SEC Contends that Securities Exchanges Have Immunity Only when Acting as Regulators

The SEC submitted an amicus curiae brief in a case involving allegations that the national securities exchanges engaged in market manipulation by providing certain customers engaged in "high-frequency trading" with certain types of proprietary services.

The amicus curiae brief, submitted to the U.S. Court of Appeals for the Second Circuit (the "Court") in City of Providence v. BATS Global Markets, Inc. (the "Action") addressed two legal issues: (i) whether the U.S. District Court for the Southern District of New York (the "S.D.N.Y."), had subject-matter jurisdiction over the original Action, and (ii) whether the defendants, including the NYSE, NASDAQ and BATS, have absolute immunity from suits arising from the challenged conduct.

The defendants, a group of public and private pensions, alleged that the national securities exchanges engaged in market manipulation by providing certain customers engaged in "high-frequency trading" with proprietary services such as co-location services, proprietary data feeds, and complex, electronic order types that enabled those customers to obtain and utilize market data faster than ordinary investors.

In its brief, the SEC argued: (i) that federal securities laws do not preclude the S.D.N.Y.'s subject matter jurisdiction over such private securities fraud claims; and (ii) that the exchanges only have absolute immunity from a private securities fraud class action suit when they "act as regulators of their members" and not as service providers.