“The Federal Bureau of Investigation is probing whether high-speed trading firms are engaging in insider trading by taking advantage of fast-moving market information unavailable to other investors.
The investigation, launched about a year ago, involves a range of trading activities and is still in its early stages, according to a senior FBI official and an agency spokesman. Among the activities being probed is whether high-speed firms are trading ahead of other investors based on information that other market participants can’t see.
Among the types of trading under scrutiny is the practice of placing a group of trades and then canceling them to create the false appearance of market activity. Such activity could be considered potential market manipulation by encouraging others to trade based on false orders.
Another form of activity under scrutiny involves using high-speed trading to place orders to conceal that the transactions are based on an illegal tip.
“There are many people in government who are very focused on this and who are concerned about it and who think it breaks the law,” an FBI spokesman said. “There is a big concern that high-frequency traders are getting material nonpublic information ahead of others and trading on it.”
Ultimately, federal prosecutors would have to decide whether the facts of a specific case warrant bringing charges, the FBI official said.
The probe, which has picked up steam in recent months, comes amid heightened scrutiny of computerized trading. New York Attorney General Eric Schneiderman is investigating whether high-speed trading firms have gained advantages that aren’t available to regular investors, such as access to superfast data feeds.
The Commodity Futures Trading Commission and the Securities and Exchange Commission are looking into ties between high-speed traders and major exchanges, examining whether the firms are getting preferential treatment that puts other investors at a disadvantage, said people familiar with the probes.
Since the beginning of the investigation, the FBI, working with the SEC, has developed fact patterns of potentially illegal trading and run them by prosecutors to determine if they could be used in a criminal case.
For the FBI, the investigation marks a new and unusual phase of its focus on insider trading. ….”
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