New York state’s Attorney General is calling on the financial industry to help stop market abuse through the combination of preferential access to market data and high-frequency trading (HFT).
Speaking at an industry conference Tuesday, state attorney general, Eric Schneiderman, criticized “the toxic combination of high-frequency trading, the potentially illicit sale of early access to market-moving information, and so-called ‘front-running’ schemes that major hedge funds use to get early access to analyst reports — which, he termed, “insider trading 2.0”.
In order to combat this sort of market activity, which, he says, “undermines confidence in the markets by setting up a small minority of traders to receive enormous profits at the expense of the rest of the market”; he announced that his office has set up a hotline for financial industry insiders to confidentially report improper or illegal conduct.
Noting that regulators face many challenges in tracking and preventing this sort of trading, he sais that his office established a hotline for financial industry insiders to confidentially report improper or illegal conduct.
“When blinding speed is coupled with early access to data, it gives small groups of traders the power to manipulate market movements in their own favour before anyone else knows what’s happening,” said Schneiderman. “They suck the value out of market-moving information before it even goes public. That’s ‘insider trading 2.0′, and it should be a huge concern to anyone who cares about the markets and the free flow of capital on which our economy depends.”
Schneiderman noted that earlier this year his office secured an interim agreement with Thomson Reuters to stop providing high-frequency traders with a two-second early look at certain market-moving consumer survey results. Today, he said that since that agreement took effect, trading in a leading S&P 500 fund has dropped from 200,000 shares in the first 10 milliseconds of that two-second period to just 500 shares.
The investigation into the scope and impact of this practice is ongoing, he noted. And, he also criticized similar front running based on early access to analyst opinions.