NYSE refuses to disclose certain revenue details in HFT case
Major stock exchanges, including NYSE, Nasdaq and Bats have sought to shield certain information about their products and the revenues derived from them from the public eye. This becomes clear from a document submitted by counsel for these Exchanges at the New York Southern District Court on December 16, 2021.
The Exchanges are defendants in a high-frequency trading (HFT) lawsuit. This lawsuit was filed back in 2014 on behalf of investors that traded on a registered public stock exchange or a U.S.-based alternate trading venue, between April 18, 2009 and the present, and asserted claims against: (1) registered public stock exchanges located in the United States; (2) a class of brokerage firms; and (3) a class of HFT firms.
The plaintiffs claim, inter alia, that certain defendants allowed HFT firms to profit at the expense of the class and to manipulate securities markets in violation of federal securities laws.
The plaintiffs claim that the Exchanges violated Section 10(b) of the Exchange Act and Rule 10b-5 by offering proprietary data feeds, co-location services, and order types that the plaintiffs allege were used by HFT firms to gain an undisclosed advantage over other investors, including the plaintiffs.
The parties in this case are now arguing over unsealing certain exhibits that form part of the discovery in this lawsuit. Whereas the plaintiffs are seeking making hundreds of exhibits public, the defendants disagree. According to the document submitted by the defendants on December 16, 2021, and seen by FX News Group, a small number of the exhibits contain sensitive, non-public commercial information, the disclosure of which would cause competitive injury to the Exchanges or their customers.
In particular, according to the Exchanges, there are five NYSE-related exhibits, comprising two unique NYSE documents, that should remain under seal in their entirety. These documents show certain revenues NYSE earned between 2010 and 2019 from providing co-location services and proprietary data feeds to each of a set of identified customers.
NYSE says the exhibits are competitively sensitive because they contain confidential customer information and because they disclose revenue details that NYSE does not disclose in its public financial reporting and are incomplete (their disclosure would thus cause confusion to investors).
NYSE claims that public disclosure of this information would likely cause competitive injury to NYSE or its customers. Therefore, NYSE requests that these two documents remain sealed.
In addition, there is one BATS document that BATS says should remain under seal in its entirety. This document contains internal confidential business and financial information regarding BATS’s market data products, including
- the assessment of industry trends and dynamics;
- the assessment of BATS’s revenue and products;
- peer comparison information;
- strategy and initiative information; and
- revenue potential information.
BATS notes that although the document is from 2015, the analysis in the document remains confidential and sensitive, and the disclosure of the document would likely cause BATS competitive harm. Therefore, BATS requests that this document remain sealed.
(We can only speculate about the details in this document. However, it would be quite a read given how eventful January 2015 was.)
Further, the Exchanges argue that there are eight Nasdaq-related exhibits, comprising six unique Nasdaq documents, that should remain under seal in their entirety. These six documents comprise:
- an email chain in which a Nasdaq customer discusses technical aspects of its products and services purchased and its IP addresses and data circuit identifications and specifications;
- a draft white paper containing a detailed overview and analysis of Nasdaq’s systems and the material risks thereto;
- a presentation containing detailed information and data regarding the economics and technical operations of Nasdaq’s Carteret data center;
- two internal business development presentations relating to specific Nasdaq customers and discussing those customers’ usages of Nasdaq’s products and services and trading and business strategies; and
- an internal analysis of potential pricing changes and sensitivities for Nasdaq’s co-location services.
All of these documents contain confidential information throughout, Nasdaq says. According to the Exchange, even though the documents are several years old, the information remains confidentially and competitively sensitive today, and the public disclosure of this information would cause competitive injury to Nasdaq or its clients.
The defendants argue that the above-mentioned fourteen exhibits have to remain sealed, as they reflect confidential, non-public material, the disclosure of which the defendants reasonably believe would cause competitive harm to their respective businesses.