Markets

'Unlevel playing field': HFT uses ultra fast trading systems that profit from millisecond discrepancies in stock prices.

HFT uses ultra fast trading systems that profit from millisecond discrepancies in stock prices. Photo: Bloomberg

Bank of America and the New York Stock Exchange are among dozens of exchanges, brokerages and traders sued over high-frequency trading by the US city of Providence - the capital of the north-east US state of Rhode Island - over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares to themselves.

Scrutiny of high-frequency trading and whether it gives some investors unfair advantage intensified this year amid government probes and the March 31 publication of Flash Boys by Michael Lewis.

A defendant in Friday's complaint - Virtu Financial, a high-frequency trader that delayed its initial public offering - has received inquiries from the office of New York's attorney general, Eric Schneiderman, who announced last month that he's investigating high-frequency traders.

Last month, US Attorney-General Eric Holder promised Congress a full investigation into whether high-frequency traders violated laws against trading on inside information. The Federal Bureau of Investigation has said it's looking into whether companies that engage in high-speed trades get an improper jump on other investors by using information about their trading to make profits.

In the complaint filed on Friday in the federal court in Manhattan, Providence is seeking unspecified damages on behalf of all public investors that bought or sold stock in the past five years.

It claims the exchanges, the biggest brokerage companies and a group of high-speed trading companies allowed some traders to gain access to non-public data about investors' trades.

The scheme allegedly included electronic front-running, in which high-frequency traders learned of bids and offers and made transactions at better prices.

Providence named as defendants 14 brokerages, 16 securities exchanges and 12 high-speed traders. It said the misconduct ''has siphoned off billions of dollars from private and public pension funds and individual retirement accounts that millions of Americans depend on.''

Bloomberg