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Supreme Court denies exchanges' request to take up high-frequency trading case

The U.S. Supreme Court has rejected a request from the largest U.S. stock exchanges to hear a case over whether they systematically favor high-frequency traders.

Brought in 2014 by a group of pension and retirement funds along with the city of Providence, R.I., the case has raised questions over whether exchanges owned by Intercontinental Exchange Inc., Nasdaq Inc. and Cboe Global Markets Inc. sell and offer products that illegally favor Wall Street's fastest traders over larger, slower-moving institutional investors.

After the U.S. Court of Appeals for the Second Circuit reversed a 2015 dismissal of the case, the exchanges asked the Supreme Court to review the decision and possibly hear the case. The exchanges asked the court to explore the validity of the Second Circuit's finding that a party, such as the exchanges, can be held liable if their products or services were sold or used in a fraud, even if another market participant led that scheme independently.

The high court denied the exchanges' petition, a move that was largely expected as the Supreme Court receives more than 7,000 such requests each year.

The legal battle between the exchanges and the plaintiffs will continue in the federal district court, where it was sent in 2017 after the Second Circuit's decision. The district court has not yet decided the case.

High-frequency trading has been a controversial practice for several years. These traders, who work at hedge funds, market makers and proprietary trading companies, use complex algorithms and computer systems to trade at speeds measured by fractions of seconds. To do so, they rely on exchange-sold products such as market data feeds and co-location services. The plaintiffs argue that the complexity and prices of those products help facilitate a market structure that benefits high-frequency traders over other investors.

But the exchanges say the plaintiffs have failed to show that anyone has been harmed by the alleged high-frequency trading manipulation, let alone the plaintiffs themselves.

"Having simply alleged that they bought and sold unidentified stock, it is equally plausible that, even assuming any stocks were manipulated by [high-frequency traders], plaintiffs were not injured at all or perhaps even benefited from the alleged manipulation," the exchanges wrote in a renewed motion to dismiss the district court case filed in May.

Spokespeople for the three exchanges declined to comment on the Supreme Court's decision.