Abusive trading patterns involve multiple exchanges, FINRA says

WASHINGTON Thu Oct 3, 2013 2:03pm EDT

WASHINGTON (Reuters) - Wall Street's securities regulator said on Thursday more than two-fifths of the abusive trading patterns detected by its new cross-market surveillance system involved more than one exchange and multiple participants.

The self-funded Financial Industry Regulatory Authority (FINRA) monitors about 80 percent of U.S. equity trading activity through its Order Audit Trail System, or OATS. The watchdog began running the surveillance of cross-market trading activity in August 2012.

Enforcement actions are expected, said Tom Gira, FINRA's executive vice president of market regulation.

Gira didn't say when this would happen, or the number of cases that would be brought, but said an announcement might be made before year's end.

"There are a variety of firms that are on our radar screen," Gira said, adding his department's top goal was to bring a case this year.

As for multiple participants, it might not always be collusion as investors may have multiple accounts, but when a certain trading pattern recurs over time, it's a sign of abuse, Gira said in an interview at the Security Traders Association conference in Washington.

It was hard to say if the activity had increased in recent years as the surveillance only began a year ago, he said.

"We're definitely seeing more of it, but that's just because we have better surveillance," he said.

The manipulative activity involved both spoofing and layering, where market participants enter orders that are not executed, in order to create a false impression of demand, he said.

"There's one spoofing strategy where you can see literally in the same half second, five or six round trips," Gira said. "It's dueling algos. Once they start, they keep doing it."

(Reporting by Herbert Lash; Editing by Bernadette Baum)

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