Federal agents are investigating whether high-frequency trading firms violate U.S. laws by acting on nonpublic information to gain an edge over competitors, according to a person with knowledge with the probe.
The Federal Bureau of Investigation’s inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others. Agents are examining whether traders abuse information to act ahead of orders by institutional investors, according to the person, who asked not to be identified because the probe is confidential.
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 U.S. 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 law enforcement investigations are shifting the focus to unfair practices and possible criminal activity.
Regulatory agencies, especially at financial exchanges, have been slow to take a serious look at high-frequency trading, not least regarding its unprecedented capacity for front running. Fortunately, thanks to whistle blowers such as the financial writer Michael Lewis, the wider financial community now knows enough about these practices to address them in the public interest.Back to top