Two weeks ago, New York Attorney General Eric Schneiderman expressed concerns about the anti-competitive practices of high-speed stock market trading firms, saying that such companies had "valuable advantages" that gave them a "leg up on the rest of the market." Now The Wall Street Journal reports that the FBI is in the midst of an investigation into whether such high-speed trading firms have access to information that isn't available to other traders.
An FBI spokesperson said the bureau launched its investigation — known as the High-Speed Trading Initiative — a year ago. The investigation is looking for violations of insider trading laws in a variety of trading activities, including whether high-speed traders have access to unfair advantages such as ultra-fast data-feeds, and if they are manipulating the market with floods of purchase and sales orders. The initiative is still in its early stages, but reportedly has a large number of agents involved. "There is a big concern that high frequency traders are getting material nonpublic information ahead of others and trading on it," an FBI spokesperson said. "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."
The FBI launched its investigation into high-speed trading a year ago
High-speed traders differ from more traditional market traders by relying on computers to perform incredibly quick purchases and sales of stocks and shares. The length of time it takes data to travel between its source and destination is of vital importance to practitioners of high-speed trading — so much so that companies such as Tradeworx can charge a yearly $250,000 subscription fee to use its network of microwave towers to shave six milliseconds from the data transmission time over regular fiber-optic cable.
Attorney General Schneiderman is also currently probing such high-speed trading firms. The Wall Street Journal says the Commodity Futures Trading Commission and the Securities and Exchange Commission too are investigating whether high-speed traders have links with major data exchanges, and are able to get preferential treatment to the detriment of other investors. The FBI is working with both bodies on its investigation, and is seeking leads from other whistleblowing Wall Street workers who may have been involved in illegal trading.