Bats Global Markets Inc., one of the three big operators of U.S. stock exchanges, wants brokers to start snitching on their peers when they suspect market manipulation.
Through a new initiative it likens to a neighborhood watch, Bats will encourage brokers to report suspicious price quoting and trading in its U.S. equities and options markets. The company handles about one-fifth of stock trading in America.
“We can help stop some of this nefarious behavior and point our investigations in better directions,” said Tami Schademann, Bats’s chief regulatory officer, adding that manipulation is rare on its markets.
Bats is taking an increasingly aggressive stance to stamping out spoofing, a form of market manipulation made famous by the arrest last year of Navinder Singh Sarao, accused by the U.S. government of worsening the 2010 flash crash.
Regulators approved a new Bats rule this year that lets the exchange crack down more quickly when it spots problematic trades. Chief Executive Officer Chris Concannon recently said Bats would step up efforts to eliminate cheating, noting that manipulators are “accessing our markets from abroad,” according to his public letter in May. “Expect more policing than ever before!”
Market regulators have also expressed concern about problematic trading entering U.S. markets from overseas, with domestic brokers acting as their gateway. In 2014, Wedbush Securities Inc. paid the U.S. Securities and Exchange Commission $2.44 million to settle allegations it gave thousands of “essentially anonymous” traders from abroad an entry to American markets. In 2012, the regulator fined Hold Brothers On-Line Investment Services Inc. and three executives $4 million for allowing manipulative orders from foreign affiliates to flow into the U.S.
Bats won’t pay brokers for tattling, and the program isn’t entirely novel. Bats already gets tips from brokers, but wants more, Schademann said. Exchanges including Bats work with the Financial Industry Regulatory Authority to scan markets for suspicious trading. Finra can investigate and take action against its members, and can involve the SEC.