The investigation, launched last year but said to be in its early stages, centers on a few specific activities, including a practice where firms place large groups of trades to stimulate market activity but then cancel them before they are approved, according to the Wall Street Journal. Authorities are also looking into whether high-speed trading is used to conceal insider trading, as it’s more difficult to track.
Michael Lewis' "Flash Boys" reveals how a group of unlikely characters discovered how some high speed traders work the stock market to their advantage
Then there is the practice known as co-location, where trading firms place their
servers in an exchange’s data center, giving them a milliseconds-long head start on the rest of the market. High-speed trading firms are known to use algorithms to sneak in front of large orders and peel pennies away from dollars. Some brokers have blamed high-speed trading for why they place an order at $4.10 and get it at $4.11.
New York Attorney General Eric T. Schneiderman had previously announced his office had opened an investigation into the practice, but this is the first we’ve heard of the FBI’s involvement.
As for Lewis, he’s enjoying the spotlight. He got into a rather entertaining verbal brawl on CNBC with the CEO of BATS, who tried to publicly shame the author for writing a ‘300-page commercial’ for a new business model. Then he outed a major BNP exec for starting a rumor (with clients) that Lewis is an investor in IEX, the HST-agnostic exchange that he paints in the book as a hero of sorts. “I have no such stake,” Lewis wrote on Facebook. “BNP’s guy is named John Nunziata. Does his mother know what he does for a living?”
