New York Attorney General Eric Schneiderman sent subpoenas to six high-frequency trading firms seeking information about special arrangements they have with exchanges and dark pools as well as their trading strategies, according to a person familiar with the matter.
Chopper Trading LLC, Jump Trading LLC and Tower Research Capital LLC are among the firms, according to the person, who asked to not be named because the details of the investigation haven’t been made public.
Matt Schrecengost, the chief operating officer of Chicago-based Jump Trading, and Mark Gorton, managing director of New York-based Tower Research, didn’t immediately return voicemail messages seeking comment. No official at Chicago-based Chopper Trading was immediately available.
Schneiderman announced last month that he’s concerned some trading platforms may sell services, such as faster data feeds, that give an unfair advantage to high-frequency traders seeking to profit from split-second price movements. He’s not the only one looking into the practice: U.S. authorities including the Federal Bureau of Investigation are probing whether the trading firms act on nonpublic information to gain an edge over competitors.
Chopper was founded in 2002 by Raj Fernando, getting its start in fixed-income trading, according to its website. The firm, with more than 250 employees, wagers its own money and doesn’t manage client or shareholder money. Its headquarters are in the Chicago Board of Trade building, with additional offices in New York, London, San Francisco and Washington.
The company trades “every major asset class,” according to its website. “Chopper believes in responsible market participation with fair and evenly applied standards that increase transparency, stability and efficiency in the market.”
Man, Machine and the U.S. Stock Market
Jump was founded by Bill DiSomma and Paul Gurinas, who started their careers as floor traders, according to the company’s website. During the 1990s, they traded deutsche mark and Standard & Poor’s index contracts. As trading shifted to electronic venues at the end of the decade, they started Jump.
“They knew that in order to be successful in electronic trading they would need to create the best trading strategies and have the foresight to take advantage of the latest technologies,” according to the website. “This philosophy continues to drive our firm and keeps us at the forefront of algorithmic trading.”
The firm now has more than 350 people with locations in New York, Chicago, London and Singapore.
Tower Research’s Gorton also created the LimeWire music-sharing service. In 2011, he and Lime Wire LLC agreed to settle for $105 million a lawsuit pursued by Warner Music Group Corp., Sony Corp. and other music label owners. The companies claimed Lime Wire induced copyright infringement on thousands of songs.
During an interview with Bloomberg News seven years ago, Gorton said he traded stocks faster than any other company on Wall Street.
“I’ve beaten the markets a half dozen times and will do it a half dozen more,” he said at the time. “As a personal challenge, it doesn’t mean that much anymore.”
Tower was founded in 1998, according to its website. The company “develops proprietary trading algorithms by using rigorous statistical methodology to identify non-random patterns in the behavior of markets. Exploiting these inefficiencies allows the firm to earn exceptional returns while mitigating risk.”
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