United States: Barclays Bids To Halt High-Frequency Trading Class Action In Its Tracks

Last Updated: November 10 2015
Article by David M. McMillan

A high-profile class action against Barclays over so-called high-frequency trading is heading into a key phase this month, with the court set to decide plaintiffs' motion for class certification—a pivotal moment in the case's trajectory.

Strougo v. Barclays Plc, 14-cv-05797 (S.D.N.Y.) began in July 2014, when a Barclays purchaser of Barclays American Depositary Shares ("ADSs") filed a putative class action against the bank for violating the federal securities laws, alleging the bank made false or misleading statements about its operation of so-called dark pools that artificially inflated the ADSs' price. Dark pools are alternative trading venues where institutions trade massive quantities of securities anonymously, without revealing the quantity or price to the general public until the trade is complete. Dark pools tend to be fresh feeding grounds for high-frequency traders ("HFTs"), who utilize complex computer algorithms to move in and out of securities positions within fractions of a second. By employing their computer technology to gain access to information about trades occurring in dark pools before other investors do, HFTs have a key informational advantage which they can use to their benefit.

The Strougo plaintiffs alleged Barclays operated its dark pool—known as "Liquidity Cross," or "LX"—in a way that favored predatory high-frequency trading, while falsely overstating the safety and transparency of the LX trading environment. The plaintiffs said Barclays enticed HFTs into LX by offering them reduced fees and allowing them to place their computer servers close to Barclays' own systems in order to give HFTs a sneak preview of key trading data, all while consciously concealing these facts from the investing public. Because of these misrepresentations, Barclays ADSs allegedly traded at an artificially inflated price—until the New York attorney general ("NYAG") filed a complaint in 2014 detailing Barclays' alleged fraud, precipitating a massive ADS price decline.

The plaintiffs mostly survived Barclay's dismissal bid in April 2015, with New York District Judge Scheindlin holding that certain misstatements alleged in the complaint may have been material to investors (even if not material to Barclays)—a key element of the securities fraud cause of action. The plaintiffs then moved for class certification in July 2015, asking the judge to certify a class consisting of all persons who bought ADSs between August 2, 2011, and June 25, 2014.

Describing the case as a "textbook example of a case warranting class action treatment," the plaintiffs argued there was significant "commonality" of legal and factual issues, and that these issues "predominated" over individualized ones sufficient to warrant class action treatment. See Fed. R. Civ. P. 23(a)-(b). In a federal securities fraud case, a plaintiff must prove that the defendant's intentional or reckless misrepresentation (or omission) about a "material" fact impacted the security's price, and that the plaintiff "relied" on the misrepresentation when buying or selling the security and sustaining losses. When lodged as a class action, a key question is whether plaintiffs can prove that they relied on the defendants' alleged misstatements in a manner common to the class.

Recall that the Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224 (1988) announced a presumption that all class members relied on alleged misstatements when purchasing or selling securities, where the misrepresentations were public and material, and where the market was efficient. To determine market efficiency, courts look to a set of factors enunciated in Cammer v. Bloom, 711 F. Supp. 1264, 1286-87 (D.N.J. 1989), which drive a central question: does the market in which the securities traded permit material information to be quickly and accurately assimilated into the security's price? Also, the Basic presumption is rebuttable: any evidence that "severs the link" between the alleged misstatements and the security's price will shift the burden back to plaintiffs to show reliance on an individual basis, defeating certification.

As is so often the case since Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), the parties filed competing experts' reports on whether Barclays' alleged misstatements about the LX trading environment impacted ADSs' price. Interestingly, both parties agreed that none of Barclays' alleged misstatements actually caused any increase in ADSs' price. The plaintiffs theorized, however, that the misstatements' impact was simply to "maintain" ADSs at an artificially inflated price that reflected investors' overconfidence in Barclays' integrity. Whether this "maintenance" theory is compatible with price impact seems to be murky territory. Defendants have argued that if the misstatements did not cause a price movement, then price impact is lacking as a matter of law. But a recent case, Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, No. 12-CV-5329 SAS, 2015 WL 5000849, at *9 (S.D.N.Y. Aug. 20, 2015), indicates that price maintenance and price impact are compatible under certain circumstances.

Barclays also contended that the alleged misstatements' lack of price impact showed that the ADS market was not efficient. A "cause and effect" relationship between the misstatements and price is actually the fifth Cammer factor, and Barclays argued that it should be necessary for market efficiency rather than simply one of several factors to be balanced. But the plaintiffs' expert looked at 38 instances in which "unexpected news" about Barclays entered the public sphere, and concluded that in all instances the market for ADSs efficiently incorporated that information into the security's price. The Carpenters case, moreover (which also involved Barclays ADSs), found that the market was efficient even though a cause-and-effect relationship between the misstatements and ADS price was lacking.

Finally, Barclays contended that plaintiffs had proposed only a "vague, general economic framework" for calculating damages on a classwide basis, falling short of the standard set forth in Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013). Plaintiffs' proposal was simply to compare the price drop following the NYAG's complaint with the artificially inflated price, which Barclays criticized as "simplistic" and unable to account for the case's myriad "complexities."

It will be interesting to see whether Judge Scheindlin finds that the plaintiffs' "price maintenance" theory is consistent with price impact, and how much weight she places on the fifth Cammer factor in determining market efficiency. A hearing on the motion is scheduled for November 5, 2015, so stay tuned. If the parties do not settle, we could see a decision within the next few months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.