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 In a complaint filed on Friday in the U.S. District Court in
Chicago, William Braman, Mark Mendelson and John Simms said CME and
its Chicago Board of Trade unit have since 2007 given high-frequency
traders early access to buy and sell orders.
They said this deprived other investors of the transparent,
real-time data on futures and interest rate contracts that they
thought they were getting, and were paying for.
"The defendants have perpetrated a fraud on the marketplace and
intentionally concealed the activities of a select class of market
participants from the rest of the defendants' customers and
marketplace users," the complaint said.
CME, which is based in Chicago, has denied wrongdoing.
High-frequency traders use computer algorithms to obtain
split-second advantages when placing trades, and are responsible for
more than half of all U.S. trading volume.
Proponents say such trading improves market liquidity, while critics
say it can destabilize markets and mask manipulation.
The trading is being probed by the U.S. Department of Justice and
other federal and state investigators, and came under increased
scrutiny with the recent publication of Michael Lewis' book "Flash
Boys: A Wall Street Revolt."
CME in a statement said Friday's lawsuit was "devoid of any facts
supporting the allegations and, even worse, demonstrates a
fundamental misunderstanding of how our markets operate."
It added: "The case is without merit, and we intend to defend
ourselves vigorously."
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Tamara de Silva, a lawyer for the plaintiffs, said in a phone
interview: "Exchanges have represented to regulators and to the
broad public that information isn't distorted.... I'm making
allegations that the exchange allowed these practices and profited
from them." She declined to provide specifics.
The lawsuit seeks class-action status for customers in financial
futures contracts, and agricultural, energy, metal, equity index,
foreign exchange and interest rate futures and options contracts. It
seeks money damages, and a halt to alleged favoritism.
CME on March 31 prevailed in a separate lawsuit in an Illinois state
court brought by floor traders who sought to overturn rules that
factor in electronic trades for settling end-of-the-day grain
futures prices.
The same week, high-speed trading firm Virtu Financial Inc delayed
its initial public offering. It had revealed on March 10 that it had
just one losing trading day out of 1,238 such days in the five years
ending December 31, 2013.
The case is Braman et al v CME Group Inc et al, U.S. District Court,
Northern District of Illinois, No. 14-02646.
(Reporting by Jonathan Stempel in New York;
additional reporting by
Alison Frankel; editing by Sofina Mirza-Reid)
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