Lawsuit claims CME gave high-frequency traders special access

Mon Apr 14, 2014 12:59pm EDT
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By Jonathan Stempel

(Reuters) - A group of traders has sued CME Group Inc, accusing the operator of the world's largest derivatives exchange of selling market data to high frequency traders, cheating other investors who lacked such access.

In a complaint filed on Friday in the U.S. District Court in Chicago, William Braman, Mark Mendelson and John Simms said CME and its Chicago Board of Trade unit have since 2007 given high-frequency traders early access to buy and sell orders.

They said this deprived other investors of the transparent, real-time data on futures and interest rate contracts that they thought they were getting, and were paying for.

"The defendants have perpetrated a fraud on the marketplace and intentionally concealed the activities of a select class of market participants from the rest of the defendants' customers and marketplace users," the complaint said.

CME, which is based in Chicago, has denied wrongdoing.

High-frequency traders use computer algorithms to obtain split-second advantages when placing trades, and are responsible for more than half of all U.S. trading volume.

Proponents say such trading improves market liquidity, while critics say it can destabilize markets and mask manipulation.

The trading is being probed by the U.S. Department of Justice and other federal and state investigators, and came under increased scrutiny with the recent publication of Michael Lewis' book "Flash Boys: A Wall Street Revolt."   Continued...

The Chicago Mercantile Exchange is pictured March 17, 2008. REUTERS/John Gress