Securities regulators have widened the probe into the trillion-dollar ETF market after a delay in a big trade at a popular ETF, an unnamed source told Reuters.

Reuters reports that this person, who asked to be kept anonymous, also said that the Securities and Exchange Commission (SEC) is now looking at the possible connection between high-frequency traders and hedge funds jumping in and out of ETFs, and during specific scenarios when ETF trades do not settle on time.

The wire service also reports that, while the main focus of the probe is on less liquid ETFs, the SEC is now examining popular ETFs and failed trades, too.

A spokesperson for the SEC confirmed the investigation into failed trades and ETFs but did not explain further.

ETF analysts counter the criticism of ETFs. State Street [profile] which launched the first ETF in 1993, recently offered a report on the business.

"Short interest theoretically should have no impact on an ETF's performance," the report stated. This is in relation to the 'short' impact created by hedge funds betting on the prices of ETFs. 

Edited by: HFD


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