US federal agents are investigating whether high-frequency trading firms break US laws by acting on nonpublic information to gain an edge over competitors.
The US Federal Bureau of Investigation’s (FBI) inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others.
US agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, an FBI spokesman said.
Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.
The FBI joins a roster of authorities examining high-frequency trading, in which firms typically use super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies.
New York Attorney General Eric Schneiderman opened a broad investigation into whether US stock exchanges and alternative venues give such traders improper advantages.
Regulators have focused for years on whether high-speed trading hurts market stability. More recent US law enforcement investigations are shifting the focus to unfair practices and possible criminal activity.
Critics including some investors and regulators have said such trading — which captured the spotlight in the May 2010 flash crash that shook US equities — serves little purpose, may distort the market and may leave individual shareholders at a disadvantage.
Schneiderman is examining the sale of products and services that offer faster access to data and richer information on trades than what is typically available to the public.
Wall Street banks and rapid-fire trading firms pay thousands of US dollars a month for these services provided by companies including NASDAQ OMX Group Inc and IntercontinentalExchange Group Inc’s New York Stock Exchange.
The FBI began focusing on high-frequency traders last year, before Schneiderman disclosed his inquiry this month.
Market regulators have asked for years whether new restrictions on rapid-fire trading were needed.
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