Justice Department is investigating high-speed trading for possible insider trading, Attorney General Eric Holder told lawmakers on Friday. He focuses on how high-frequency trading firms use ultra- fast telecom links, microwave towers and special access to exchanges to gain an edge over other traders. Lewis’ new book - “Flash Boys: A Wall Street Revolt” - says that high speed traders bilk that kind of money from investors every year. stocks that were traded in 2012, even a small mispricing can move the needle by tens of billions of dollars. “We have academic data now that suggests that, yes, in fact there is a point beyond which the level of dark trading for particular securities can really erode market quality.” Securities and Exchange Commission’s (SEC) Trading and Markets division, said on the sidelines of a conference in February.

This trend is “a real concern,” John Ramsay, former head of the U.S. stock trades, including almost all orders from “mom and pop” investors, now happen “off exchange,” up from around 16 percent six years ago. The problem is these venues price their transactions off of the published prices on the exchanges - and if those prices lack integrity then “dark pool” pricing will itself be skewed.Īround 40 percent of all U.S. Investors with large orders can also more easily disguise what they are doing, reducing the danger that others will hear what they are doing and take advantage of them.īut the rise of “off-exchange trading” is terrible for the broader market because it reduces price transparency a lot, critics of the system say. Those whose trade never makes it to an exchange can benefit as the broker avoids paying an exchange trading fee, taking cost out of the process. When the average investor, or even a big portfolio manager, tries to buy or sell shares now, the trade is often matched up with another order by a dealer in a so-called “dark pool,” or another alternative to exchanges. And this problem could cost investors far more money than any shenanigans related to high frequency trading. Some former regulators and academics say so much trading is now happening away from exchanges that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is. stock market went mainstream last week thanks to allegations in a book by financial author Michael Lewis, but there may be a more serious threat to investors: the increasing amount of trading that happens outside of exchanges. NEW YORK (Reuters) - Fears that high-speed traders have been rigging the U.S.

(This April 6 story was corrected to fix spelling of name to Preece from Pierce in paragraphs 18, 27, and 30.)

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