The U.S. Securities and Exchange Commission has been seeking information on 10 registered broker dealers as part of an ongoing investigation into high-frequency trading strategies, according to an internal SEC document reviewed by Reuters.
The regulator told its staff in late March that it was interested in seeing any tips, complaints, or referrals that they receive concerning the brokers and high frequency trading.
The firms listed are Allston Trading LLC; Hudson River Trading LLC; Jump Trading LLC; Latour Trading LLC, which is an affiliate of Tower Trading; Merrill Lynch, Pierce, Fenner & Smith, owned by Bank of America Group; Octeg LLC, which has been merged into a unit of KCG Holdings Inc; Tradebot Systems Inc; Two Sigma Investments LLC; Two Sigma Securities LLC; and Virtu Financial.
They are all some of the largest trading firms in the U.S. Allston and Jump are both based in Chicago. Hudson River, Latour, Merrill, Two Sigma, and Virtu are headquartered in New York. KCG is in Jersey City, New Jersey, and Tradebot is based in Kansas City, Missouri.
Jump, Latour, Bank of America, Hudson River, Tradebot and KCG declined to comment. The other firms did not immediately respond to a request for comment.
Their number and the open-ended quest for information shows that the SEC is casting a wide net as it looks to unearth wrongdoing in the marketplace.
It is not known if the SEC found any violations of securities laws at any of the firms. The SEC declined to comment.
A number of government agencies, including the SEC, New York State Attorney General Eric Schneiderman’s office, the Commodity Futures Trading Commission and the Federal Bureau of Investigation have said they had active probes into high-speed and automated trading.
The SEC has been seeking evidence of abuse of order types, as well as traditional forms of abusive trading like “layering” or “spoofing” and other issues relating to high-frequency trading that might be violations of the law, SEC Director of Enforcement Andrew Ceresney told Reuters in May.
Spoofing and layering are tactics where traders places orders that they cancel before they are executed to create the false impression of demand, aiming to trick others into buying or selling a stock at the artificial price.
High frequency trading firms account for more than half of all trades in the U.S. stock market, and are often seen as modern-day market makers. They make it easier for investors to trade by stepping in and taking the other sides of many orders and profiting off of trading spreads.
Scrutiny around high-frequency trading intensified following the March 31 release of best-selling author Michael Lewis’ book, “Flash Boys: A Wall Street Revolt.” In the book, Lewis contends that high-frequency traders have rigged the stock market, profiting from speeds unavailable to others.
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