Citadel Securities, SEC battle over microseconds in IEX case (1)
A federal judge has challenged a lawyer for
“You are the one who is going to a federal agency and saying to stop a private entity from doing what it wants to do,” said U.S. circuit judge Justin Walker at a hearing in Washington on Monday, after lawyer Jeffrey Wall allegedly argued that the type of order interferes with the natural course of the market.
The order type, known as D-Limit, has a delay of around 350 microseconds to dampen the advantage of high frequency traders. After the
“You are the one who is trying to regulate your path to a market victory,” Walker said, amidst harsh questioning of both sides by a three-judge panel.
The hearing took place as the SEC under
IEX claims that the D-Limit order, or discretionary limit, can help equalize high-frequency traders’ use of boosted computing power and fast data connections. The exchange, launched in 2016, began offering the order type last October after the SEC approved it in August.
IEX was founded to “level the playing field” so that everyday investors, people who put money into their retirement funds, “have a chance”,
Others are “in the middle of a war of speed” that they “never signed up for,” she said.
Wall argued that by introducing a feature that slows down a transaction, IEX is not necessarily getting the best price for the customer.
“Once an order hits the stock exchange,” you “can’t change it,” he told the judges. IEX puts the market participant at a disadvantage by not filling the order immediately and moves orders from other exchanges to its own to increase liquidity and its overall profits, he said.
The price displayed by IEX “is not real,” Wall said. “It’s ghost.”
At one point Walker asked Wall if he recognizes the existence of latency arbitrage, a strategy that high-frequency trading companies use to take advantage of small price differences between buy and sell orders. of sales by acting in minute intervals of time. Wall said it was only large-scale trading that tripped IEX controls.
“This is just a botched order,” he said of the SEC approval of D-Limit. “He takes data and he misinterprets statistics. It reads as if everything is roses and no thorns.
American circuit judge
The panel also posed questions to lawyers for the SEC and IEX, asking them about ordinary lags caused by the physical location of trading infrastructure, as opposed to an intentional device like D-Limit designed to slow down trade.
“Isn’t there a difference between an inherent and inevitable geographical delay” and D-Limit, American circuit judge
Summarizing a point, Wall told the judges that “exchanges are meant to be platforms – they are meant to facilitate exchanges.” IEX is the only exchange “that reaches and re-values the quotes themselves,” he said. “It’s kind of a new thing.”
In addition to Citadel Securities, opponents of the new order type include
“Quibbling” in microseconds
Much of the case concerns the regulatory process. Citadel Securities argued in a filing that the SEC violated the Administrative Procedure Act, which sets out the requirements for making changes to agency regulations. The company said the SEC ignored important data showing that D-Limit would hurt retail investors.
The SEC said in its own filing that it “has taken into account the extensive data on the file and the comments of many interested parties.”
The trading company has a tough fight in its hands,
“You’re quibbling over 350 microseconds, which is a tough argument to make,” Tabb said.
The case is Citadel Securities LLC v SEC, 20-1424, United States Court of Appeals for the District of Columbia Circuit.
(Add more arguments, judges’ questions, and background from section two onwards.)
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