Brattle principal Torben Voetmann and senior associate Pavitra Kumar, along with Zachary Ziliak of Ziliak Law, have authored an article that discusses the complexities and challenges for experts arising from increased litigation surrounding high-frequency trading. The article has been recently published on Law360.
Recent investigations by U.S. government organizations, including the Department of Justice, the Commodity Futures Trading Commission, and the Securities and Exchange Commission into whether specific instances of high-frequency trading violate insider trading laws have spawned increased litigation in this area. The article discusses how this proliferation of cases involving a relatively new and legally untested technology will present courts with various challenges.
The authors argue that there is a need for experts in market structure and trading strategies to determine whether the activities alleged are legal and rational, or if they could legitimately result in liability. Drawing this distinction requires a deep understanding of what market participants are alleged to have done, as well as an ability to parse the relevant laws, according to the authors. Additionally, limited knowledge of other market participants’ behavior, as well as nonlinear market responses in the presence of high frequency trading can hinder traditional damages calculations. The authors note that if liability is shown, damage calculations in this area are likely to require new models not traditionally seen in securities cases.
Given the complex interplay among a multi-participant market spread across numerous and disparate trading venues, litigants will need to build teams of attorneys and experts who understand market structure, the prevailing law, and all necessary computational concerns.
The article can be downloaded below.