Exclusive: Citigroup to shutter LavaFlow stock trading venue

NEW YORK (Reuters) - CITIGROUP (C.NY)Inc is shutting down its alternative stock trading venue LavaFlow, the bank said on Tuesday, at a time when regulatory scrutiny has increased around broker-run trading platforms, forcing banks to rethink the costs.

"Following a recent review of the LavaFlow ECN, we have decided that our capital, resources and efforts would be better redeployed to other areas within Citi?s Equities Division," Citi said in a statement. The decision was first reported by Reuters.

LavaFlow, an alternative trading system (ATS) that electronically matches buy and sell orders for listed stocks, is one of about 40 such venues competing for much of the same business as the 11 registered U.S. stock exchanges such as Nasdaq OMX Group and the New York Stock Exchange. Critics say the venues add to the fragmentation of the market, increasing complexity and costs for market participants.

LavaFlow was the sixth largest ATS for stocks for the week of Nov. 10, according to the latest data from the Financial Industry Regulatory Authority. The trading venue is known as an electronic communications network (ECN), which unlike like other ATSs known as "dark pools," displays pre-trade information.

Wells Fargo & Co shut down its "dark pool" in October, citing a lack of customer demand. Dark pools allow investors to trade anonymously and only make data available after a trade, reducing the chance that others in the market will catch wind of a buyer's or seller's intentions and move the price against them.

The moves by Citi and Wells Fargo come as regulatory scrutiny has intensified over alternative trading systems on concerns about transparency. Several regulators have ongoing probes into dark pool operators and the New York state attorney general has launched a lawsuit, accusing Barclays Plc of securities fraud for activities related to its dark pool.

(Editing by Chizu Nomiyama and Jeffrey Benkoe)

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