Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors.
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.
Critics including some investors and regulators have said such trading, which captured the spotlight in the May 2010 flash crash that shook U.S. 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's typically available to the public. Wall Street banks and rapid-fire trading firms pay thousands of dollars a month for these services from firms including
Robert Madden, a spokesman for Nasdaq, and Eric Ryan at the NYSE, declined to comment on the FBI's inquiry. Jim Margolin, a spokesman for
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.
Daniel Hawke, the head of the
Federal prosecutors have scored dozens of insider trading convictions in recent years, including several linked to