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Thursday, February 10, 2011

SEC Suspects ETFs Used in Insider Trading

View this article on our website: SEC Suspects ETFs Used in Insider Trading

SEC Suspects ETFs Used in Insider Trading

Article published on February 10, 2011

The Securities and Exchange Commission suspects traders are using ETFs to conceal insider trading, the Financial Times reports.

Investigators are trying to determine if such traders are engaging in a practice known as "ETF stripping," according to unnamed FT sources said to be familiar with the matter.

To cover their tracks, traders would buy ETFs exposed to stocks they have nonpublic information on rather than buying the stock itself. The traders could then minimize exposure to the other ETF holdings by shorting them.

An unnamed Bloomberg source is also quoted as saying the SEC is investigating ETF stripping.

Regulators are also following hunches that traders are deploying swaps to avoid insider-trading suspicions, the FT reports.

The Justice Department's prosecution into alleged insider trading by hedge funds intensified this week, with charges against multiple fund managers.

By Joe Morris
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