The Securities and Exchange Commission is investigating whether Wall Street traders are using exchange-traded funds as a means of disguising insider trading.
ETFs, or funds that track a basket of stocks, have emerged as a possible mechanism for maximising gains in one stock while potentially masking trading patterns, people familiar with the matter say.
In one scenario, a trader could learn information about a company, buy an ETF that includes the company’s stock, and then short sell the other stocks in the ETF. The practice, known as ETF-stripping, would allow the trader to benefit from movements in the company’s share price without directly buying or selling that stock.
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