NY Attorney General Investigating Possible Manipulation In Foreign-Exchange Trading
- The New York Attorney General's office is investing possible foreign-exchange manipulation.
- Brokers are suspected to be engaged in "spoofing," whereby orders to buy or sell are entered into the market with the intent of being canceled prior to filled.
- Subpoenas have been sent to large forex brokers which may force the companies to release their records.
The New York General Attorney's office, led by Eric Schneiderman, is investigating potential manipulation in foreign exchange trading, according to a Bloomberg report which cited "a person familiar with the matter."
According to Bloomberg, Schneiderman is looking to expand his oversight over the financial markets and is now targeting potentially an unfair practices in the foreign exchange market – known as "spoofing."
Spoofing occurs when bids or offers are entered into a market with the sole intention of being canceled prior to an order executing. The rational behind spoofing is that heavy activity (on either the buy or sell side) could attract the attention of other market participants who are looking to profit off potential volatility.
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The Wall Street Journal pointed out back in February that spoofing is a "bluffing tactic" that intends to "trick other investors into buying and selling at artificially high or low prices."
The 2010 Dodd-Frank law prohibits the use of spoofing, but Schneiderman's office appears to be convinced the activity is still being practiced. Bloomberg noted that subpoenas have been sent to brokers including TFS-ICAP, Tullet Prebon, BGC Partners and GFI Group.
These large brokers act as middlemen for trades between multi-national banks and Schneiderman's ability to investigate the companies stem from New York's Martin Act, which gives his office additional powers to crack down on white-collar crime.
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