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Aug 26, 2015

Manhattan court throws out HFT case

Suit inspired by Flash Boys book is among wave of HFT cases dismissed 

A US federal judge has thrown out a case inspired by Michael Lewis’ book, Flash Boys, against Barclays and major stock exchanges in the US in which a series of pension funds and other investors accused them of fixing markets in favor of high-frequency trading (HFT).

The US District Court in Manhattan ruled that the plaintiffs, including the city of Providence, Rhode Island, failed to show they had legal grounds for their claim that Barclays and the US exchanges gave unfair advantages to high-frequency traders in a dark pool, defrauding other investors.

Judge Jesse Furman ruled that the plaintiffs, which lodged a series of complaints as HFT took on greater prominence following the publication of Flash Boys, could amend their suit and file again.

‘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,’ Furman writes in a 51-page decision. ‘They may also be right that there is a need for regulatory or other action from the SEC or entities such as the exchanges and Barclays.

‘Those, however, are debates and tasks for others. The court’s narrow task was, instead, to decide whether the complaints in these cases were legally sufficient to survive defendants’ motions to dismiss. Having concluded that they are not, the complaints must be and are dismissed.’

Other defendants in the case included NYSE Group, NASDAQ OMX Group, the Chicago Stock Exchange and BATS Global Markets. They were accused of favoring HFT investors with access to faster data feeds and other privileges that potentially cost other investors billions of dollars.

Several other lawsuits revolving around the practice of HFT have also failed in the US in recent months. In April three federal class action lawsuits against exchanges were dismissed, with the court ruling the SEC had already approved how they distribute data.