The SEC found that Credit Suisse gave preference to customers whose orders had to be included in aggregate execution quality reports to those that didn’t.
Credit Suisse Group AG agreed to pay $10 million to New York state and the US Securities and Exchange Commission to settle a probe into “fraudulent practices” in its retail execution services business.
Attorney General Barbara Underwood and the SEC announced the settlement on Friday, saying they had found that Credit Suisse gave preference to customers whose orders had to be included in aggregate execution quality reports to those that didn’t, without disclosing the practice.
Brokers are legally required to consider several factors in executing trades, including the opportunity to get a better price than is quoted, the speed of execution and the likelihood a trade will be executed. SEC requires markets to supply monthly reports on execution quality.
“Credit Suisse gamed its publicly reported statistics and misled customers,” Underwood said in a statement. “Wall Street firms cannot offer misleading assurances about the execution quality they provide their customers while engaging in electronic-trading strategies that undermine those promises.”
The investigation targeted Credit Suisse’s Retail Execution Services business, which no longer operates. The $10 million payment will be split between New York and the SEC.
“Credit Suisse is pleased to have settled this matter, which relates to a business we exited in early 2015," a Credit Suisse spokeswoman said in a statement. "There is no material impact to the bank.”
Underwood’s office said it reviewed Credit Suisse source code, trading data and server logs, discovering a function programmed into its computer code called "CountsForStats." That allowed the firm to distinguish between orders that had to be reported under SEC aggregate execution quality regulations from those that didn’t.
Credit Suisse discriminated against orders that didn’t have to be reported in ways that resulted in less favorable execution prices. It told customers they would have access to "vast" liquidity in dark pools including Crossfinder, the Credit Suisse dark pool that was then the largest in the US But Credit Suisse executed only a small number of held orders—orders that didn’t allow time or price discretion—in the dark pools, according to Underwood.
The settlement is part of New York’s Electronic and High-Frequency Trading Initiative, in which Underwood’s office has recovered $130.5 million in penalties from Barclays Plc, Credit Suisse, Deutsche Bank AG and Bank of America Merrill Lynch, the attorney general said in a statement.