Bank of America Corp and the New York Stock Exchange were among dozens of exchanges, brokerages and traders sued over high-frequency trading by the city of Providence, Rhode Island, over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares.
Scrutiny of high-frequency trading and whether it gives some investors unfair advantage intensified this year amid US probes and the March 31 publication of Flash Boys by Michael Lewis.
The lawsuit filed on Friday is one of the first by an institutional investor since US Attorney General Eric Holder last month promised Congress a full investigation into whether high-frequency traders violated laws against insider trading.
One defendant in Providence’s complaint, Virtu Financial Inc, a high-frequency trader, has received inquiries from the office of New York Attorney General Eric Schneiderman, according to a person familiar with the matter. Schneiderman said last month that he is investigating high-frequency traders.
The US FBI has said it is looking into whether firms that engage in high-speed trades get an improper jump on other investors by using information about their trading to make profits.
Providence is seeking unspecified damages on behalf of all public investors who bought or sold stock in the last five years, according to its complaint filed in federal court in Manhattan.
Providence claims that the exchanges, the biggest brokerage firms and a group of high-speed trading firms allowed some traders to gain access to non-public data about investors’ trades. The scheme allegedly included electronic front-running, in which high-frequency traders learned of bids and offers, made transactions at better prices and then profited from the investors who made the original orders.
Providence named as defendants 14 brokerages, 16 securities exchanges and 12 high-speed traders.
“Public investors are entitled to be treated fairly and honestly by brokers and exchanges,” Providence said in its complaint.
“In addition to destroying trust in the US capital markets, the misconduct alleged herein has siphoned off billions of dollars from private and public pension funds and individual retirement accounts that millions of Americans depend on,” it added.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on the suit. Eric Ryan, a spokesman for the New York Stock Exchange, and Virtu Financial president Christopher Concannon did not respond after regular business hours to voicemail messages seeking comment.