CME Defeats Suit Alleging It Favored High-Frequency Traders

  • Traders claimed futures market owner allowed unequal access
  • Judge says complaint lacked specifics on rule-breaking by HFTs

CME Group Inc., owner of the world’s largest futures market, defeated a lawsuit by some users who alleged the company sold access to order information to high-frequency traders ahead of other market participants.

A Chicago federal judge dismissed the complaint Thursday, saying the traders failed to state a claim in their April 2014 complaint that would allow their class-action case to proceed.

Scrutiny of high-frequency trading and whether it gives some investors unfair advantage intensified starting last year. While those examinations focused mostly on U.S. equity markets, such as dark pools run by banks and exchanges owned by companies including Nasdaq Inc., Intercontinental Exchange Inc. and Bats Global Markets Inc., high-frequency traders also are active in futures markets.

The traders who sued alleged that the owner of the Chicago Mercantile Exchange and the Chicago Board of Trade perpetrated “a fraud on the marketplace.” They sought to represent all users of real-time futures market data from those exchanges as early as 2007.

William Braman and the other traders claimed that by charging some traders for real-time market information, while allegedly allowing high-frequency traders to pay for superior access to that that data, the CME-owned exchanges “established an unequal and two-tiered marketplace.” They said that this arrangement allowed HFTs “through their de facto inside trading to influence the price of financial futures artificially.”

Predatory Strategies

U.S. District Judge John Robert Blakey said the complaint starts from the assumption that all high-frequency traders engage in predatory strategies in violation of rules that CME and CBOT are supposed to enforce.

“Plaintiffs have not alleged that any particular HFTs violated any particular rule or regulation that the defendants were required to enforce or that the defendants knew the HFTs were doing so,” he wrote.

Victor E. Stewart, a lawyer for the traders, said his law firm and clients are considering their options. He declined in an e-mail to comment further on the ruling.

“CME Group has maintained since this suit was filed that the case was without merit and is gratified that today the judge concluded that it should not proceed further,” Laurie Bischel, a spokeswoman for the company, said in an e-mail.

CME Group offers futures based on interest rates, equity indexes, currencies, energy products and agricultural commodities.

The case is Braman v. CME Group Inc., 14-cv-02646, U.S. District Court, Northern District of Illinois (Chicago).

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