Massachusetts Surveys Investment Firms on High-Frequency Trading

Massachusetts’ chief securities regulator is surveying more than 1,000 investment advisers in the state about high-frequency trading as scrutiny of the strategy increases.

William F. Galvin sent inquiries on March 25 to investment advisers, including private equity and hedge-fund firms, requesting they complete a survey about their practices related to high-frequency trading, such as their use of direct data feeds and whether they have a computer server located with any exchange’s data center.

“With some concerns being raised about high-frequency trading, this is an effort to learn the extent of the practice,” Brian McNiff, a spokesman for the securities division, said in an e-mail. McNiff said he didn’t know if other states were also surveying advisers.

Controversy around high-frequency trading, a term describing strategies that use lightning-fast computers to eke out profits, ignited this week after author Michael Lewis published “Flash Boys” and said in the book that U.S. equity markets are rigged.

New York Attorney General Eric Schneiderman opened an investigation last month into whether U.S. stock exchanges provide high-frequency traders with improper advantages and is examining the sale of products that offer faster access to data than what’s typically available to the public. The Federal Bureau of Investigation also is looking into the practices and has openly solicited traders and stock-exchange workers to blow the whistle on possible front-running and manipulation via high-speed computers.

Complete Surveys

A total of 1,070 investment advisers received letters asking them to complete surveys about their practices, Massachusetts’ McNiff said. They don’t have to disclose their identity and were asked to return the information by April 8, according to the letter.

Questions in the survey also include whether firms use a co-location service provided by an exchange that allows automated trading systems to be placed physically closer to an electronic matching platform.

“It’s very clear people are being front-run,” Lewis, whose book paints a portrait of markets rigged by insiders with advanced computers, said in a Bloomberg Television interview today with Erik Schatzker and Stephanie Ruhle.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Pierre Paulden, Sree Vidya Bhaktavatsalam

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