(Reuters) – A federal judge on Monday dismissed lengthy litigation that accused seven US stock exchanges of deceiving ordinary investors by silently allowing high-frequency traders to trade faster and at better prices.
Stock exchanges including the New York Stock Exchange, Nasdaq and BATS Global Markets were accused of providing high-frequency trading companies with improved data flows and faster order processing and allowing them to locate their servers near the stock exchange’s own so that trading signals could be sent faster.
But in a 46-page decision, U.S. District Judge Jesse Furman in Manhattan said that investors in the proposed class action lawsuit could not prove that they had suffered harm as a result of the stock market̵7;s actions, which they said violated federal securities laws.
The judge said that reports from the plaintiff’s expert witness, a former high-frequency trader who now consults on the market structure, “were not based on reliable methodology” and did not track the trading companies’ use of the specialized services.
As these reports were inadmissible, “it follows that the plaintiffs have not provided any acceptable evidence that their own business was harmed by the questionable conduct of the stock exchange,” depriving them of legal status to sue, Judge Furman wrote.
Investors were led by the city of Providence, Rhode Island, and several retirement plans, including for the city of Boston. Their lawyers did not respond to requests for comment.
High-frequency traders use computer algorithms to gain trading benefits in a matter of seconds.
They were the subject of Michael Lewis’ best-selling “Flash Boys,” which was published in March 2014. The trial began next month.
The NYSE and its parent company, Intercontinental Exchange Inc., said they were pleased with the decision.
The case is the City of Providence, Rhode Island et al. v BATS Global Markets Inc. et al., U.S. District Court, Southern District of New York, No. 14-02811.