WASHINGTON, D.C. — Stephen Hall, Legal Director and Securities Specialist, issued the following statement on the filing of an amicus brief in support of the SEC’s approval of a new pro-investor trading platform for options, in Citadel Securities LLC v. SEC, No. 25-13631 (11th Cir.):
“Every day in the securities markets, investors get swindled by a small number of sophisticated firms known as high-frequency traders, or HFTs. Those HFTs use the most advanced computer technology to get a glimpse of where stock prices are headed a split second before anyone else can spot those imminent changes. With that crystal ball technology, the HFTs rake in virtually guaranteed profits on the order of billions of dollars a year. Known as latency arbitrage, the strategy comes at the expense of other investors, including traders managing the investment accounts and pension funds of millions of everyday Americans.
“A pro-investor exchange known as IEX developed a way to neutralize this ‘peak and cheat’ trading strategy. The SEC approved it several years ago for use on IEX’s securities exchange. Last year, the SEC approved essentially the same fix for use on IEX’s options exchange. However, a dominant HFT firm, Citadel Securities, is fighting hard in court to overturn the SEC’s approval of IEX’s latest innovation in the options markets. That’s because IEX’s platform nullifies the HFTs’ unfair advantage and threatens their sure-fire profits. Citadel launched the same attack against IEX’s earlier securities market reform. The D.C. Circuit roundly rejected it, and the Eleventh Circuit should do the same in this case.
“Our brief details how latency arbitrage has plagued the securities markets for years, picking the pockets of investors. We also show that, contrary to Citadel’s claim, there is ample proof that HFTs are also engaged in options trading, where they take a heavy toll on market makers and investors. In addition, our brief shows that the IEX platform will effectively counteract the HFTs’ advantage. It will automatically update offers to buy and sell options when prices have become stale in relation to price moves in the underlying securities. IEX’s platform democratizes trading, laying to rest Citadel’s ironic claim that IEX favors some market participants over others. In our brief, we urge the Court to uphold the SEC’s approval of this important pro-investor innovation.”
Read our brief here.
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
