High-speed trading has been the subject of scrutiny from the SEC, consumer advocates, and public watchdogs alike. Calls for the practice to be reviewed have been steadily mounting and the SEC is starting to take those cries more seriously. According to information from Reuters, the Securities and Exchange Commission is adding 10 firms to its investigation into high-speed trading.
High-speed trading comes in a number of variations but the basic principle is that of trades on the stock market that take place within fractions of a second to exploit miniscule competitive advantages. The SEC has been interested in high-speed (high-frequency) trading and is ostensibly looking to end any wrongdoing it may find.
According to Huffington Post, the firms that are included in the investigation are as follows:
“…Allston Trading LLC; Hudson River Trading LLC; Jump Trading LLC; Latour Trading LLC, which is an affiliate of Tower Trading; Merrill Lynch, Pierce, Fenner & Smith, owned by Bank of America Group; Octeg LLC, which has been merged into a unit of KCG Holdings Inc ; Tradebot Systems Inc; Two Sigma Investments LLC; Two Sigma Securities LLC; and Virtu Financial.” – Huffington Post
Among the practices the SEC is on the lookout for, according to HuffPo, are practices that produce artificial highs and lows to manipulate trading. These practices are commonly referred to as “layering” or “spoofing.” By creating false purchases that are canceled before they are executed, traders are able to create empty demand and influence the market and prices.
The high-frequency problem seems to only be growing, however, as these types of trades now account for more than half of all trades in the U.S. stock market.