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Court Dismisses Suit Against Exchanges

Last week a federal district court judge dismissed a suit alleging that several exchanges and a dark pool enabled high-frequency traders to take advantage of other investors. The case represents a consolidated series of lawsuits filed after Michael Lewis’s 2014 book Flash Boys. The plaintiffs charged that the exchanges offered complex order types, proprietary feeds, and colocation in order to draw the significant volume of trading offered by high-frequency traders. They alleged that these features “enabled the HFT firms to amass a significant speed advantage over ordinary investors and to employ trading strategies that exploited that speed advantage to the detriment of ordinary investors.”

The court found that the defendants “are absolutely immune from suit based on their creation of complex order types and provision of proprietary data feeds, both of which fall within the scope of the quasi-governmental powers delegated to the Exchanges.” The court noted that “Lewis and the critics of HFT may be right in arguing that it serves no productive purpose and merely allows certain traders to exploit technological inefficiencies in the markets at the expense of other traders.” However, it concluded that “those questions are not for the courts, but for commentators, private and semi-public entities (including the stock exchanges), and the political branches of government.”

A Bloomberg piece on the case can be found here