NEW YORK: New York’s attorney general is in the early stages of investigating manipulative tactics in the electronic trading of emerging markets currencies, a person familiar with the matter said.
The investigation is focused on posting false bids and offers — a practice known as “ghosting” or “spoofing” — on electronic trading systems in the foreign exchange options markets. Fake orders would create the impression that there was more interest in the securities in question than really existed, particularly for infrequently traded products.
The attorney general, Eric T. Schneiderman, issued subpoenas last week to four large brokers in the foreign exchange option market, including BGC Partners, TFS-ICAP, GFI Group and Tullett Prebon Financial Services. A representative of BGC Partners and GFI declined to comment, as did a spokesman for Tullett. An ICAP spokeswoman could not immediately be reached.
The brokerage firms have a month to respond to the subpoenas, the person familiar with the matter said. Bloomberg News first reported the investigation.
Regulators are focused on manipulative trading after new post-financial crisis rules placed prohibitions on trading activities, such as posting orders and then canceling them right away.
This month, a high-frequency trader, Michael Coscia, was convicted of spoofing in a variety of commodities markets. Last month, the Commodity Futures Trading Commission accused another trader of spoofing.
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