High-frequency trading

Securities News: Citigroup to Pay $12M Over Alleged Dark Pool Misrepresentations, SEC Issues Nearly $4M Whistleblower Award, Ex-Bankrate CEO Who Pleaded Guilty to Fraud Gets 10 Years in Prison

Published on: September 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Must Pay Over $12M Over Dark Pool Allegations

To settle Securities and Exchange Commission that it misled users of a dark pool run by an affiliate, Citigroup Global Markets Inc. (CGMI) and the affiliate, Citi Order Routing and Execution (CORE), will pay $12M. The regulator contends that Citigroup (C) misled users when it told them that high-frequency traders were prohibited from trading in Citi Match, despite the fact that two of the dark pool’s most active users qualified as high-frequency traders. These traders had executed over $9B in orders.

Dark pools are private securities exchange that allows investors, usually big financial institutions, to make anonymous trades. Members of the investing public cannot trade in dark pools. High-frequency trading typically involves the use of supercomputers, usually by financial firms, to make trades within microseconds.

SEC Enforcement: Wedbush Settles SEC Probe for $2.4M, High-Frequency Trading Firm Gets $16M Penalty, and the Regulator Suspends Companies Touting Ebola Treatment

Published on: November 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Wedbush Settles Market Access Violation Case for $2.44M

Wedbush Securities has agreed to settle a market access violations case with the U.S. Securities and Exchange Commission by admitting to wrongdoing and paying $2.44 million. The brokerage firm has also agreed to hire an independent consultant.

According to the SEC order, Wedbush violated the market access rule because it didn’t have the proper risk controls in place before giving customers access to the market. Among the customers that were given this access were thousands of anonymous overseas traders.

SEC To Tackle High-Speed Trading, Dark Pools With New Initiatives

Published on: June 6, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Securities and Exchange Commission Chairman Mary Jo White said that the regulator is working on new rules that would target dark pools, high-speed traders, order-routing practices, and trading venues that don’t offer much transparency. Her proposed regulations mark the first time she has spoken about her plans to overhaul equity market structure rules since becoming head of the SEC last year.

Included in White’s proposals are an “anti-disruptive trading” regulation to curb high-frequency traders from making aggressive short-term trades when the market is vulnerable, as well as a strategy to make proprietary trading shops register with the regulators and share their books for inspection. The SEC chairman also said that her team is working on enhancing the way trading firms handle the risks involved with computer algorithms.

To improve oversight over high-speed traders, White wants to shut a loophole that lets trading firms get out of registering with the Financial Industry Regulatory Authority if they trade off traditional exchanges. Also, while noting that it wasn’t the job of the SEC to forbid algorithmic trading, White said that the Commission is trying to determine if there is anything about a computer-driven trading environment that works against the best interests of investors.

FINRA Conducts 170 Probes Into Possible Algorithmic Abuse

Published on: May 21, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that is looking to identify and stop trading incidents linked to algorithmic abuses. The self-regulatory agency is currently conducting about 170 investigations into this matter.

FINRA wants to find out if any brokerage firms either engaged in algorithmic abuses to trade or did not properly supervises advisers who committed such abuses. The SRO is worried that there are algorithms that are specifically intended set off illegal, manipulative behaviors on the market.

The use of algorithms to influence the markets have garnered lots of attention lately, specially with the release of author Michael Lewis’s book, “Flash Boys: A Wall Street Revolt.” He contends that high-frequency traders have the greater advantage because their extremely fast computers can manipulate stock prices to their benefit.

Goldman Sachs Under Investigation Over Hiring Practices, High-Frequency Trading

Published on: May 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Goldman Sachs (GS) Group Inc. said it is under scrutiny in probes related to high-frequency trading and whether its hiring practices comply US antibribery laws. This is the first time the firm has publicly disclosed both investigations. The information was made available via Goldman’s quarterly filing with the SEC.

In the bank hiring practices investigation, Credit Suisse Group Ag (CS), Morgan Stanley (MS), UBS AG (UBS), and Citigroup (C) are also under scrutiny. The Securities and Exchange Commission wants to know whether the banks or their staff hired the relatives of well-connected officials in Asia, which could be a violation of the antibribery laws-in particular, the Foreign Corrupt Practices Act, which prevents companies from giving foreign officials items of value in exchange for business. Although it isn’t illegal to hire government officials’ relatives in Asia, hires cannot just be made for the purpose of earning new business.

