FBI investigates high-speed trading

FBI investigates high-speed trading

The Federal Bureau of Investigation is investigating whether high-speed traders are breaking the law by acting on non-public information ahead of the wider markets.

News of the probe comes just days after Michael Lewis caused a stir on CNBC's 60 Minutes programme when he accused high frequency traders of front-running the markets during an interview to promote his new book 'Flash Boys'.

The FBI's actions also follow hard on the heels of an aggressive campaign by New York attorney general Eric Schneiderman, who has called for tough regulations to tackle practices such as co-location, which he claims give high-frequency traders unfair advantages and distort the market.

Schneiderman - who has been investigating HFT practices as part of an 'insider trading 2.0' campaign - has homed in on services offered by trading venues that benefit HFT firms at the expense of other market participants.

The FBIs' investigation, called the High-Speed Trading Initiative, is still in its primary stages, a senior FBI official and an agency spokesman told the Wall Street Journal.

The Fed's interests are likely to centre around the legal implications associated with insider trading rules.

Commenting on the probe, Dr Roman Kozhan, Associate Professor of Finance at Warwick Business School point out that insider trading is an old issue which existed long before the introduction of high-frequency and algorithmic trading.

"Regardless of whether the trader manually entering orders based on illegal information or using a sophisticated computer-based algorithm, the implications are the same; in both cases the traders will be subject to insider trading regulations," he says. "So I do not think this is anything much to do with high-frequency trading per se."

Comments: (1)

Neil Crammond
Neil Crammond - DIVENTO FINANCIALS - London 01 April, 2014, 11:50Be the first to give this comment the thumbs up 0 likes

front running is illegal ............ perhaps ask exchanges if they allow certain members to flaunt the rules daily ?

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