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 Attorney General Eric Schneiderman's office is expected to send
subpoenas within days to exchanges, one of the sources said on
Thursday. The subpoenas will likely focus on how high-frequency
traders may receive information before other market participants.
Another source said major banks that operate dark pools, or
platforms where trades take place out of sight of the rest of the
market, have been sent letters asking for information.
The sources spoke this week on condition of anonymity because they
were not authorized to discuss the matter publicly.
The major U.S. exchange operators include IntercontinentalExchange
Group <ICE.N>, Nasdaq OMX Group Inc <NDAQ.O> and BATS Global
Markets.
NYSE, a unit of ICE, has already been cooperating with the attorney
general by sharing data, while BATS has also had conversations with
the prosecutor, two of the sources said. Nasdaq Chief Executive
Robert Greifeld said in an interview on April 24 that his company
had not been subpoenaed.
Exchange operators and Schneiderman's office declined to comment.
The expected move by Schneiderman's office shows how investigations
into the practices of high-frequency trading firms are broadening.
The U.S. Securities and Exchange Commission, Commodity Futures
Trading Commission and Federal Bureau of Investigation have also
said they had several active probes into high-speed and automated
trading.
The probes have been going on for several months to a year but
scrutiny has intensified in recent weeks following the release of
best-selling author Michael Lewis' new book, "Flash Boys: A Wall
Street Revolt." In the book, Lewis contends that high-frequency
traders have rigged the stock market, profiting from speeds
unavailable to others.
Virtu Financial, one of the largest high-frequency market-making
firms, recently delayed the launch of its initial public offering as
focus of the industry had grown.
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Separately, the NYSE said on Thursday it would pay $4.5 million to
the U.S. Securities and Exchange Commission to settle charges that
it violated regulations, including around co-location practices.
Schneiderman has been looking into what he considers unfair Wall
Street practices for about a year and has spoken out against issues
such as exchanges allowing high-frequency trading firms to
"co-locate" their computers within the exchanges' data centers so
that trading information reaches them faster than others.
At least half-a-dozen high-frequency trading firms, including Tower
Research Capital LLC, Chopper Trading LLC and Jump Trading LLC, were
sent subpoenas two weeks ago, Reuters has previously reported.
One of the sources said the earlier subpoenas requested information
about business operations, including their strategies, the
technology they use, and any communications — such as e-mails,
writings, notes, text messages and even social media posts — the
firms had with the exchanges.
The information requested is so broad that some of the firms have
asked that the scope be narrowed, the source added.
(Additional reporting by John McCrank and Herbert Lash; editing by
Paritosh Bansal and Richard Chang)
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