UPDATE 1-New York prosecutor probes high-speed trading -source

Wed Apr 16, 2014 6:08pm EDT

(Adds background on probes by other agencies)

By Karen Freifeld and Douwe Miedema

April 16 (Reuters) - The New York attorney general is probing more than half a dozen high-speed trading firms, a person familiar with the matter said on Wednesday, as part of his wide-ranging probe into alleged unfair technology advantages on Wall Street.

Attorney General Eric Schneiderman's office is seeking information on special relationships between exchanges and so-called dark pools, platforms where large trades take place out of sight of the rest of the market.

The office had sent out subpoenas to firms including Tower Research Capital LLC, Chopper Trading LLC and Jump Trading LLC, the source said on Wednesday. The firms could not immediately be reached for comment, and a spokesman for the Principal Traders Group, an industry association, declined to comment.

Schneiderman has been looking into what he considers unfair Wall Street practices for about a year, and has spoken out against advantages that speed trading firms have at exchanges such as the ability to locate their computers on site, providing them pricing information milliseconds before others.

The subpoena was exploratory in nature, a source at a trading firm that was contacted by the New York attorney general's office said, and the office appeared to be casting a wide net involving the U.S. equity market.

"It's a huge distraction," the source said. "We look forward to cooperating so they can also understand that we've done nothing wrong and have received no special privileges along the way," the source said.

The source was not authorized to speak publicly about the matter and therefore requested anonymity.

The U.S. Justice Department this month became the latest to clamp down on the high-speed trading industry, which uses computers to rapidly dart in and out of trades to earn fractions of a penny that add up to big profits over time, probing them for possible insider trading.

The U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Bureau of Investigation have said they had several active probes into high-speed and automated trading.

CFTC Acting Chairman Mark Wetjen has said his agency is looking at whether exchanges give some of the speed traders discounts on fees the exchanges charge.

The FBI has 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 the speed traders are front-running others' traders by getting to exchanges first.

Best-selling author Michael Lewis's new book "Flash Boys: A Wall Street Revolt" has given the issue new prominence. In it, Lewis contends that speed traders have rigged the stock market, profiting from speeds unavailable to others.

Schneiderman's investigation is the latest focus in a probe of Wall Street practices that give elite groups of traders access to information at the expense of other participants. He also has scrutinized the early release of analyst and consumer sentiment data as well as market-moving press releases.

As part of the probe, Thomson Reuters Corp agreed to suspend its early release of the widely watched Thomson Reuters/University of Michigan consumer sentiment data to a small group of clients. (Reporting by Karen Freifeld and Douwe Miedema, Additional reporting by John McCrank and Herb Lash in New York; Editing by Sandra Maler, Bernard Orr)

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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