Looks like the Feds have been reading all the worried stories about HFT after all. The WSJ reports that for the last year, the FBI has been looking into whether HFT traders may be breaking the law.
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.”
With Michael Lewis book on HFT, Flash Boys, now hitting the street, one wonders if the WSJ piece is the FBI’s attempt to stay ahead of the media curve that may follow the book’s publication.