Major exchanges seek to dismiss high-frequency trading lawsuit

Tue Nov 4, 2014 11:36am EST
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By Jonathan Stempel

NEW YORK (Reuters) - Major U.S. stock exchanges have asked a federal judge to dismiss a lawsuit accusing them of costing ordinary investors billions of dollars by rigging markets to benefit high-frequency traders.

Exchanges including Nasdaq (NDAQ.O: Quote), Intercontinental Exchange Inc's (ICE.N: Quote) New York Stock Exchange, Bats Global Markets and CHX Holdings Inc's Chicago Stock Exchange said they deserve "absolute immunity" because they regulate themselves, and that only the U.S. Securities and Exchange Commission could review the plaintiffs' claims.

A co-defendant, Barclays Plc (BARC.L: Quote), said the plaintiffs failed to show it intended to fraudulently conceal the use by high-frequency traders of its Barclays LX platform, sometimes called a "dark pool," or that this use caused trading losses.

Andrew Brown, a partner at Robbins Geller Rudman & Dowd representing plaintiffs led by the city of Providence, Rhode Island and four pension funds, did not immediately respond on Tuesday to request for comment.

The dismissal requests were filed late Monday in the U.S. District Court in Manhattan.

They came amid increased scrutiny for high-frequency trading firms, which use computer algorithms to gain split-second trading advantages.

On Oct. 16, the SEC brought its first market manipulation case against such a firm, fining New York-based Athena Capital Research $1 million for using the algorithm "Gravy" to send a blizzard of trades just before the market close.

Athena did not admit wrongdoing. Michael Lewis, in his best-seller "Flash Boys: A Wall Street Revolt" published in March, accused high-frequency trading firms of rigging markets. The firms account for more than half of U.S. stock market trades.   Continued...

A trader works on the floor of the New York Stock Exchange shortly after the market's opening bell in New York October 31, 2014. REUTERS/Lucas Jackson