By Aruna Viswanatha
WASHINGTON (Reuters) - The U.S. Justice Department is investigating high-speed trading for possible insider trading, Attorney General Eric Holder told lawmakers on Friday.
The disclosure comes the same week that regulators and the FBI also confirmed they are looking into potential wrongdoing by high-frequency stock traders.
Regulators have been examining whether ordinary investors are at an unfair disadvantage to high-speed traders, who use computer algorithms to rapidly dart in and out of trades to earn fractions of a penny that add up to big profits over time.
"I can confirm that we at the Justice Department are investigating this practice to determine whether it violates insider trading laws," Holder told a House panel at a hearing on the Justice Department's budget.
Earlier this week the heads of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission also confirmed those agencies have several active probes into market integrity and structure issues, including high-speed and automated trading.
On Monday, the FBI confirmed it has been conducting a wide-ranging investigation of high-speed trading for months, an outgrowth from the years-long crackdown on insider-trading.
The bureau is examining whether high-frequency traders are front-running others' trades by getting to exchanges first.
A big trade, such as a bank shorting a million shares of a company under investigation, could be considered a material event.
Reuters also reported earlier this week that the FBI is looking at areas such as whether high-speed firms can cut the line in terms of how security orders are placed or are engaged in "spoofing" trades that are not really trades to give the illusion of market activity.
Acting CFTC chairman Mark Wetjen said on Thursday his agency is also investigating whether spoofing runs afoul of the derivatives regulator's rules.
The long-running debate about high-frequency trading intensified on Monday, after best-selling author Michael Lewis published a new book, "Flash Boys: A Wall Street Revolt."
The book contends that high-speed traders have rigged the stock market, profiting from trades made at a speed unavailable to ordinary investors.
Proponents of high-speed trading have criticized the book, saying high-speed traders actually benefit other investors by providing liquidity to the market.
(Reporting by Aruna Viswanatha; Editing by Bill Trott and David Gregorio)