FINRA Conducts 170 Probes Into Possible Algorithmic Abuse

The Financial Industry Regulatory Authority says that is looking to identify and stop trading incidents linked to algorithmic abuses. The self-regulatory agency is currently conducting about 170 investigations into this matter.

FINRA wants to find out if any brokerage firms either engaged in algorithmic abuses to trade or did not properly supervises advisers who committed such abuses. The SRO is worried that there are algorithms that are specifically intended set off illegal, manipulative behaviors on the market.

The use of algorithms to influence the markets have garnered lots of attention lately, specially with the release of author Michael Lewis’s book, “Flash Boys: A Wall Street Revolt.” He contends that high-frequency traders have the greater advantage because their extremely fast computers can manipulate stock prices to their benefit.

This month, FINRA and financial exchanges run by IntercontinentalExchange Group Inc., NASDAQ OMX Group Inc., and CBOE Holdings Inc., announced that they were fining trading firm HAP Trading LLC and its CEO Harsh Padia $1.5 million for manipulating the options market and not properly supervising an employee. The trader, Saagar Gupta, is accused of taking part in “cross-product manipulation” for HAP Trading on several occasions between May and July 2010.

Chicago Board Options Exchange has suspended him from trading for three months and he must pay a $250,000 fine. The $1.5 million that Hap Trading and Padia were told to hand over is $1.25 million in profits and pay $250,000 as penalty.

The FINRA probes come in the wake of the U.S. Securities and Exchange Commission’s “market access” rule, which mandates that brokerages that have direct access to the market make sure that there are supervisory procedures and risk management controls in place.

The SSEK Partners Group is an institutional investor fraud law firm.

HAP Trading, chief fined $1.5 million for options manipulation, MSN, May 12, 2014

FINRA probing 170 instances of possible algorithmic abuses, Reuters, May 19, 2014

More Blog Posts:
SEC Chair White Says High-Frequency Trading Markets Not Rigged, Stockbroker Fraud Blog, April 29, 2014

Illegal High Frequency Trading: Trillium Brokerage Services LLC and 11 individuals agree to settle FINRA Charges for $2.27M, Institutional Investor Securities Blog, September 22, 2010

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

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