A new bill was just introduced by Representative Loudermilk (R-GA), that appears to amend the Securities and Exchange Act of 1934 to basically reduce or eliminate regulation overreach into business models of exchanges that do not involve either reporting or effecting a transaction on the exchange. As Representative Loudermilk stated when introducing the bill, “Regulatory agencies have a tendency to expand their reach into areas they should not be regulating and engage in mission creep, which can stifle innovation”.
What Could Drive the Proposal of HR3555?
Since the publication of Flash Boys in 2014, there has been a flurry of lawsuits against dark pools and exchanges, amid accusations of market rigging with aiding HFT activity, in essence aiding and enabling unfair trading. One particular lawsuit alleged that dark pool Barclays, in addition to 7 US stock exchanges, including The NYSE and Nasdaq, manipulated pools to give HFTs market advantages. Day Traders everywhere were watching the outcome as this has been a frustrating development in the market for quite a long time.
This groundbreaking lawsuit brought under U.S. District Judge Jesse Furman was a consolidation of one suit from the State of California with four suits from the District of New York, and was eventually thrown out in August of 2015. Counsel for the defendants claimed that the Plaintiffs rushed into a lawsuit without taking the time to properly plead their case, partially brought on by the allegations in the book Flash Boys.
The Judge threw out the lawsuit stating that stock exchanges had immunity because their actions fell within “quasi government” powers.
While the exchanges and dark pools may have won the battle, the war is far from over.
We’ll be watching the outcome of Bill HR3555, and what the Committee has to say.
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