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U.S. Securities Watchdog Probes High-Frequency Trading Firms

The U.S. securities watchdog is looking at whether some high-frequency trading firms have used their close links to computerised stock exchanges to gain an unfair advantage over other investors, the Wall Street Journal said.

The Securities and Exchange Commission is focusing on computer-driven trading platforms of exchanges, including BATS Global Markets Inc, the paper said, citing people familiar with matter.

Specifically, it will examine whether firms collude to limit competition or manipulate markets, it quoted a person with knowledge of the matter as saying.

Regulators have sent letters to a number of high-speed firms requesting information about their trading activities and communications with exchanges, the paper said, adding that the probe is still in its early stages and there is no suggestion of wrongdoing by trading firms or exchanges.

BATS declined to comment to the Journal. SEC and BATS could not immediately be reached for comment by Reuters outside regular U.S. business hours.

High-frequency firms rely on rapid-fire trades and short-term strategies to earn profits on fleeting price imbalances.

The SEC probe stems from a broad look at computer trading that regulators initiated after the "flash crash" in May 2010, when stocks fell and rebounded sharply within minutes, following glitches in computer-trading systems, the Journal said. (Reporting by Sakthi Prasad; Editing by Edwina Gibbs)

Copyright 2010 by Reuters. All rights reserved.

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