Thursday, September 10, 2009

Bailed out investment banksters reap benefits from high tech market manipulations

SEC Probes Manipulation by ‘Advanced Trading Systems’


By David Scheer
Copyright 2009

The U.S. Securities and Exchange Commission is “rigorously” investigating whether traders are using technology to manipulate markets, the agency’s enforcement and inspections chiefs said today.

The regulator is probing suspected “market manipulation based on complex use of technology and advanced trading systems,” said SEC Enforcement Director Robert Khuzami and acting examinations director John Walsh in testimony prepared for a Senate Banking Committee hearing. They said the inquiry is among a list of active cases, also including unspecified Ponzi schemes, hedge-fund abuses and insider trading.

SEC spokesman Kevin Callahan said he couldn’t immediately comment beyond the testimony.

Lawmakers including U.S. Senator Charles Schumer have pressed the SEC to ban so-called flash trading, which gives firms a split-second advantage in viewing stock-trading requests. The agency said today it will consider proposing a ban at a Sept. 17 meeting.

Federal prosecutors also drew attention to potential abuses of automated trading in July, when they said software allegedly stolen from Goldman Sachs Group Inc. by a former programmer might be used to “manipulate markets.”

Computer-program trading represented almost 27 percent of volume on the New York Stock Exchange in the last week of August, according to the NYSE’s most recent report. Goldman Sachs, Morgan Stanley, Barclays Capital Inc., Bank of America Corp.’s Merrill Lynch subsidiary and Deutsche Bank AG’s securities unit accounted for the most volume, the data show.

‘Complex Landscape’

High-frequency trading accounts for less than 1 percent of Goldman Sachs revenue and the firm doesn’t use flash programs in executing client agency orders, the company said last month in a statement addressing the “complex landscape” surrounding this issue. In a letter to clients, Goldman Sachs also said it doesn’t try to profit from advance knowledge of their orders by betting its own money.

The Goldman Sachs programmer, Sergey Aleynikov, was arrested July 3 and charged the next day with theft of trade secrets and transportation of stolen property in foreign commerce. At Aleynikov’s arraignment, Assistant U.S. Attorney Joseph Facciponti said the programmer transferred code to a computer server in Germany and that others may have had access to it, a claim Aleynikov has denied. He is free on $750,000 bond.

Goldman Sachs spokesman Ed Canaday didn’t immediately respond to a message seeking comment on the SEC testimony.

© 2009 Bloomberg.vom:

To search TTC News Archives click HERE

To view the Trans-Texas Corridor Blog click HERE