Stock Exchanges Accused of Providing High-frequency Traders with Preferential Access to Data

By on June 13, 2014

A class-action lawsuit was filed in U.S. District Court for Southern District of New York against the New York Stock Exchange (NYSE), NASDAQ and other exchanges for allegedly providing market data earlier to high-frequency traders while distributing “stale” information to other customers.

“The data…is still en route from the Exchanges to the Processor long after the Preferred Data Customers have received, and acted on, the information to their advantage.  On average, the data is received by the Processor approximately 1,499 microseconds after the Preferred Data Customers receive it,” the filing reads.

High-frequency trading has made a splash recently after the publication of “Flash Boys: A Wall Street Revolt” by author Michael Lewis.  In March, U.S. Attorney General Eric Holder assured Congress that a full investigation would be conducted to determine if high-frequency traders violated laws against trading on inside information.  Also, on June 5, the Securities and Exchange Commission (SEC) announced sweeping proposals that would apply high-frequency traders.

“This case is about broken promises…Exchange Defendants deprived the Subscribers of the fundamental benefit of their Contracts, i.e., fair access to valid data,” stated the complaint.  The lawsuit also says that the exchanges “enriched themselves” by getting data to preferred customers before it was sent to others.

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