(New throughout, adds information about active probes, more
comments from hearing)
By Sarah N. Lynch and Karen Freifeld
WASHINGTON/NEW YORK, April 1 The U.S. Securities
and Exchange Commission has several active investigations into
possible wrongdoing by high-frequency stock traders and other
equity market structure issues, SEC Chair Mary Jo White said
"We currently have... a number of ongoing investigations
regarding various market integrity and structure issues,
including high-frequency traders and automated trading," White
told a U.S. House of Representatives appropriations panel.
"We are very much focused on any abuses in that space."
On Monday, the FBI confirmed it has been conducting a
wide-ranging probe into high-speed trading for months, an
outgrowth from the years-long crackdown on insider-trading.
An FBI spokesman who did not wish to be named said Monday
night that the bureau was investigating whether high-frequency
traders are front-running others' trades by getting to exchanges
A big trade, such as a bank shorting a million shares of a
company under investigation, could be considered a material
event, the spokesman added.
A person familiar with the FBI probe told Reuters on Tuesday
that the FBI is also 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.
White declined to answer questions from Reuters on the
sidelines of the hearing about whether the SEC's probes are
exploring similar topics as the FBI's.
The long-running debate about high-frequency trading
intensified on Monday, after bestselling 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
Proponents of high-speed trading have criticized the book,
saying high-speed traders actually benefit other investors by
providing liquidity to the market.
For years, the SEC has been looking into high-speed trading
and "dark pool" trading, which takes place away from major
Regulators hope to determine whether ordinary investors are
at an unfair disadvantage to high-speed traders, who rapidly
dart in and out of trades to earn fractions of a penny that add
up to big profits over time.
In the last year, the SEC started subscribing to the same
proprietary data trading feeds that the high-speed traders use,
hoping to better understand how the markets are functioning.
White told lawmakers the SEC has not yet reached any
conclusions on what, if any, new rules might be needed.
"Our approach at the SEC...is to be data-driven and
disciplined to determine where high-frequency traders fit into
the range of market quality issues," she said.
White also told lawmakers the SEC needs more money in order
to keep on top of the rapidly changing market technologies so it
can police the markets.
"Detecting misconduct in constantly evolving securities
markets, including as a result of the growth of algorithmic,
automated trading and 'dark pools,' requires substantial
resources," she said.
The SEC is seeking a $1.7 billion budget for fiscal 2015, up
from its current budget of $1.35 billion.
But Congress is not expected to pass a budget any time soon
because the Senate, controlled by Democrats and the House of
Representatives, controlled by Republicans, already struck a
(Reporting by Sarah N. Lynch in Washington, D.C. and Karen
Freifeld in New York; Editing by David Gregorio)