As for the high-speed trading probe, the US Justice Department, the SEC, New York Attorney General Eric Schneiderman, and the Federal Bureau of Investigation are assessing trades that engage in fast algorithmic trading. Schneiderman wants to know if firms involved in high-speed trading have secret deals with trading venues, such as dark pools and stock exchanges, that lets them trade before other investors.

SEC Chair White Says High-Frequency Trading Markets Not Rigged

Published on: April 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Speaking before a US House of Representatives panel, Securities and Exchange Commission Chair Mary Jo White addressed allegations about the high-frequency trading markets saying they “are not rigged.” Her statement was in response to allegations made in Michael Lewis’ book “Flash Boys: A Wall Street Revolt,” which questioned the role of this type of trading and whether investors end up at a disadvantage because of it.

High-speed trading is computer driven and impacts over half of the volume of the stock market. Firms that engage in high frequency trading subscribe to data feeds that are superfast and can see the trades before other investors can, allowing them to avail of the information first. Lewis contends that high-speed traders are doing a kind of front-running that lets firms quickly determine whether there is investor desire to purchase a stock. He says this lets buy the stock first and then sell it back to the investor at a slightly higher cost.

Since the book’s release, the US Attorney General, the Federal Bureau of Investigation, the SEC and prosecutors in New York have all said that they are looking into the practices of firms that engage in high-speed trading. The FBI wants to see whether high-speed firms are in violations of prohibitions tied to insider trading, while NY Attorney General Erich Schneiderman is probing links between high-speed firms and the exchanges to see whether the markets are “catering” to these traders.

Securities Roundup: Lawmaker Presses SEC to Tackle High-Frequency Trading, Approval of Nasdaq’s Plan to Payback FB IPO Investors is Delayed, & Less Investors Filed Securities Lawsuits Against Corporate Firms in 2012

Published on: February 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Lawmaker Presses SEC to Tackle High-Frequency Trading
Rep. Edward Markey (D-Mass.) is pressing the Securities and Exchange Commission to help stop the allegedly harmful impact of high-frequency trading. Writing to SEC Chairman Elisse Walter and her predecessor Mary Schapiro, Markey talked about how the Market Reform Act of 1990 gives the regulator the power to “crack down on program trading.”

He noted that the law has a provision that lets the agency forbid or limit activities that can cause great volatility. Originally intended to place limits on program trading, Markey said the provision can be applied to ban or place restrictions on high-frequency trading.

Approval of Nasdaq’s Plan to Payback FB IPO Investors is Delayed
The SEC is now giving itself until March 29 to decide whether or not to approve Nasdaq’s proposal to set up a $62 million fund to pay back those that lost money due to technical problems during the initial public offering of Facebook Inc. (FB). The regulator says it needs more time to look at comment letters about the proposal and see to other matters.

Facebook’s May 2012 IPO was beleaguered by technical snafus that led to lawsuits by investors. Regulators and lawmakers have been seeking more information about what went wrong. In July, Nasdaq proposed accommodating members for losses they suffered from the IPO because of the system glitches. It says it would pay back $62 million in cash.

Number of Investors Suing Corporate Firms for Securities Fraud Down in 2012
According to a recent report, the number of federal securities lawsuits seeking for class-action status went down significantly in 2012. Unlike in 2011 when 188 such securities cases were filed, there were only 152 submitted last year, reports Stanford University Law School and Cornerstone Research. This was the second-lowest number of filings in over a decade and a half. The report credits the drop in cases to a decline in federal complaints submitted over acquisition and merger issues and less allegations against financial firms over Chinese reverse-mergers.
13 federal merger and acquisition lawsuits were submitted last year-down significantly from the year before when there were 43. Also, investors with cases did not name US companies found in the S & P 500 as often. Only one in 29 of these large institutions were accused of securities fraud last year. There also didn’t appear to be any trend among the new cases.

House Democrat Urges SEC to Take On High-Frequency Trading With 1990 Law, Bloomberg/BNA, January 23, 2013

Nasdaq’s Facebook IPO proposal ruling delayed by SEC, Silicon Valley Business Journal, October 30, 2012

Fewer U.S. investors sued corporate firms for fraud in 2012, USA Today, January 23, 2013

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