Currenex lawyers ask judge to dismiss class action lawsuit

Lawyers for foreign exchange trading venue Currenex, its parent State Street and two other large market-makers, Goldman Sachs and HC Tech, have asked a US judge to dismiss a class action lawsuit accusing the four firms of striking secret priority trading deals. They cite statutes of limitations and argue the claims are not supported by facts.

The alleged offences include fraud, racketeering and conspiracy in violation of anti-trust laws. A key claim is that, starting from at least 2005, Currenex granted priority rights to the three liquidity providers (LPs), as well as to five unnamed LPs. The complaint said these rights allowed the firms to jump the order queue without posting a better price and resulted in worse prices for those bringing the case and other users of the platform.

In a joint motion filed in the Southern District Court of New York on October 13, the defence lawyers hit back against the accusations and say the lawsuit should fail anyway for the simple reason that the alleged wrongdoing took place or was discovered too long ago in legal terms.

“Even if [the] plaintiffs had adequately pleaded any of their claims – and they have not – each of those claims is time-barred and must be dismissed as a matter of law,” the document reads.

The statutes of limitations for the alleged offences go back six years at most, but the plaintiffs’ lawyers said in their August 4 complaint that the clock should start ticking from the time the offences were detected rather than when they were committed. The complaint stated that because the misconduct was concealed, the plaintiffs – Edmar Financial Company and Irish Blue & Gold – could not have discovered it until “recently”. The document did not specify the time of the discovery.

The defence lawyers argue that each of the plaintiffs’ claims was made too late under applicable laws. For example, they say the New York statute of limitations for fraud is six years from the date of the offence, or two years from the time the plaintiff unearthed the fraud or could have with “reasonable diligence”. The complaint contains no allegation of such discovery in the two years before it was filed, the lawyers note.

They contend that the plaintiffs – in their words, “sophisticated investors” – either knew, or should have “reasonably discovered” by no later than April 1, 2015, that Currenex was not operating a strict first-in-first-out order book for spot trades. Under the so-called Fifo arrangement, the first participant to post the market’s best bid or offer is matched off first.

April 1, 2015, is when Currenex disclosed that it provided sell-side subscribers with the last look functionality.

“The existence of ‘last look’ rights necessarily means that bids that are otherwise matched with offers … and then accepted by a buy-side subscriber may nonetheless not be completed,” the defence lawyers write.

Show me the facts

The lawyers also attack the veracity of the claims against their clients, including the allegation that Currenex entered into a secret agreement with each of the accused market-makers. The deals allegedly allowed them to jump the order queue even if they merely matched the quote of the first trader in the queue.

“The complaint does not contain any particularised facts … that plausibly support the existence of the alleged vertical agreements,” the lawyers say.

Secondly, the lawyers reject the accusation that Currenex was engaged in bid rigging, saying that this would have required an agreement among the market-makers that the lawyers represent, or “trading defendants”.

“[But] apart from a benign reference to meals in Chicago and New York between mostly unnamed representatives of Currenex and one or more trading defendant at some unspecified point in the 16-year class period that supposedly began in 2005, and noting that certain individuals worked for one or more defendants since 2005, nothing in the complaint suggests any communications among the trading defendants at all,” they write.

Regarding the alleged personnel links, the complaint stated that three senior HC Tech employees had previously worked at Currenex and that a top FX executive at Goldman left for State Street in 2014.

The defence lawyers also contend that the lawsuit fails to identify “a common motive to conspire”.

Based on the plaintiffs’ own allegations, a trading defendant would enter into a priority rights agreement in order to compete for FX trades, whereas Currenex would do so in order to attract liquidity so that it could provide competitive pricing to customers, they write.  

“Accordingly, no common motive was possible,” the lawyers conclude.

“Stolen” profits

According to the complaint, the alleged back-room deals raised purchase prices and lowered sale prices for liquidity-takers on Currenex, as well as allowed the privileged LPs to “steal” the profits that the plaintiffs and class members could have earned when acting as price-makers. The trading defendants also enjoyed an “artificial” informational advantage that came with the increased order flow.

“Knowing what market participants are willing to pay (a form of ‘price discovery’) is a valuable advantage. This advantage was magnified for those who were matched and thus executed transactions,” the complaint explained.

The defence lawyers counter that the plaintiffs did not provide any concrete examples of being harmed. For instance, they say the complaint does not identify a single transaction entered into by the plaintiffs that was executed at a “rigged price”, “much less” a rigged price attributable to any of the trading defendants.

What’s more, according to the lawyers, the liquidity that Currenex allegedly obtained through the deals would have in fact benefitted those who traded on the platform, including the firms bringing the case. They note that the complaint itself referred to the common statement that “liquidity begets liquidity”.

The defence lawyers asked the federal judge to dismiss the case “with prejudice”, meaning the dismissal should be final in all courts.

FX Markets previously spoke to six industry sources about the case. None had any evidence to support the claims against Currenex, but most said the lawsuit mirrored rumours about certain trading platforms in the early days of electronic trading – 15 to 20 years ago – when new venues were desperate to secure market-makers’ backing.

Editing by Olesya Dmitracova