The New York attorney general is investigating possible manipulation in foreign-exchange trading, according to a person familiar with the matter, aiming more scrutiny at a market already tainted by scandals that have led to billions of dollars in fines.
The investigation centers on brokers who may be placing fake orders, a technique sometimes called spoofing, according to the person. These practices are also referred to as ghosting, because they create the impression of activity that isn’t really there.
New York’s top cop, Eric Schneiderman, has sought to expand his oversight over financial markets, targeting allegedly unfair practices in the U.S. stock market over the past year. In the latest investigation, his office has sent subpoenas for records to interdealer brokers including TFS-ICAP, Tullett Prebon Plc, BGC Partners Inc. and GFI Group Inc., the person said.
TFS-ICAP is a joint venture of ICAP Plc and Cie. Financiere Tradition SA, which ICAP says operates the business. BGC Partners owns GFI. Representatives of the interdealer brokers declined to comment. Matt Mittenthal, a spokesman for Schneiderman, declined to comment.
The investigation, still in its early stages, is examining whether fake bids and offers in FX options were posted on the electronic trading platforms hosted by the interdealer brokers, in order to ramp up interest from options traders in largely illiquid emerging-market currencies, according to the person familiar with the investigation.
Shares of ICAP dropped 1 percent after the news broke, while Tullett Prebon lost 1.1 percent. BGC slumped 5.6 percent, the largest one-day decline since March 2014. Cie. Financiere Tradition rose 0.6 percent.
Regulators and prosecutors have spent 2015 trying to root out fake orders from U.S. markets. Spoofing — in which traders attempt to drive prices in a favorable direction with orders they don’t actually plan to execute — has been the subject of several high-profile cases, including the arrest of London-based trader Navinder Sarao and the conviction in Chicago of Michael Coscia.