U.S. investigates market-making operations of Citadel, KCG
Federal authorities are investigating the market-making arms of Citadel LLC and KCG Holdings Inc, looking into the possibility that the two giants of electronic trading are giving small investors a poor deal when executing stock transactions on their behalf.
The Justice Department has subpoenaed information from Citadel and KCG (KCG.N) related to the firms' execution of stock trades on behalf of clients, according to people familiar with the investigation.
Authorities are examining internal data concerning the firms’ routing of customer stock orders through exchanges and other trading systems, to see whether they are giving customers unfavorable prices on trades in order to capture more profit on the transactions, according to the people familiar with the inquiry. Under Securities and Exchange Commission rules, U.S. brokers are legally required to seek the “best execution reasonably available” on orders, a standard meant to ensure that all customers get a favorable price and a swift trade.
The Justice Department has looked at a number of high-speed trading firms that pay retail brokerages to sell them their flow of customer orders for stock trades. This segment of the industry is known as wholesale market making.
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http://www.reuters.com/article/us-usa-stocks-probe-exclusive-idUSKCN0Y11CJ
