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"The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity", said Tom Gira, executive vice president of FINRA's market regulation unit. "It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace", he said.
The Securities and Exchange Commission has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with US regulations, according to agency officials and outside lawyers. The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral. According to interviews with attorneys, traders, industry executives and regulators, the unusual requests for codes and other computerised trading strategies really ramped up this year and have targeted stock-trading firms, such as broker dealers and hedge funds.
"FINRA, which reports to the SEC, usually focuses its requests on flawed codes in an effort to understand better how they are constructed, how they operate, and how they are supervised", Gira said. "An unusually large wave of orders for a lightly traded stock, for example, could lead to a request", he added.