Exchanges plan to seek Supreme Court review of judgement in HFT case

The parties in a high-frequency trading (HFT) case targeting some of the world’s biggest exchanges, including BATS Global Markets, Inc., the Chicago Stock Exchange Inc., the Nasdaq Stock Market, LLC, and the New York Stock Exchange LLC (NYSE), on Thursday updated the Court on their plans regarding the proceedings. The documents, seen by FinanceFeeds, make clear that the Exchanges are displeased with the decision of the Court of Appeals for the Second Circuit to remand the case for further proceedings.

In the latest court filings, the Exchanges confirm their plans to file a petition for a “writ of certiorari” – a document that orders a lower court to deliver its record in a case so that the higher court may review it. The Exchanges are asking the United States Supreme Court to review the Second Circuit’s judgment. Consequently, in order to conserve judicial resources, the Exchanges propose that this Court stay further action in this case until the resolution of proceedings in the Supreme Court.

The plaintiffs, who are mainly institutional investors, oppose such an approach and push to expedite the proceedings. Their primary argument for expedition is that their appeal took two and half years to resolve.

According to the Exchanges, however, a renewed motion to dismiss would be appropriate because the Court had previously declined to reach “several other colorable arguments for dismissal,” including failure to adequately allege statutory standing, loss causation, and scienter.

Let’s recall that in March 2018, the United States Court of Appeals for the Second Circuit disagreed with a ruling of the New York Southern District Court in favor of BATS Global Markets, Inc., the Chicago Stock Exchange Inc., the Nasdaq Stock Market, LLC, and the New York Stock Exchange LLC (NYSE). On March 20, 2018, the judgment of the District Court was vacated and the case was remanded for further proceedings consistent with the Opinion of the Court of Appeals.

The lead plaintiffs, institutional investors who traded on the defendant stock exchanges during the class period, allege that the exchanges misled them about certain products and services that the exchanges sold to high‐frequency trading (HFT) firms. This, in turn, purportedly created a two-tiered system that favored those firms at the plaintiffs’ expense. The USCA concluded that the defendant exchanges are not entitled to absolute immunity, and the District Court erred in dismissing the complaint.

The plaintiffs assert that the Exchanges created three products and services for “favored” HFT firms – proprietary data feeds, co-location services, and complex order types, in order to provide these firms with more data at a faster rate than the investing public and thereby to attract HFT firms to trade on their exchanges. For example, according to the plaintiffs, the exchanges have created “hide and light” orders that allow traders to place orders that remain hidden from the ordinary bid-and-offer listings on an individual exchange until a stock reaches a particular price, at which point the hidden orders emerge and jump the queue ahead of other investors’ orders.

In doing so, the exchanges used the HFT firms to generate hundreds of millions of dollars in fees and established a system that, unbeknownst to the plaintiffs, catered to the HFT firms at the expense of individual and institutional traders.

The case is captioned In Re: Barclays Liquidity Cross and High Frequency Trading Litigation (1:14-md-02589).