The Securities and Exchange Commission argued in a brief filed in a federal appellate court in New York that exchanges have no absolute immunity from claims filed by certain institutional investors, including the City of Providence, Rhode Island, alleging favoritism for high-frequency traders. The investors’ lawsuit, initially filed in April 2014, alleged that certain exchanges, including BATS Global Markets, Inc., Chicago Stock Exchange, Inc., Direct Edge ECN, LLC, ARCA, Inc. and others, improperly revealed price data to high-frequency traders before anyone else by making available co-location services, proprietary data feeds and certain complex order types, and that this constituted market manipulation in violation of applicable securities law and an SEC rule. (Click here to access Securities Exchange Act Section 10(b) and SEC Rule 10b-5.) The district court previously dismissed all charges against the exchanges claiming that plaintiffs’ complaints failed to state a claim and that their provision of data feeds and different order types was barred by the doctrine of absolute immunity. (Click here for details of this dismissal and lawsuit in the article, “Flash Boys-Inspired Litigation Dismissed by Federal Judge” in the August 30, 2015 edition of Bridging the Week.) The SEC argued that while exchanges should be afforded absolute immunity when they act in their traditional self-regulatory function, the doctrine should not extend “to functions performed by an exchange itself in the operation of its own market, or to the sale of products and services arising out of those functions – like the challenged activities at the center of the plaintiffs’ allegations.” Although there might be other principles such as preemption and preclusion that “should” protect a self-regulatory organizations’ conduct when acting in accordance with rules subject to SEC approval and oversight, said the Agency, the litigation in the plaintiffs’ case was at too early a stage for the Commission to take a position on these principles’ applicability at this time.