New York – The U.S. regulatory crackdown on insider trading is missing widespread abuses in the $4 trillion options industry, undermining everyone from Goldman Sachs Group Inc., the world’s biggest securities firm, to Citadel Investment Group LLC, the $14 billion hedge-fund manager.
Interactive Brokers Group Inc., which handles 20 percent of all U.S. options trades, lost as much as $25 million in the first quarter to investors who may have violated laws by using nonpublic information to trade. Market makers PEAK6 LLC and AGS Specialists LLC say insider trading is costing them at least 10 percent of annual earnings.
“Big deals today are pretty much known in advance, and the options market reflects that,” said Matthew Hulsizer, co- founder of closely held PEAK6 in Chicago. “When people come in and cheat, there’s very little we can do as a market maker to avoid it.”
The record pace of mergers and acquisitions has made matching orders for options more treacherous than ever. Well- timed bets on call options, the investment of choice for traders tipped off to deals before they’re announced, preceded four of the five biggest U.S. takeovers this year, including First Data Corp of Greenwood Village.
