The New York Stock Exchange was one of at least seven exchanges sued by an Alabama man who claims they cheated subscribers by selling preferred access to market data to some of their customers.
Harold Lanier said in a complaint filed in Manhattan federal court that the exchanges gave some customers an advantage of more than 1,000 microseconds over other customers to market data they used to make high-frequency trades.
That’s a “virtual eon” in today’s financial markets, Lanier said in his May 23 filing. “Given that it only takes the preferred data customers a handful of microseconds to cancel orders and execute trades, it is more than enough time for them to generate tremendous profits from the advance receipt of the market data.”
Scrutiny of high-frequency trading and whether it gives some investors unfair advantage intensified this year amid government probes and the March 31 publication of the book “Flash Boys” by Michael Lewis. In March, U.S. Attorney General Eric Holder promised Congress a full investigation into whether high-frequency traders violated laws against trading on inside information.
Marissa Arnold, a New York Stock Exchange spokeswoman, declined to comment on Lanier’s lawsuit.
The Federal Bureau of Investigation has said it’s looking into whether firms that engage in high-speed trades get an improper jump on other investors by using information about their trading to make profits.
The city of Providence, Rhode Island, sued a group of brokerages, exchanges and high-frequency traders in New York in April, seeking damages on behalf of investors.
Lanier seeks to represent a nationwide class of customers who received market data under subscription contracts with the exchanges, claiming they violated the contracts by giving a secret time advantage to some customers. He’s seeking unspecified damages.
The case is Lanier v. Bats Exchange Inc., 14-cv-03745, U.S. District Court, Southern District of New York (Manhattan)
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