Jonathan Stempel

NEW YORK, (Reuters) – A Federal Judge dismissed a long-running lawsuit accusing U.S. stock markets of defrauding ordinary investors. The case was based on the silence of high-frequency traders being able to trade at higher prices and faster than normal.

Exchanges such as the New York Stock Exchange, Nasdaq, and BATS Global Markets have been accused of providing high frequency trading firms with faster order processing speeds and enhanced data feeds. They also allowed them to locate their servers close to the exchanges in order for trading signals to be delivered faster.

However, U.S. district Judge Jesse Furman, Manhattan, ruled that the investors in the planned class action were not able to prove harm from the exchanges’ actions. They claimed they had violated federal security law.

According to the judge, reports of the plaintiffs expert witness, an ex-high-frequency trader now consulting on market structure, “were not based upon reliable methodology” and failed to track how trading firms used specialized services.

Furman wrote that because those reports were unadmissible, it meant that “it follows the plaintiffs have not adduced any admissible proof that their trades were harmed due to the exchanges’ challenged conduct.” Furman said that they were now without legal standing and cannot sue.

Requests for comment were not promptly answered by lawyers for investors or exchanges.

Split-second trading is possible for high frequency traders who use computer algorithms.

These were featured in Michael Lewis’ bestseller “Flash Boys”, published March 2014. The suit was filed the following month.

BATS, which is currently part of CBOE Global Markets Inc., and the NYSE are both part of Intercontinental Exchange Inc.

The city of Providence in Rhode Island led investors and offered several retirement plans including one for Boston.

Furman, who had dismissed their claims in 2015 and found the exchanges to be completely immune from federal liability, was overturned by an appeals court two years later.

This case involves City of Providence in Rhode Island et. al. v BATS Global Markets Inc. et. al., U.S. District Court for the Southern District of New York. 14-02811.