The Securities and Exchange Commission is investigating whether exchange-traded funds are being used to hide insider trading, according to the Financial Times.
ETFs have emerged as one possible way of maximizing gains in a single stock while camouflaging trading patterns, according to the report. A trader with inside information about a stock could, for example, buy an ETF that includes that stock and short the other stocks in the ETF, the FT reported.
Such 'ETF-stripping' would allow a trader to profit from a stock without directly buying or selling the stock, according to the report.
U.S. regulators are also investigating whether traders are using swaps to mask insider trading patterns, according to the report.
(Reporting by Clare Baldwin; Editing by Bernard Orr)