SEC Sides With Investors in Market Manipulation Action

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By Antoinette Gartrell

Nov. 29 — The national securities exchanges aren’t immune from fraud suits by investors claiming they were bilked out of millions because the markets favored high-speed traders, the Securities and Exchange Commission said Nov. 28 ( In re Barclays Liquidity Cross , 2d Cir., No. 15-3057, 11/28/16 ).

The exchanges are only immune when they are engaged in their traditional self-regulatory functions—i.e., regulating their members, the SEC told the U.S. Court of Appeals for the Second Circuit in a friend-of-the-court brief.

High-Speed Traders

A group of pension funds alleged that the exchanges manipulated the market by providing certain high-frequency trading customers with proprietary services that allowed them to obtain—and trade on—market data ahead of ordinary investors.

The U.S. District Court for the Southern District of New York dismissed the allegations, saying the exchanges were immune from being sued over their creation of complex order types and the provision of proprietary data feeds. The pension funds appealed.

Absolute Immunity

In an amicus curiae brief, the SEC said the exchanges aren’t entitled to absolute immunity from suit for their alleged misconduct. It argued that the functions were performed by the exchanges in the operation of their own markets and not as part of their traditional self-regulatory functions.

The exchanges also argued that the SEC should have handled the matter, but the commission didn’t agree. It said that although Congress created a detailed scheme of administrative and judicial review for challenges to certain actions of self-regulatory organizations, it didn’t authorize the commission to adjudicate private parties’ fraud claims against the SROs.

To contact the reporter on this story: Antoinette Gartrell in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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