Major US exchanges suffer blow in HFT case but continue to oppose allegations

Maria Nikolova

Although the United States Supreme Court has denied the Exchanges’ petition for a “writ of certiorari”, they stand by their motion to dismiss the HFT case against them.

Major US exchanges, including BATS Global Markets, Inc., the Chicago Stock Exchange Inc., the Nasdaq Stock Market, LLC, and the New York Stock Exchange LLC (NYSE), suffered a heavy blow earlier this week in a high-frequency trading (HFT) case but continue to oppose the allegations against them. This becomes clear from the latest documents filed with the New York Southern District Court.

Let’s recall that the plaintiffs in the case – City of Providence, Rhode Island, Plumbers and Pipefitters National Pension Fund, Employees’ Retirement System of the Government of the Virgin Islands, and State-Boston Retirement System, allege that the exchanges provided HFT firms with a set of products and services, including proprietary data feeds, co-location services, and complex order types, which the HFT firms used in combination to systematically manipulate the public securities markets and take advantage of non-HFT market participants. These products and services, used in concert, allegedly allowed HFT firms to divert billions of dollars in trading proceeds from the plaintiffs (and the Class).

As FinanceFeeds reported in April this year, the Exchanges sought to oppose the allegations – a part of these efforts was the filing of 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 asked the United States Supreme Court to review the Second Circuit’s judgment. Consequently, in order to conserve judicial resources, the Exchanges proposed that this Court stay further action in this case until the resolution of proceedings in the Supreme Court.

The Exchanges disagree with a ruling from March 2018, where the United States Court of Appeals for the Second Circuit overturned 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 Exchanges lost their bid for a writ of certiorari, as, on October 9th, the United States Supreme Court denied the Exchanges’ petition.

The defendants, however, are not giving up. They request that the Court hold oral argument on the Exchanges’ motion to dismiss, given “the complex and important issues at play”.

In their motion to dismiss, the Exchanges have argued that the plaintiffs have neither pleaded facts about any of their specific trades or securities nor described how any particular trades or securities were affected by an HFT firm’s use of the products and services they challenge. The defendants note that the plaintiffs concede that the scheme they allege “could conceivably be applicable” to all securities bought or sold in the United States. Yet the complaint contains no factual allegations sufficient to show anything about the impact (positive, negative, or nonexistent) of the products and services at issue on the plaintiffs’ securities trades (none of which is specified), meaning it is not discernable from the SCAC whether Plaintiffs were harmed at all or how the relief they seek would remedy any legal injury.

That is seen as particularly problematic by the exchanges as the plaintiffs seek not just monetary damages, but also broad injunctions that would fundamentally change how markets operate.

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

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