New York Still Investigating Trading on Early Access

The top law enforcer in New York State is not done scrutinizing high-speed trading based on early looks at sensitive data.

Eric T. Schneiderman, New York’s attorney general, said on Tuesday that such trading - which he called “insider trading 2.0” - was still a focus of his office, which reached a settlement with Thomson Reuters over the issue in July.

In that case, Thomson Reuters had allowed a select group of high-frequency trading firms to see a closely watched index of consumer confidence two seconds before it was released to other clients. But the company agreed to end the practice after pressure from the attorney general.

That settlement covers only part of a continuing problem in the markets, Mr. Schneiderman said on Tuesday at the Bloomberg Markets 50 Summit in New York, calling the issue “far more insidious than traditional insider trading.”

“A new generation of market manipulators has emerged,” he said.

“Small but powerful groups within the market are able to use soon-to-be-public information combined with high-frequency trading to distort the markets in ways far worse than Ivan Boesky or Gordon Gekko could have imagined,” he said, referring to a convicted insider trader from the 1980s and a fictional character from the movie “Wall Street.”

It is debatable whether buying early access to market-moving information can be considered fraudulent, Peter J. Henning wrote in the White Collar Watch column in July. “Although it is natural to think that having access to information that influences the markets before others is always wrong, the laws on fraud do not go that far,” he wrote.

Still, Mr. Schneiderman used his broad powers under New York’s Martin Act to put pressure on Thomson Reuters. That antifraud law does not require proof of intentional misconduct.

At Tuesday’s conference - which was sponsored by a main rival of Thomson Reuters - Mr. Schneiderman emphasized that his inquiry into this matter was continuing. He cited concerns about the practice by investment banks of releasing analyst research to select clients.

The point of this inquiry, Mr. Schneiderman said, was to create a level playing field and restore public trust in the markets. “When blinding speed is coupled with early access to data, it gives people the power to suck value out of the markets before it even hits the Street,” he said.

Speaking to an audience of financial professionals, Mr. Schneiderman encouraged Wall Street to call his office hotline with any leads.

“I see little being done from the industry to address this clear and present danger,” he said. “I would urge you to get this on the agenda of any trade association group or at your own firm.”