dow Jones industrials dropped 1,000 points. The crash brought scrutiny to high-frequency trading and other computerized strategies that move buy and sell orders at blinding speeds.
The Securities and Exchange Commission (SEC) charged a New York trading firm with the largest fine ever for breaking rules designed to keep risky trades from unraveling the financial system.
It is also the first time the SEC penalized a high-frequency trader.
High-frequency traders, or flash traders, make millions of trades a minute. They are the focus of an ongoing debate over whether those trades make the market function better or exploit slower, traditional traders.
Deutsche Bank, UBS, and Credit Suisse have regulators asking questions about who they allow to trade in their private stock exchanges. These so-called "dark pools" have grown rapidly in recent years as slower moving institutional investors seek protection from predatory flash traders.
New York Attorney General Eric Schneiderman file a suit alleging Barclays told investors that it had set up safeguards to protect them from predatory high-frequency traders. But it says Barclays actually catered to those traders.
Large institutional investors have long been at the mercy of flash traders who use computers to make thousands of trades a second, skimming off tiny bits of profit from pension and retirement accounts.
For protection fund managers sought out private stock exchanges called dark pools where only certain investors were allowed in.
Think of them like a fish tank for guppies.
"What Barclays is accused of is making promises that they would keep sharks out of the pool but were actually sort of inviting the sharks into the pool."
New York Attorney General Eric Schneiderman announced Wednesday that he’s reached a deal with a newswire to prevent high frequency stock traders from having early access to financial news. The agreement with PR Newswire is the third such deal Schneiderman has reached with a news service.