Prop desks”, which trade on banks’ and brokers’

Prop desks”, which trade on banks’ and brokers’ own accounts, could also come under scrutiny, as they use similar technology. Because they are trading on information which is not publicly available, flash traders could be gaining an unfair advantage in their dealings and may be committing insider trading, wire fraud or securities fraud.

News of the investigation came as bestselling author Michael Lewis publishes Flash Boys: Cracking the Money Code, his latest book exposing Wall Street’s secrets. In it he tells how Brad Katsuyama, a New York-based trader, realises the market “knows” how he is about to trade before he makes a deal.

The writer then details how Mr Katsuyama discovers how customers are being cheated out of billions of dollars a year and recounts his work to expose HFTs’ practices and build a fairer system that negates the speed advantages HFTs and financial institutions have.

“There are two markets,” said Mr Lewis in a television interview. “The market moves at two speeds: one speed for people who pay for access to the exchanges, who put their trading machines right next to the black boxes that are now the exchanges, and everybody else.”

The author, whose previous books include Liar’s Poker, an account of City excesses in the 1980s, said there was a class system at work: “The average investor – by that I mean everyone sitting at their e-trade account to the biggest pension and hedge fund investors – are seeing essentially old prices compared to the rest of the market.

"HFTs are seeing the market in more like real time and are trading against people who don’t know the market.”

However, Mr Lewis said he doesn’t believe the average investor should abandon stock markets because of HFTs: “I don’t think that is the right answer. It’s about scalping pennies each trade. It’s crazy to miss out on investing in the stock market just to avoid being scalped.”