Elite investors with high-speed trading systems who gain early access to sensitive information are a growing threat to the integrity of U.S. financial markets, New York Attorney General Eric Schneiderman said.
Schneiderman said today at the Bloomberg Markets 50 Summit in New York that his office is looking into combating the advantages won by securing early access to market-moving data. Calling the issue “Insider Trading 2.0,” Schneiderman said the combination of high-speed trading and early data access unfairly sets up a small group of investors to reap enormous profits.
“A new generation of market manipulators has emerged,” Schneiderman said. Average investors aren’t “going to invest if they think the markets are rigged,” he said.
Faster technology and regulatory changes aimed at spurring competition among exchanges have allowed for rapid increases in the speeds at which stocks change hands. Trades now can occur within a fraction of a second of when market-moving information is available.
Securities and Exchange Commission Chairman Mary Jo White said the “jury is still out” on whether high-frequency trading, which now accounts for more than half of U.S. volume, is helpful or harmful to the market.
Schneiderman said targeting the combination of high-speed trading and early data access is necessary to restore public confidence in the markets.
“When blinding speed is coupled with early access to data, it gives people the power to suck value out of the markets before it even hits the street,” he said today.
Earlier this year, financial information provider Thomson Reuters Corp. reached a deal with Schneiderman’s office in which it agreed to stop providing consumer survey data from the University of Michigan to certain high-frequency traders two seconds before other investors. Thomson Reuters competes with Bloomberg LP, the parent of Bloomberg News.
David Girardin, a spokesman for Thomson Reuters, declined to comment on the attorney general’s statements.
Schneiderman said his office is turning to the state’s Martin Act, a nine-decade-old law used to probe investment fraud and white-collar crime, to go after improper distribution of data. The office set up a hotline, 800-771-7755, for confidential reporting of potentially illegal trading activity.
Apart from the continuing Reuters probe, Schneiderman’s office is looking into the early release of analyst reports as another possible target under the new initiative, the attorney general said today.
“Obviously our concern does not end with that firm,” he said of Reuters. “We’re aware that others might be engaged in similar practices.”