The New York Stock Exchange has joined Citadel Securities, trading app Robinhoods marketers, in a legal battle to revoke the approval of an algorithmic method to protect investors from predatory trading strategies.
Court documents filed this month reveal that the NYSE is supporting the flash trader, the largest stock exchange trader, in a lawsuit to overturn the Securities and Exchange Commission’s approval of a trading method launched by the Investors Exchange Group (IEX), which became famous from Michael Lewis’ book Flash Boys.
It comes as Citadel Securities’ relationship with Robinhood was placed in a microscope after the GameStop frenzy.
The SEC approved the IEX’s method of discretionary restraint in an attempt to eliminate latency arbitrage, a practice in which a marketer exploits a time difference to make a profit, reducing the gap between traditional and algorithmic traders.
However, in court documents filed earlier this month, NYSE lawyers argued that the approval would cause “unfair discrimination” between competitors and accused the securities regulator of signing the method “without considering its impact on the national liquidity securities market system. or its impact on other stock exchanges ”.
It provided evidence in support of a lawsuit filed by Citadel Securities in February, alleging that the SEC, in addition to competition concerns, had “ignored” evidence that retail investors would be “harmed” by the discretionary decision.
It added that half of its trading activity on the IEX was not for its own profit but for private investors.
Citadel Securities is Robinhood’s most widely used marketer and pays for the popular stock trading app for customers’ trading orders.
The sister company and hedge fund, Citadel, came under fire on January 28 when rumors spread that it had forced Robinhood to restrict trading with GameStop and other short-circulated equities below market volatility.
Frustrated that they could not buy GameStop shares as the price continued to rise, traders took to social media to point out that Citadel handed over a lifeline to Melvin Capital, which lost more than a lot of its investment when traders pumped up the price in a try to hurt short sellers.
Ken Griffin, the founder of Citadel, denied any involvement in Robinhood’s decision.
Robinhoods CEO Vladimir Tenev last week told American politicians that the company restricted trade because it could not provide the capital needed for regulators when trade volumes increased.
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