FINRA Cracking Down on Abusive, Unsuitable Automatic Trading Practices

Attorney Advertising Disclaimer

FINRA is placing emphasis on trading strategies based on mathematical algorithms and has opened 170 investigations into cases alleging such abusive trading practices.

Chairman Richard Ketchum recently explained that trades made on the basis of mathematical algorithms and similar automated measures are abusive because such strategies are associated with supervisory failures and market manipulation schemes. For instance, HAP Trading LLC was ordered to return $1.25 million in profits after an investigation revealed evidence of market manipulation wherein the firm perpetrated waves of equity trades in order to artificially inflate options pricing. Supervisory failures purportedly allowed the abusive trading practices to continue unabated until the investigation.

Author Michael Lewis, in his book Flash Boys, accused high-frequency industry players of using powerful, high-speed computers to manipulate stock prices.

In 2011, the SEC adopted a "market access rule" requiring brokerages with direct market access to institute risk management controls and supervisory procedures. FINRA took the directive a step further and now is opening investigations against suspected illegal, market manipulation or "spoofing" behavior, including those brought on by mathematical algorithms and similar processes.

If you have invested with a broker, financial adviser or firm whose manipulative or abusive trading schemes or practices has artificially influenced options pricing or otherwise negatively affected your financial holdings or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

News: FINRA probing 170 instances of possible algorithmic abuses (Reuters)