Probing High-Speed Trading, Attorney General Says
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[April 05, 2014]
By Aruna Viswanatha
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
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
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.
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Acting CFTC chairman Mark Wetjen said on Thursday his agency is also
investigating whether spoofing runs afoul of the derivatives
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
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
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