US Regulators Probe into Morgan Stanley and Goldman Sachs Block Trades

The US Securities and Exchange Commission (SEC Securities and Exchange Commission (SEC) The Securities and Exchange Commission (SEC) is one of the most widely known independent authorities in the United States. The SEC has a wide range of responsibilities, helping police markets and curbing against abuse. This includes enforcing federal securities laws, proposing securities rules, and regulating the US’ stock and options exchanges.As one of the paramount regulatory authorities in the US, the SEC is responsible for the oversight of public companies in the aforementioned segments.Wha The Securities and Exchange Commission (SEC) is one of the most widely known independent authorities in the United States. The SEC has a wide range of responsibilities, helping police markets and curbing against abuse. This includes enforcing federal securities laws, proposing securities rules, and regulating the US’ stock and options exchanges.As one of the paramount regulatory authorities in the US, the SEC is responsible for the oversight of public companies in the aforementioned segments.Wha Read this Term) and the Justice Department are investigating whether hedge funds were informed in advance prior to large share sales.

The SEC has issued subpoenas to Goldman Sachs, Morgan Stanley and hedge funds. Federal investigators will examine the trading records as well as as the bankers' communication with investors.

It is merely an investigation, and there are no charges at the time of writing.

What are Block Trades?

A block trade is either buying and selling a large amount of securities outside of an exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term. Block trades often take place outside of exchanges to avoid a significant impact on the market. Block trades may be conducted on options, futures or combination transactions. In the stock market, block trades often exceed 10,000 stocks.

Block trades are privately negotiated. Institutional investors can request block quotes in direct bilateral communication involving the broker. Although other stock traders cannot participate in the block trades, it may provide some indication if a substantial amount of stocks are bought or sold.

Investigators are probing whether hedge funds were tipped prior to large sales.

US regulators have been investigating any unusual activities in block trades for approximately 3 years. If a hedge fund is tipped, a large sale will take place prior to being publicly disclosed, and the fund may benefit by shorting the stock.

Prior to a large sale of stocks in block trades, the stock of the companies that were due to be sold weaken before the sale takes place. This leads regulators to suspect that inside information is being passed to hedge funds. It has been reported that some of the hedge funds are liquidity providers to large firms.

Morgan Stanley has been the main focus of the investigation according to these reports. At the time of writing, there is no significant impact on Morgan Stanley stock, and Goldman Sachs is slightly lower.