SEC chairman reveals investigation into high-frequency traders

Mary Jo White says there are questions about ‘market integrity and structure issues’

When traders operate at a high-frequency pace, the potential for abuse quickly escalates. And now, according to Securities and Exchange Commission (SEC) Chairman Mary Jo White, regulators are interested in finding out whether those rapid-fire traders are fully compliant with U.S. law.

At a House Appropriations subcommittee meeting, White testified on April 1 that the SEC has engaged in “a number” of investigations into high-frequency traders. According to her testimony, the SEC has questions about “market integrity and structure issues, including high-frequency traders.”

White did not specify any timeframe or firms that the commission is investigating, but she did note, “We're very much focused on any abuses in that space.”

According to The Wall Street Journal, SEC and the Commodity Futures Trading Commission are looking primarily into links between high-frequency trading firms and major exchanges. The investigation examines whether these firms are receiving preferential treatment due to their high number of trades.

White’s comments come soon after the Federal Bureau of Investigation (FBI) publicly announced that it was investigating high-frequency traders as well. The FBI is asking for financial industry whistleblowers, looking for improprieties and manipulation in high-speed computers.

Bloomberg says that this FBI probe is part of a larger investigation into insider trading that has nabbed 79 convictions on hedge fund managers and others since it began. Recently, Doug Whitman, the founder of hedge fund Whitman Capital LLC, was sentenced to two years in prison for trading on illicit tips about Polycom, Google, and Marvell Technology Group.

In addition, New York Attorney General Eric Schneiderman has also opened a broad investigation into U.S. stock exchanges, seeking to find whether they give preferential treatment to some traders. Scheiderman’s investigation focuses on the sale of products that provide faster access to data and richer information than what is available to the rest of the public.

 

For more on the SEC’s latest news, check out these recent articles:

Whistling an ethical tune

Japanese trading company pays second FCPA penalty in three years

U.S. authorities join probe into potential TeliaSonera corruption

SEC not altering compliance rules for social media

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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