Bank of America Corp. and the New York Stock Exchange were among dozens of exchanges, brokerages and traders sued over high-frequency trading by the city of Providence, Rhode Island, over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares.
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 “Flash Boys” by Michael Lewis. The lawsuit filed yesterday is one of the first by an institutional investor since U.S. Attorney General Eric Holder in March promised Congress a full investigation into whether high-frequency traders violated laws against trading on inside information.
One defendant in Providence’s complaint, Virtu Financial Inc., a high-frequency trader that delayed its initial public offering, has received inquiries from the office of New York’s attorney general, Eric Schneiderman, according to a person familiar with the matter. Schneiderman announced last month that he’s investigating high-frequency traders.
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.
Providence is seeking unspecified damages on behalf of all public investors that bought or sold stock in the last five years, according to the complaint filed yesterday in federal court in Manhattan.
Providence claims the exchanges, the biggest brokerage firms and a group of high-speed trading firms allowed some traders to gain access to non-public data about investors’ trades. The scheme allegedly included electronic front-running, in which high-frequency traders learned of bids and offers, made transactions at better prices and then profited from the investors that made the original orders.
Providence named as defendants 14 brokerages, 16 securities exchanges and 12 high-speed traders.
“Public investors are entitled to be treated fairly and honestly by brokers and exchanges,” Providence said in its complaint. “In addition to destroying trust in the U.S. capital markets, the misconduct alleged herein has siphoned off billions of dollars from private and public pension funds and individual retirement accounts that millions of Americans depend on.”
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on the suit. Eric Ryan, a spokesman for the New York Stock Exchange, and Virtu Financial president Christopher Concannon didn’t immediately respond after regular business hours to voice-mail messages seeking comment.
The case is City of Providence, Rhode Island v. Bats Global Markets Inc., 14-cv-02811, U.S. District Court, Southern District of New York (Manhattan).