The U.S. Securities and Exchange Commission is investigating
claims that some high frequency trading firms have used their close
physical links to computerized stock exchanges to give them an
unfair advantage over other investors.
The investigation is focused on the computer-driven trading
platforms of exchanges, including BATS Global Markets, and will
examine whether firms collude to limit competition or manipulate
markets.
The SEC has sent letters to several high-frequency trading firms
to request information about their trading activities, and their
communications with exchanges.
However, the regulator is keen to stress that the probe is still
in its early stages, and that there is no suggestion of wrongdoing
on the part of exchanges or trading firms.
High-frequency trading firms rely on super-fast trade executions
and short-term strategies to make lots of small profits from
momentary price fluctuations.
This latest investigation is part of a larger probe into
high-frequency trading that was instigated after the "flash crash"
of May 2010, when stocks fell sharply and then rebounded within
minutes, partly as a result of glitches in computerized trading
systems.