The New York Stock Exchange (Gary/Fotolia)
Attorney General Eric Holder Jr. today told federal lawmakers that the U.S. Department of Justice is investigating whether “high-frequency trading” violates insider-trading laws.
The trading style, in which financial brokers and firms execute trades in milliseconds using advanced computer algorithms and high-speed data networks, has rightly received scrutiny from regulators, Holder said.
“The department is committed to ensuring the integrity of our financial markets—and we are determined to follow this investigation wherever the facts and the law may lead,” Holder told the House Appropriations subcommittee on commerce, justice, science and related agencies at a hearing on the DOJ budget.
Questions about the fairness of high-frequency trading have bubbled for years, but the debate over its legality picked up last month when New York Attorney General Eric Schneiderman announced his office will examine the practice.
Schneiderman on Monday suggested the practice could be illegal. Schneiderman was reacting to a CBS News “60 Minutes” segment and to author Michael Lewis’ release of a new book, “Flash Boys,” which said high-frequency trading rigs the stock market.
“Some of it, I believe, may be illegal,” Schneiderman told “CBS This Morning” on Monday. “Our offices had an investigation for over a year into some practices related to high-frequency trading. … There are situations where there really may be some illegal conduct and we are looking at it under New York securities laws.”
Several news outlets, citing a senior FBI official, reported Monday that federal agents are probing whether the practice is insider trading because it takes advantage of fast-moving market information unavailable to other investors.
On Capitol Hill, the new national dialogue has revived debate about legislation to tax high-frequency trades.
“These don’t really add any value,” the sponsor of one bill, Rep. Keith Ellison, D-Minn., told Bloomberg in an interview. “They’re not market signals, they’re just collecting checks because your computer’s faster than somebody else’s.”