In re Barclays Liquidity Cross & High Frequency Trading Litig., No. 14–MD–2589 (JMF).

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Writing for the CourtJESSE M. FURMAN, District Judge
Citation126 F.Supp.3d 342
Parties In re BARCLAYS LIQUIDITY CROSS AND HIGH FREQUENCY TRADING LITIGATION. This Document Relates To All Actions.
Docket NumberNo. 14–MD–2589 (JMF).
Decision Date26 August 2015

126 F.Supp.3d 342

In re BARCLAYS LIQUIDITY CROSS AND HIGH FREQUENCY TRADING LITIGATION.

This Document Relates To All Actions.

No. 14–MD–2589 (JMF).

United States District Court, S.D. New York.

Signed Aug. 26, 2015.


126 F.Supp.3d 347

Andrew J. Brown, Brian O. O'Mara, David W. Mitchell, Patrick Joseph Coughlin, Robbins Geller Rudman & Dowd LLP, Albert Yong Chang, Johnson Bottini, LLP, San Diego, CA, Joel H. Bernstein, Labaton Sucharow, LLP, New York, NY, Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP, Melville, NY, Randi Dawn Bandman, Robbins Geller Rudman & Dowd LLP, Los Angeles, CA, Albert Y. Chang, Francis A. Bottini, Jr., Bottini and Bottini Inc., La Jolla, CA, Elizabeth Tran, Joseph Winters Cotchett, Kevin Patrick O'Brien, Mark Cotton Molumphy, Nanci E. Nishimura, Cotchett Pitre & McCarthy LLP, Burlingame, CA, Alexander E. Barnett, for Plaintiff.

Jeffrey T. Scott, Andrew Hunter Reynard, Sullivan & Cromwell, LLP, John Joseph Hughes, III, Matthew Alexander Schwartz, Sullivan & Cromwell, LLP, James Alwin Murphy, Theodore R. Snyder, Murphy & McGonigle, P.C., Christos Papapetrou, Seth L. Levine, Levine Lee LLP, New York, NY, Joseph C. Lombard, Murphy & McGonigle PC, Steven M. Farina, George Anthony Borden, Jessica L. Pahl, Williams & Connolly LLP, Brent James McIntosh, Sullivan & Cromwell LLP, Douglas Randall Cox, Michael Robert Huston, Gibson, Dunn & Crutcher, LLP, Washington, DC, Adam S. Paris, Sullivan and Cromwell LLP, Los Angeles, CA, for Defendant.

OPINION AND ORDER

JESSE M. FURMAN, District Judge:

In 2014, author Michael Lewis published a bestselling book titled Flash Boys: A Wall Street Revolt, in which he argued that "high-frequency traders" have been able to gain an unfair advantage in the stock market, in part because stock exchanges and "dark pools"—alternative venues for trading stocks—have enabled those traders to obtain and trade on market data faster than other investors. A litany of lawsuits followed in short succession, asserting various theories of liability. See, e.g., Lanier v. BATS Exchange, Inc., 105 F.Supp.3d 353, No. 14–CV–3745 (KBF), 2015 WL 1914446 (S.D.N.Y. Apr. 28, 2015) (state-law claims against various stock exchanges); Strougo v. Barclays PLC, 105 F.Supp.3d 330, No. 14–CV–5797 (SAS), 2015 WL 1883201 (S.D.N.Y. Apr. 24, 2015) (investor suit against the operator of a major dark pool); People ex rel. Schneiderman v. Barclays Capital Inc., 47 Misc.3d 862, 1 N.Y.S.3d 910 (N.Y.Sup.Ct.2015) (state-law claims against the operator of a major dark pool). This multidistrict litigation ("MDL") proceeding involves a group of cases in that litany. In four cases, originally filed in this District, various investors (collectively, the "SDNY Plaintiffs") bring claims under the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. § 78a et seq., against seven stock exchanges—BATS Global Markets, Inc., Chicago Stock Exchange, Inc., Direct Edge ECN, LLC, the NASDAQ Stock Market LLC, NASDAQ OMX BX, Inc., New York Stock Exchange, LLC, and NYSE Area, Inc. (collectively, "the Exchanges")—as well as Barclays PLC and Barclays Capital Inc. (collectively, "Barclays"), a major financial institution and the subsidiary that operates its "dark pool." In a fifth action, Docket Number 15–CV–168, filed in the United States District Court for the Central District of California and later consolidated here by the Judicial Panel on Multidistrict Litigation

126 F.Supp.3d 348

(the "JPML"), Plaintiff Great Pacific Securities ("Great Pacific") sues Barclays alleging violations of California state law.

