Traders Magazine Online News, April 30, 2015 John D'Antona Jr. Score one - actually three - for the U.S. equity exchanges and their market data businesses. Katherine Forrest A federal judge has dismissed lawsuits accusing several major U.S. equity exchanges of cheating ordinary investors by selling early access to market data to high-frequency traders, giving them a split-second advantage in making trades, according to Reuters. The high-frequency trading crowd also breathed a collective sigh of relief late Tuesday as U.S. District Judge Katherine Forrest in Manhattan said the claims raised against NasdaqOMX, Intercontinental Exchange Inc's New York Stock Exchange, BATS Exchange and other exchanges must be reviewed first by the U.S. Securities and Exchange Commission, not the courts. The plaintiff in the three separate class action certified cases, Harold Lanier, argued that the exchanges violated his contractual right to timely market data by letting high-frequency traders pay "substantial premiums" to receive market data more than 1,000 microseconds sooner, a "virtual eon" in the marketplace. How? According to court documents, Lanier argued that the exchanges actually favored high frequency traders by allowing them access to raw data before am exchange processor could collate and process that data for distribution to others. This delay in delivery to him, as well as other investor, put him at a material time disadvantage to HFTs and others who can process this data themselves. And faster. The data Lanier received, was, he argued, old. Judge Forrest, however, said Congress created a "comprehensive federal regulatory scheme" empowering the SEC to decide whether exchanges are disseminating data to investors fairly, Reuters reported. She also said neither the SEC nor Lanier's contracts required exchanges to ensure that ordinary customers receive consolidated market data no later than other customers receive unconsolidated data through proprietary feeds. Exchanges has long contended that market data, and server location, is available to anyone who can pay for it. The cases were Lanier v. BATS Exchange Inc et al, U.S. District Court, Southern District of New York, Nos. 14-03745, 14-03865, 14-03866.
Next stop: congressional hearings to determine how pay-for-speed figures into fair and orderly markets.