Three more investment banks say they are being investigated in a widening probe by New York Attorney General Eric Schneiderman over allegations the banks give flash traders unfair advantage over regular investors.
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.
“It actually eats into the overall return of the portfolio so they may not be getting the best price,” says Chris Nagy, CEO of KOR Group, a market trading consultancy.
British bank Barclays was accused last month of misleading investors by saying they police their dark pools of high frequency traders when in fact they encouraged their trades.
"They said the markets will be safe. There will be no high frequency traders in it, when, lo and behold, actually high frequency traders encompass the bulk of it," Nagy says.
Barclays countered last week that mutual fund investors are sophisticated enough to tell when they are trading against a computer, therefore investors were not harmed by the misleading sales pitch.
