A U.S. Court of Appeals in New York ruled on Tuesday that a lawsuit filed by investors, including three pension funds, that claimed exchanges favor high-frequency traders can move forward.
The lawsuit, originally filed in 2014 by the city of Providence, R.I., claimed that the New York Stock Exchange, Nasdaq and Bats Global Markets offered services to high-frequency traders that allowed them to use data faster than ordinary investors. Other plaintiffs, once the suit reached class-action status, include the $6.1 billion Plumbers and Pipefitters National Pension Fund, Alexandria, Va.; $4.8 billion Boston Retirement System and the $1.1 billion U.S. Virgin Islands Government Employees' Retirement System, St. Thomas.
"We conclude that we have subject matter jurisdiction over this case, the defendant exchanges are not entitled to absolute immunity, and the District Court erred in dismissing the complaint," the 2nd Circuit appellate court said. The case will be sent back U.S. District Court in New York.
The ruling follows a December 2016 amicus brief requested by the court from the Securities and Exchange Commission in which the SEC said the "district court had subject-matter jurisdiction over plaintiffs' private securities fraud action against the defendant exchanges, and that the defendants are not absolutely immune from suit for engaging in the challenged conduct."
That brief followed a U.S. District Court in New York ruling in August 2015 that the exchanges were exempt from such lawsuits.
Spokesmen for NYSE, Nasdaq and Cboe Global Markets, which owns Bats, declined to comment.