The City of Providence, RI, filed a putative class action complaint in the U.S. District Court for the Southern District of New York, naming as defendants 16 different national securities exchanges, 12 major securities brokers, and 11 high-frequency trading (“HFT”) firms. The Plaintiff, in the case titled City of Providence v. BATS Global Markets Inc., et al., claims to represent every class of investor who bought or sold stock on a U.S. exchange from April 2009 through the present. The defendant class is only slightly smaller.
The allegations in the complaint are generally derivative of Michael Lewis’s recent book, Flash Boys: A Wall Street Revolt, and the complaint repeatedly cites that publication. The Complaint alleges that the named HFT firms engaged in a number of trading behaviors that distorted stock markets and disadvantaged other market participants. The complaint alleges that the broker defendants allowed the HFT defendants access to their clients’ trade orders, which gave the HFT firms an informational advantage when trading against the brokers’ clients in the market. The complaint also alleges that the stock exchanges and alternate trading venues allowed HFT defendants to “co-locate” computer equipment, which allowed an informational advantage that enabled them to disadvantage other market participants.
The Complaint alleges three counts, all under the Securities Exchange Act of 1934: (i) violation of the anti-fraud provisions of Section 10(b) and SEC Rule 10b-5 promulgated thereunder; (ii) violation of Section 6(b) of the Act, as pertaining to registration of National Exchanges; and (iii) “insider trading” allegations for alleged violations of Section 20A of the Act.