Now pending are three motions by Defendants, largely pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the claims of Plaintiffs in all five cases (collectively, "Plaintiffs"). Significantly, the motions do not call upon the Court to wade into the larger public debates regarding high-frequency trading or the fairness of the U.S. stock markets more generally. That is, Lewis's book may well highlight inequities in the structure of the Nation's financial system and the desirability for, or necessity of, reform. For the most part, however, those questions are not for the courts, but for commentators, private and semi-public entities (including the stock exchanges), and the political branches of government, which—as Plaintiffs themselves observe—have already taken up the issue. (See Second Consol. Am. Compl. Violation Federal Securities Laws (14–CV–2811, Docket No. 252 ("SAC") ¶¶ 280–89 (describing investigations related to high-frequency trading by the United States Congress, the Federal Bureau of Investigation, the Department of Justice, the Commodity Futures Trading Commission, and the Securities and Exchange Commission)); Am. Class Action Compl. (15–CV168, Docket No. 30) ("Am. Compl.") ¶ 5 (describing actions taken by the New York Attorney General)). More to the point, the only question for this Court on these motions is whether the Complaints in these cases are legally sufficient to survive Defendants' motions. Applying well-established precedent from the United States Supreme Court, the United States Court of Appeals for the Second Circuit, and the California Supreme Court, the Court is compelled to conclude that they are not. Accordingly, and for the reasons stated below, Defendants' motions to dismiss are granted, although Great Pacific is granted leave to amend its complaint in 15–CV–168.

BACKGROUND

Generally, in considering a Rule 12(b)(6) motion, a court is limited to the facts alleged in the complaint and is required to accept those facts as true. See, e.g., LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir.2009). A court may, however, consider documents attached to the complaint, statements or documents incorporated into the complaint by reference, matters of which judicial notice may be taken, public records, and documents that the plaintiff either possessed or knew about, and relied upon, in bringing suit. See, e.g., Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir.2013) ; Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002). Thus, the following facts are taken from the relevant Complaints, exhibits attached thereto, and documents of which the Court may take judicial notice.

A. The Creation of the National Market System

Prior to 1975, the U.S. stock market was fragmented among several stock exchanges. (SAC ¶ 43–44). In general, investors seeking to purchase a stock on a particular exchange interacted only with investors also trading on that exchange, and stocks were often traded at different prices on different exchanges. (See id. ¶ 43). In 1975, Congress amended the Exchange Act to, among other things, give the Securities and Exchange Commission ("SEC") authority to issue rules that would stitch the disparate exchanges into a single national market. See Pub.L. No. 94–29, § 7, 89 Stat. 111, codified at 15 U.S.C. § 78k–1. (SAC ¶ 44). Since those amendments, the SEC has enacted a host of regulations to fulfill Congress's vision of a unified national stock market. In 2005,

126 F.Supp.3d 349

those measures were consolidated into a rule known as "Regulation NMS" ("NMS" being short for "national market system"), which, among other things, requires exchanges to produce national market system plans ("NMS Plans") to facilitate the development and operation of a national market for securities. See Exchange Act Release No. 34–51808, 70 Fed.Reg. 37,496 (June 29, 2005) ("Regulation NMS"); 17 C.F.R. § 242.603(b). (SAC ¶ 46; Mem. Law Supp. Exchanges' Mot. To Dismiss Second Consol. Am. Compl. Pursuant Fed.R.Civ.P. 12(b)(1) and 12(b)(6) (14–MD–2589, Docket No. 8) ("Exchanges' Mem.") 8–9). Pursuant to its NMS Plan, an exchange must transmit real-time information regarding transactions on that exchange to a centralized entity (the "Processor") that then consolidates the information into a single, unified data feed (or "consolidated feed"). See 17 C.F.R. §§ 242.601 –602.

A consolidated feed includes information on (1) the price at which the latest sale of each stock traded on the exchanges occurred, the size of that sale, and the exchange on which it took place; (2) the current highest bid and lowest offer for each stock traded on the exchanges, along with the number of shares available at those prices; and (3) the "national best bid and offer," or "NBBO," which are the highest bid and lowest offer currently available across all the exchanges and the exchange or exchanges on which those prices are available. See NetCoalition v. SEC, 615 F.3d 525, 529 (D.C.Cir.2010), superseded by statute on other grounds, Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub.L. No. 111–203, 124 Stat. 1376 (2010), as recognized in NetCoalition v. SEC, 715 F.3d 342 (D.C.Cir.2013) ; see also 17 C.F.R. § 242.600(b)(13). Regulation NMS also requires that exchanges and brokers immediately accept the most competitive offer for a particular stock when matching a buyer to a seller—meaning that, in theory, the NBBO for a particular stock is the price at which that stock should trade. See Regulation NMS, 70 Fed.Reg. at 37,501 –02. (SAC ¶ 48). The consolidated feed effectively transforms the disparate exchanges into a single national market. After all, at any given point, an entity seeking to trade a stock...

