FOLLOW US

Credit Suisse Securities (USA) LLC reached a settlement agreement with the New York Attorney General’s office in connection with the investigation into its alleged fraudulent electronic trading practices.

On Friday, the state’s Attorney General Barbara Underwood announced that Credit Suisse agreed to pay $10 million to settle the probe. Her office’s investigation targeted the company’s Retail Execution Services (RES) business.

Investigators conducted an extensive review of Credit Suisse source code, trading data, and server logs. They found that the company programmed a function called “CountsForStats” into the computer code RES to manage retail equity orders. ‘

CountForStats determines whether an order will be included in Credit Suisse’s publicly execution quality reports (Rule 605- eligible orders) or excluded from the reports (non-605 orders).

Credit Suisse allegedly misled customers 

According to the attorney general, “RES systematically treated its customers’ non-605 orders worse than Rule 605-eligible orders.” The business used a particular routing tactic for large non-605 orders that had the potential to move the market. That routing tactic caused greater market impact that its other routing tactics. RES then tried to profit from the market impact by arranging its principal trading to benefit from any post-trade price reversion.

RES’ practices resulted in “less favorable overall execution prices,” which means “customers received worse prices.” Credit Suisse did not disclose those practices, which are contrary to its statements to customers. The company asserted that it avoids unfavorable market impact and executes customer orders at the most favorable terms reasonably available.

In addition, investigators found that RES generally failed to provide a better price to non-605 orders. On the other hand, Rule-605 orders frequently received price improvement. Credit Suisse also did not disclose this practice despite its claim that one of the core elements of RES’ approach to executing orders is providing opportunities for “robust” and “enhanced” price improvement.

In a statement, Underwood said, “Credit Suisse gamed its publicly-reported statistics and misled customers – and now they’re being held to account. 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.”