U.S. probing high-speed trading, attorney general says

WASHINGTON Fri Apr 4, 2014 11:34am EDT

U.S. Attorney General Eric Holder testifies about his FY2015 budget request at a Senate Appropriations Committee hearing on Capitol Hill in Washington April 3, 2014. REUTERS/Jonathan Ernst

U.S. Attorney General Eric Holder testifies about his FY2015 budget request at a Senate Appropriations Committee hearing on Capitol Hill in Washington April 3, 2014.

Credit: Reuters/Jonathan Ernst

WASHINGTON (Reuters) - The U.S. Justice Department is investigating high-speed trading for possible insider trading, Attorney General Eric Holder told lawmakers on Friday.

The disclosure comes the same week that regulators and the FBI also confirmed they are looking into potential wrongdoing by high-frequency stock traders.

Regulators have been examining whether ordinary investors are at an unfair disadvantage to high-speed traders, who use computer algorithms to rapidly dart in and out of trades to earn fractions of a penny that add up to big profits over time.

"I can confirm that we at the Justice Department are investigating this practice to determine whether it violates insider trading laws," Holder told a House panel at a hearing on the Justice Department's budget.

Earlier this week the heads of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission also confirmed those agencies have several active probes into market integrity and structure issues, including high-speed and automated trading.

On Monday, the FBI confirmed it has been conducting a wide-ranging investigation of high-speed trading for months, an outgrowth from the years-long crackdown on insider-trading.

The bureau is examining whether high-frequency traders are front-running others' trades by getting to exchanges first.

A big trade, such as a bank shorting a million shares of a company under investigation, could be considered a material event.

Reuters also reported earlier this week that the FBI is looking at areas such as whether high-speed firms can cut the line in terms of how security orders are placed or are engaged in "spoofing" trades that are not really trades to give the illusion of market activity.

Acting CFTC chairman Mark Wetjen said on Thursday his agency is also investigating whether spoofing runs afoul of the derivatives regulator's rules.

The long-running debate about high-frequency trading intensified on Monday, after best-selling author Michael Lewis published a new book, "Flash Boys: A Wall Street Revolt."

The book contends that high-speed traders have rigged the stock market, profiting from trades made at a speed unavailable to ordinary investors.

Proponents of high-speed trading have criticized the book, saying high-speed traders actually benefit other investors by providing liquidity to the market.

(Reporting by Aruna Viswanatha; Editing by Bill Trott and David Gregorio)

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Comments (31)
tmc wrote:
Finally. Let’s hope the politicians feel sorry for the people and go against their corporate paymasters on this one. If it’s found not illegal now, then make it so.

Apr 04, 2014 10:32am EDT  --  Report as abuse
OkinKun wrote:
Except if by twisting of reason, they think that it doesn’t violate the laws.. Then we’ll need new laws to outlaw it, because it SHOULD be illegal.

Apr 04, 2014 12:05pm EDT  --  Report as abuse
User21 wrote:
I think they should investigate HFT.

On another note, discrimination is alive and well at Mozilla.

Mozilla employees openly discriminated against their CEO’s personal beliefs. This is disgusting. People are allowed to have their own personal beliefs and if you openly attack them for it then it is pure discrimination by the Gay community, and tantamount to racism, sexism, and all other forms of discrimination.

I will never use Mozilla again. And I ask others to drop the service.

Companies do not have political agendas. People do. Everyone should leave everyone else alone and focus on themselves. This means vote how you want, and donate how you want, but dammit you must respect other people’s opinions and you are not allowed to attack them if you disagree.

Apr 04, 2014 12:31pm EDT  --  Report as abuse
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