Insider trading claims infect US downgrade

Was there insider trading ahead of Standard & Poor's controversial decision to downgrade the US government's long-term credit rating?

Watchdogs in America suspect there was and have subpoenaed scores of hedge funds and other trading firms demanding information.

On August 5, S&P decided the AAA rating long granted to US debt was no longer merited. The decision sent shock waves through markets around the world, with the Dow Jones losing more than 600 points.

Rumours of a downgrade had been around for some weeks but the Securities & Exchange Commission still believes that some of the trading ahead of the formal announcement was potentially illegal.

According to the Wall Street Journal, the subpoenas are "unusually broad", with firms asked to explain exactly why certain trades were placed.

Regulators on both sides of the Atlantic have been seeking - with some success of late - to clamp down on insider trading, a practice many regard as rife.

Critics of the City and Wall Street point out that shares of takeover targets nearly always move ahead of confirmation that they have received a bid.

Defenders point out that shares also move ahead of any number of rumours which later turn out to be false.