Exchanges defeat appeal of U.S. high-frequency trading lawsuits

NEW YORK A federal appeals court on Friday rejected an investor’s attempt to revive lawsuits accusing major U.S. exchanges of selling early access to market data to high-frequency traders, the subject of Michael Lewis’ 2014 best-seller “Flash Boys.”

The 2nd U.S. Circuit Court of Appeals in Manhattan agreed with the New York Stock Exchange, The Nasdaq Stock Market, BATS Exchange, the Chicago Board Options Exchange and others that it is for the U.S. Securities and Exchange Commission rather than courts to regulate how market data is disseminated.

Harold Lanier, a Fairhope, Alabama investor leading the three proposed group lawsuits, or class actions, complained that the exchanges let preferred traders pay premiums to receive market data up to 1,499 microseconds earlier than less fortunate investors.

He said this was done by giving data to the traders before feeding the information through a processor for wider distribution, violating his contractual rights and leaving him and other ordinary investors with stale data.

Writing for a 3-0 appeals court panel, Circuit Judge Gerard Lynch said the lower court judge who dismissed Lanier’s lawsuits in April 2015, U.S. District Judge Katherine Forrest in Manhattan, erred in concluding she lacked jurisdiction.

Lynch nonetheless said Lanier’s interpretation of relevant SEC regulations was preempted because it conflicted with the regulator’s, and “would undermine Congress’s intent to create uniform rules for governing the national market system.”

He also said it was “wholly conclusory” for Lanier to say the exchanges had promised that the processor would be the “single source” for market data.

In a footnote, Lynch rejected Lanier’s contention that Forrest’s reference to “Flash Boys” in her ruling may have tainted the outcome. “Our own analysis of Lanier’s claim has nothing to do with the book,” Lynch said.

Lanier’s lawyer Michael Lewis, who is not related to the author, said in a phone interview: “We are disappointed for our client, and also disappointed professionally.”

Douglas Cox, a partner at Gibson, Dunn & Crutcher who represents Nasdaq and argued the case on behalf of the exchanges, did not immediately respond to requests for comment.

The Nasdaq is owned by Nasdaq Inc, the NYSE by Intercontinental Exchange Inc, BATS by BATS Global Markets Inc and the CBOE by CBOE Holdings Inc. Several other exchanges were also defendants.

The case is Lanier v. BATS Exchange Inc et al, 2nd U.S. Circuit Court of Appeals, Nos. 15-1683, 15-1693, 15-1700.

(Reporting by Jonathan Stempel in New York- editing by Grant McCool)