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21 practice notes
  • Rabin v. NASDAQ OMX PHLX LLC, CIVIL ACTION No. 15-551
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • April 21, 2016
    ...do: developing and selling a product.This case is more analogous to In re Barclays Liquidity Cross & High Frequency Trading Litig. , 126 F.Supp.3d 342 (S.D.N.Y.2015), where the court held that the "creation of complex order types" was a regulatory function because "[b]y establishing a defin......
  • In re Chi. Bd. Options Exch. Volatility Index Manipulation Antitrust Litig., No. 18 CV 4171
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • January 27, 2020
    ...abetted the primary violators of the Exchange Act (the HFT firms). In re Barclays Liquidity Cross and High Frequency Trading Litig. , 126 F.Supp.3d 342, 353–54 (S.D.N.Y. 2015) ( Barclays I ), vacated and remanded sub nom. City of Providence v. Bats Glob. Markets, Inc. , 878 F.3d 36 (2d Cir.......
  • Manon v. Pons, No. 12–CV–7360 (VEC).
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • September 18, 2015
    ...This rule applies with equal force in the District Court. See In re Barclays Liquidity Cross & High Frequency Trading Litig., 126 F.Supp.3d 342, 365, No. 14–MD–2589(JMF), 2015 WL 5052538, at *18 (S.D.N.Y. Aug. 26, 2015) ; Cruz v. Zucker, 116 F.Supp.3d 334, 349, No. 14–CV–4456(JSR), 2015 WL ......
  • In re Barclays Liquidity Cross & High Frequency Trading Litig., 14-MD-2589 (JMF)
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • May 28, 2019
    ...will not repeat them at great length here. See In re Barclays Liquidity Cross & High Frequency Trading Litig . ("In re Barclays LX "), 126 F. Supp. 3d 342, 348-53 (S.D.N.Y. 2015). Of particular relevance to the claims that remain are three services that the Exchanges sell to HFT firms: 390 ......
  • Request a trial to view additional results
21 cases
  • Rabin v. NASDAQ OMX PHLX LLC, CIVIL ACTION No. 15-551
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • April 21, 2016
    ...do: developing and selling a product.This case is more analogous to In re Barclays Liquidity Cross & High Frequency Trading Litig. , 126 F.Supp.3d 342 (S.D.N.Y.2015), where the court held that the "creation of complex order types" was a regulatory function because "[b]y establishing a defin......
  • In re Chi. Bd. Options Exch. Volatility Index Manipulation Antitrust Litig., No. 18 CV 4171
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • January 27, 2020
    ...abetted the primary violators of the Exchange Act (the HFT firms). In re Barclays Liquidity Cross and High Frequency Trading Litig. , 126 F.Supp.3d 342, 353–54 (S.D.N.Y. 2015) ( Barclays I ), vacated and remanded sub nom. City of Providence v. Bats Glob. Markets, Inc. , 878 F.3d 36 (2d Cir.......
  • Manon v. Pons, No. 12–CV–7360 (VEC).
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • September 18, 2015
    ...This rule applies with equal force in the District Court. See In re Barclays Liquidity Cross & High Frequency Trading Litig., 126 F.Supp.3d 342, 365, No. 14–MD–2589(JMF), 2015 WL 5052538, at *18 (S.D.N.Y. Aug. 26, 2015) ; Cruz v. Zucker, 116 F.Supp.3d 334, 349, No. 14–CV–4456(JSR), 2015 WL ......
  • In re Barclays Liquidity Cross & High Frequency Trading Litig., 14-MD-2589 (JMF)
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • May 28, 2019
    ...will not repeat them at great length here. See In re Barclays Liquidity Cross & High Frequency Trading Litig . ("In re Barclays LX "), 126 F. Supp. 3d 342, 348-53 (S.D.N.Y. 2015). Of particular relevance to the claims that remain are three services that the Exchanges sell to HFT firms: 390 ......
  • Request a trial to view additional results

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