FBI Probes Wall Street's High-Speed TradersBy Zach Toombs | March 31, 2014
According to reports from The Wall Street Journal and Bloomberg, the bureau is particularly concerned big firms could be gaining unfair advantages.
In the world of high-speed trading, milliseconds can mean millions of dollars. And the FBI is concerned some traders might have an unfair advantage in that respect.
Firms often use high-speed computers and algorithms to trade at rates faster than traditional investors. And while the practice itself is legal, the FBI is investigating whether it's being used in wire fraud or insider trading. (Via BBC)
The Wall Street Journal and Bloomberg broke news of the FBI probe Monday. High-speed traders are also the focus of "Flash Boys," the new book from author Michael Lewis.
And apparently the book portrays the practice rather harshly. In Businessweek's words, Lewis views high-speed traders as "the consummate middlemen extracting unnecessary rents from a class of everyday investors who have never been at a bigger disadvantage."
The criticism here is that firms engaging in high-speed trading can act on information before the average individual trader even knows that information. And that affects the price of the stock. Though at least a couple members of CNBC's panel Monday afternoon didn't see why that's big news.
"I don't know that the market is rigged but just the reality of the world we live in today. I'm not saying this is right, but the reality is, if you have money, you have more access. It's really that simple. That's the whole point of private client services."
A stat to keep in mind: despite strong market gains in the last couple years, the percentage of Americans owning stock is at a 15-year low. So, more trading is happening among a smaller slice of the population. (Via Gallup)
The FBI won't be alone in its investigation of high-speed trading. The Securities and Exchange Commission and New York's attorney general's office are also examining the practice for criminal activity or unfair advantages.