By Justin Baer and Scott Patterson
New York's attorney general is scrutinizing the private stock-trading venues run by Goldman Sachs Group Inc., Barclays PLC, Credit Suisse Group AG and others as part of a sweeping probe into whether high-frequency trading firms have enjoyed unfair advantages over other investors.
The banks have received requests for information from New York Attorney General Eric Schneiderman's office, which is investigating whether high-speed firms made secret arrangements with venues that allow them to gain advantages other investors have, people familiar with the matter said.
Many large banks operate private venues that allow investors to trade more anonymously and reduce their trading costs, and clients have said they want them to remain among the services they receive from Wall Street. But the venues, called dark pools, also have drawn concerns for their relationships with high-frequency traders, among other things. Their proliferation also has left the stock market more fragmented, contributing to the risks of a technical glitch that could roil investors.
The Securities and Exchange Commission, the U.S. Justice Department and the Federal Bureau of Investigation also are probing high-speed trading.
A spokesman for Mr. Schneiderman's office declined to comment.
Goldman made a brief reference to the high-frequency trading inquiries Friday in a list of regulatory reviews the bank included in its latest quarterly filing with the SEC.
Friday's filing marked the first time Goldman had disclosed its role in the probe, as well as an unrelated regulatory inquiry into whether banks' hiring practices violated U.S. antibribery laws. The N.Y. attorney general's interest in Barclays and Credit Suisse was reported earlier by the International Business Times.
Goldman has had discussions over the future of its private stock-trading venue, called Sigma X, and in conversations with other market participants in recent months had broached the subject of shutting it down, the Journal reported in April. No decision is imminent, and the firm may continue to operate Sigma X. On an April conference call with reporters, Goldman finance chief Harvey Schwartz said "we have no strategic plans for Sigma X at this stage."
Dark pools comprise a small slice of the revenue big banks' equities businesses generate each year, with the larger venues pulling in several hundred million dollars annually, people familiar with the matter have said. Yet many big investors have said the venues offer more anonymity and lower trading costs, and want banks to offer them.
The Journal reported earlier this week the SEC had expanded its probe into large banks' hiring practices in Asia, and had sought more information from at least five firms, including Goldman.
The New York bank raised the top end of its range of "reasonably possible" legal losses to $3.7 billion, above what it already had set aside in reserves. In February, the estimate stood at $3.6 billion.
Goldman said its traders had three losing days during the first quarter, though they tallied more than $100 million in net revenue on 12 occasions, according to the filing.
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