The United States Department of Justice (DOJ) is conducting an investigation regarding high-frequency trading, according to Attorney General Eric Holder during his testimony at a budget hearing before the House Appropriations Subcommittee on Commerce, Science, Justice and Related Agencies on Friday, April 4.
Ensuring integrity of financial markets
In his testimony, Attorney General Holder noted the recent concerns in the financial sector regarding the practice of high-frequency trading (HFT). He said, “I can confirm that we at the Justice Department are investigating this practice to determine whether it violates insider trading laws.”
“This practice, which consists of financial brokers and trading firms using advanced computer algorithms and ultra-high speed data networks to execute trades, has rightly received scrutiny from regulators,” said Attorney General Holder.
He emphasized that the Justice Department is “committed to ensuring the integrity of our financial markets,” and the agency is determined to follow the investigation on high-frequency trading wherever the facts and the law may lead.
FBI, SEC, NYAG investigating High-Frequency Trading
The Federal Bureau of Investigation (FBI) also confirmed its investigation of HFT and high-speed trading earlier this week. The Securities and Exchange Commission (SEC) is also conducting its own inquiry regarding the issue. New York Attorney General Eric Schneiderman is also looking into the matter and wants to find out whether traders have an unfair advantage over other investors by practicing HFT.
Michael Lewis raises concern on HFT
Michael Lewis, author of Flash Boys: A Wall Street Revolt appeared on CBS’ program, 60 Minutes and discussed his belief that the stock markets in the United State are rigged by a combination of insiders—big Wall Street banks, high frequency traders and stock exchanges and pointed out that they can move faster than other investors.
“The market moves at two speeds: one speed for people who pay for access to the exchanges, who put their trading machines right next to the black boxes … and everybody else. And we are everybody else, everybody else being investors in the stock market,” said Lewis in a separate interview at Today show on Tuesday.
HFT trading group denies Lewis allegations
The Modern Markets Initiative, a high-frequency trading group denied the allegations of Lewis. According to the group, “The markets are not rigged. Saying otherwise is a broad generalization that lumps the vast amount of good market behavior in with a few bad actors.”
Charles Schwab describes HFT a cancer on the markets
Some of the top executives of Charles Schwab Corp (NYSE:SCHW) issued a statement describing the practice of high-frequency trading a “cancer” on the markets.
Charles Schwab and Walt Bettinger, chairman and CEO of the firm, respectively, said, “High-frequency trading has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equities exchanges.”