SEC in insider trading investigation with a twist
February 6, 2007
The US Securities and Exchange Commission is looking into whether big banks have leaked trade information to favorite clients in a bid for favor with those clients. The investigation is said to have as its object discovering just how common insider trading is in the New York markets.
Brokerages that act ahead of client orders for their own benefit has long been an issue on Wall Street, but the current investigation is more focused on whether banks are tipping off their best customers, including hedge funds, with inside information that allows them to make trades with other banks with the purpose of hiding the source of the information that allowed them to make advantageous trades.
The SEC sent out letters last month to major banks asking for a wide variety of information, including all stock and option trading data for the banks and their customers for the final two weeks in September, the end of the third quarter. Recipients of the letters included Deutsche Bank, Merrill Lynch, Morgan Stanley, and UBS.
The SEC will use the information to determine whether it looks like banks are tipping off customers in ways that allow the customers to make trades that they would not have made without the information. If any evidence of such inside trading is turned up, a formal investigation that could lead to civil charges against the institutions and/or individuals involved.
The SEC has confirmed that the investigation is being conducted but would not offer any details, while none of the banks included would comment.