On December 19, 2017, the U.S. Second Circuit Court of Appeals vacated a lower court's dismissal of a class action lawsuit claiming that the NYSE and NASDAQ, among other exchanges, violated trading rules by offering "high-frequency trading" (HFT) firms with extraordinary services that provided unfair advantages over ordinary investors.
The complaint alleged that the exchanges sold HFT firms proprietary data feeds and co-location services, which gave them access to information earlier than other market participants or before such information was publicly available, and that the exchanges permitted HFT firms to submit complex order types that were hidden from ordinary listing on an individual exchange. In vacating the lower court decision, the Second Circuit held that the exchanges were not entitled to absolute immunity because they were not engaged in a traditional regulatory function, and that the exchanges intentionally created, promoted and sold the specific services that catered to HFT firms and disadvantaged investors who could not afford them. The appeals court decision paves the way for additional fraud and manipulation claims against the exchanges by plaintiff-investor groups.
