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BUSINESS
Securities and Exchange Commission

Lawsuit targets financial exchanges over HFT

Cameron Saucier and Kevin McCoy
USA TODAY

Thirteen major U.S. financial exchanges, including the New York Stock Exchange and Nasdaq, are targets of a recently-filed federal lawsuit that accuses them of improperly giving high-frequency traders priority access to trading data over other investors.

Filed in Manhattan federal court in New York, the civil action said the stock and options exchanges and their subsidiaries enabled high-frequency traders equipped with lightning-fast data feeds to get vital market data — and trade on it — in advance of other investors.

"This is a case about broken promises," said the 37-page complaint, which seeks class-action status. The data "is still en route from the exchanges" to average investors long after high-frequency traders "have received, and acted on, the information to their advantage."

The South Korean flag (R) flies with US flags outside the New York Stock Exchange before South Korea's Ambassador to the US, Ahn Ho-Young rang the opening bell at the NYSE May 13, 2014 in New York. AFP PHOTO/Stan HONDASTAN HONDA/AFP/Getty Images ORIG FILE ID: 529720029

The financial exchanges have not yet filed responses to the allegations because the lawsuit is in a very early court stage.

Nonetheless, the case potentially represents a major legal challenge amid rising public concern about high-frequency trading. That concern has been spurred by the recent publication of Flash Boys, the book in which author Michael Lewis argued that U.S. stock markets are rigged.

The complaint comes days after Securities and Exchange Commission Chair Mary Jo White announced plans that could rein in high-frequency trading with new regulations.

England's The Guardian and U.S.-based Marketwatch first reported the filing Saturday.

The lawsuit is led by prominent lawyer Michael Lewis, who gained fame from successfully wrestling billions from the tobacco industry through legal actions 20 years ago. The attorney is unrelated to the author.

In an interview with the Guardian's weekend magazine, attorney Lewis characterized the action as a skirmish in a larger war against concentrated wealth and political power.

"The illusory market – the market that the investor sees when he looks at his monitor – is anywhere from 1,500 to 900 milliseconds old," said Lewis. "That doesn't sound like much, because the blink of an eye is 300 milliseconds. But that's a long, long time in the world of HFT."

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