Wash Trading by High-Frequency Firms Said to Face Scrutiny

High-frequency trading firms are drawing scrutiny from U.S. regulators seeking evidence that they may be distorting market prices by conducting transactions with themselves, said two people with knowledge of the matter.

So-called wash trades, in which a party buys a contract from itself, could be executed inadvertently by firms with multiple algorithms active in the same stock or derivative, said the people, who requested anonymity because the review isn’t public. Such trades, which can alter the price of shares if they are executed above or below market rates, would be illegal if deemed intentional efforts to manipulate stocks.