Major US stock Exchanges object to Court’s ruling in market manipulation case

Maria Nikolova

According to the Exchanges, the Court’s ruling which prevented them from dismissing the case, leaves room for difference of opinion.

Less than a month after Judge Jesse M. Furman of the New York Southern District Court denied a motion to dismiss a market manipulation case targeting a number of US stock Exchanges, the defendants have moved to challenge the Court’s ruling.

The lawsuit was brought by various investors (the plaintiffs) under Sections 6(b) and 10(b) of the Securities Exchange Act of 1934 against BATS Global Markets, Inc., Chicago Stock Exchange, Inc., Direct Edge ECN, LLC, New York Stock Exchange, LLC, NYSE Arca, Inc., Nasdaq OMX BX, Inc., and the Nasdaq Stock Market LLC.

Section 10(b) of the Exchange Act makes it unlawful “for any person, directly or indirectly, . . . to use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”

The investors allege that the Exchanges are violating the federal securities laws by providing services to high-frequency trading (HFT) firms in a way that amounts to actionable “market manipulation.” In particular, the investors argue that by providing (or selling) HFT firms services that allow those firms to execute allegedly harmful trading strategies more successfully, the Exchanges have engaged in conduct that adds up to an unlawful manipulative scheme under Securities and Exchange Commission Rule 10b-5 and are therefore liable under Section 10(b) of the Securities Exchange Act of 1934.

In May 2019, the Court sided with the plaintiffs and nixed the Exchanges’ motion to dismiss the complaint against them.

On Monday, June 17, 2019, BATS Global Markets, Inc., Chicago Stock Exchange, Inc., Direct Edge ECN, LLC, The Nasdaq Stock Market LLC, Nasdaq OMX BX, Inc., New York Stock Exchange, LLC, and NYSE Arca, Inc. filed a motion with the New York Southern District Court requesting that the Court certify for interlocutory appeal the Opinion and Order denying their renewed motion to dismiss the second consolidated amended complaint (“SCAC”) from May 28, 2019.

The Exchanges argue that the Court’s decision leaves room for differences of opinion.

The defendants note that the plaintiffs did “not allege that they transacted in any particular security at any particular price, or how that price was supposedly affected by the alleged manipulation.”

According to the Exchanges, having simply alleged that the plaintiffs’ bought and sold unidentified stock on unidentified markets at unidentified times and unidentified prices without alleging that they suffered losses attributable to specific transactions, it is equally plausible that the plaintiffs were not injured at all or perhaps even benefitted from the alleged manipulation.

Further, the Exchanges argue that although the Court concluded that it was sufficient for the plaintiffs to allege that they purchased or sold unspecified securities, there is substantial ground for disagreement on this question.

Finally, the Exchanges say if the Court certifies the Order for interlocutory review, it should stay all proceedings in this case pending appeal.

Read this next

Retail FX

Spotware rolls out Manager’s API for cTrader brokers

Spotware Systems, a technology provider for the electronic trading industry, has released its new Manager’s API for Brokers, providing powerful tools for server-server integration.

Metaverse Gaming NFT

Dubai Museum taps Binance to jump onto NFT bandwagon

Dubai’s Museum of the Future, the $136 million UAE government-sponsored museum that opened a few weeks ago, is joining forces with Binance NFT to roll out a range of digital products on blockchain.

Digital Assets

Ripple and Lithuanian FINCI partner for XRP-based payments

Ripple is looking to expand its presence in Europe, forming a new partnership with Lithuanian electronic money institution FINCI.

Digital Assets

Crypto.com enables Shopify merchants to accept crypto payments

Crypto.com has integrated with Canadian e-commerce giant Shopify so global merchants can accept crypto payments and save on processing fees through cash-final settlements.

Institutional FX

FX volume drops 13pct at CLS Group in April 2022

FX settlement specialist CLS Group today reported that the executed volumes of currency trading on its platforms were notably down in April.

Crypto Insider, Opinion

Regulation: The Gold-Standard for Crypto-Assets

When the US supervisory authority SEC allowed an investment product referencing Bitcoin futures to be traded for the first time last October, this was widely perceived as a signal that cryptocurrencies had finally become established as an asset class.

Executive Moves

Solid hires FX industry veteran Darren Barker for multi-bank ECN’s business development

His curriculum vitae includes former roles at Cantor Fitzgerald, Sucden Financial, R.J. O’Brien, Jefferies, Natixis, Unicredit, J.P. Morgan, Raiffeisen, RBS International, UBS, Deutsche Bank, and Citi. 

Inside View

Mihails Safro, xpate CEO: Tips sellers need to know to overcome compliance obstacles

The unprecedented growth of e-commerce changed shopping dramatically last year. Many sellers suddenly faced a rapidly growing number of customers who had to stay home during the lockdown. When some clients adopted Netflix and Spotify as part of a daily routine, others ventured into online business. Robinhood alone saw a whopping 6 million rise in user numbers in 2 months. 

Institutional FX

BMLL delivers Level 3 data to Kepler Cheuvreux for order book analytics and algo performance

The solution covers more than 6.5 years of harmonised historical data from 65 venues and combines it with easy to use APIs and analytics libraries in a secure cloud environment. 

<