Barclays to Pay $150 Million Over 'Last Look' Trading System

Barclays PLC has agreed to pay $150 million to resolve an investigation by New York's banking regulator into a trading practice that allowed the bank to exploit a milliseconds-long lag between an order and its execution to its clients' detriment, the latest fallout from the bank's foreign-exchange market business.

The New York Department of Financial Services announced the settlement Wednesday, and singled out the bank's misuse of its "last look" system, which the regulator said allowed Barclay's a last-second veto of unprofitable trades.

The penalty is the latest to stem from Barclays' foreign-exchange trading, a line of business that, with today's settlement, has cost the British bank more than $2.5 billion in penalties. In May, Barclays pleaded guilty to conspiring to manipulate the foreign-exchange market and agreed to pay $2.4 billion to a handful of U.S. agencies, including DFS, which extracted a $485 million penalty at the time.

DFS on Wednesday also required the bank to fire its global head of electronic fixed income, currencies and commodities automated flow trading.

The "last look" system, which is a common practice in the foreign-exchange currency market, creates a small gap between client orders and the execution of trades, meant to guard Barclays against so-called "toxic flow" orders by electronic traders that would detect market movement some milliseconds before Barclays, and exploit the price gap.

But, according to DFS, Barclays didn't use the system defensively and instead used it to back out of orders that would be profitable for clients but not for the bank, even when they weren't toxic flow orders. When clients asked about the rejected trades, Barclays blamed technical issues or gave vague explanations, DFS said.

"This case highlights the need for greater oversight and action to help prevent the misuse of automated, electronic trading platforms on Wall Street, which is a wider industry issue that requires serious additional scrutiny," acting DFS Superintendent Anthony Albanese said in a statement.

Write to Christopher M. Matthews at [e-mail]

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November 18, 2015 10:55 ET (15:55 GMT)

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