SEC Probes Insider Trades with ETF Investigation
Source: MarketWatch, John Spence (2/10/11)
"SEC suspects traders are using exchange-traded funds to conceal insider trading."
ETFs may be used to profit from a stock rising while disguising trading patterns, according to the FT.
A trader with inside information could purchase an ETF that holds the company's stock and short-sell the other stocks in the portfolio—a practice known as "ETF-stripping," according to the report, which cited people familiar with the matter.
An SEC spokesman declined to comment on the FT report.
ETFs are baskets of securities, similar to mutual funds, that trade on exchanges like individual stocks. Launched in the U.S. in the early 1990s, the ETF business recently surpassed $1 trillion in assets.