This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Will the FBI Crack Down on High-Speed Trading?

Stocks in this article: ICE NDAQ

NEW YORK (TheStreet) -- News of an investigation by U.S. federal agents comes days after Michael Lewis, the author of a new book about high-frequency trading, told 60 Minutes that high-frequency traders have an advantage over other market participants.

The investigation was launched by the Federal Bureau of Investigation about a year ago, and aims to uncover whether high-speed trading could violate insider-trading laws.

A spokesman from the agency told the Wall Street Journal that the investigation is still in its infancy, and that the catalyst to open the case was the agency's commitment to end insider trading in a world where information is readily available.

The heightened interest in the FBI's investigation stems from Lewis's comments on 60 Minutes that the U.S. stock market is "rigged." Lewis was plugging his book, Flash Boys: A Wall Street Revolt, to the news outlet Sunday night.

Lewis claims to have uncovered information that proves high-speed electronic trading firms use their speed advantage to extract billions from unknowing investors every year.

The findings, uncovered with ex-trader Brad Katsuyama, show that high-frequency trading is carried out by a large number of banks and proprietary trading firms that use complex computer algorithms to flood the market with orders, executing only a few when a price imbalance arises.

The trading methods are said to be completely legal and account for about half of the U.S. market volume.

Although the stock exchanges are highly regulated and the practices are technically legal, Lewis claims changes need to be made in an effort to protect investors from being exploited for billions of dollars by high-frequency trading firms.

Part of the investigation by U.S. agents is to examine whether it is legal for stock exchanges to sell faster access to data and more information on trades than is generally given to the public. That may instead fall under the categories of wire fraud or insider trading.

High-frequency trading firms pay thousands of dollars a month for these services from firms including Intercontinentalexchange (ICE) and Nasdaq OMX Group (NDAQ) to input the data into algorithms and trade ahead of other investors. TheStreet's Dana Blankenhorn sees this investigation as potentially harming these index purveyors.

If the charges can be proven, then a major overhaul could be required for high-frequency traders. That would aid institutional investors but also may dry up the large amount of liquidity that high-frequency-trading firms provide.

ICE Chart

ICE data by YCharts

At the time of publication, the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs