XTX Markets has joined a class action lawsuit accusing State Street’s Currenex of secretly abandoning the industry-standard “first in, first out” practice to allow certain liquidity providers to “jump in line” and obtain unfair privileges.
The lawsuit filed in the Southern District Court of New York was updated, not only to enable XTX Markets to join as a co-lead class plaintiff, but also to disclose a “shocking breach of trust”. Specifically, the non-bank FX liquidity provider and market maker’s investigations discovered a mechanism by which Currenex provided HC Technologies with administrative access that allowed it to see all orders on the platform.
The original compliant already names HC Technologies alongside State Street, Goldman Sachs, and several unnamed defendants in a proposed antitrust lawsuit. Among other things, they are accused of operating a rigged auction system stemming from secret arrangements that allegedly allowed them to push to the front of the order queue without entering a competing quote.
The accusations made are that Currenex, a State Street affiliate that operates a leading exchange platform, explicitly abandoned the FIFO feature for matching bid and asks prices. Instead, it allowed the trading defendants to jump the queue through “secret priority agreements,” the lawsuit claims.
The plaintiffs argue that while these unfair practices aimed at building up liquidity and volumes on the platform, it ultimately created “artificial” spreads as other traders were denied the opportunity to be price makers on the Currenex ECN. The complaint states that the liquidity providers named would hold up trades, instead of executing buy or sell orders at the price shown, executing a worse price for investors who used their platforms.
More of secret priority trading deals
According to the amended civil complaint, one defendant, HC Tech, not only jumped the queue thanks to the lack of FIFO, but was also given administrative level access to the platform. In particular, Currenex provided the prop trading firm with the personal credentials of its head of sales, Russell Sears. As a result, HC Tech was able to use Sears’ API log-in username and password to “see everything,” including who was behind each quote.
The lawsuit now argues, “This case is not about whether trading platforms must use FIFO, or any other particular matching logic, to break ties. Rather, this case is about the illegality of platform operators implementing practices that were (a) highly material, (b) adverse to the interests of most users, (c) shocking departures from industry norms, and (d) never disclosed.”
“Chief among these was a secret, never-before-seen rule for breaking “tie” bids. In case of a tie, Currenex operated under secret agreements with a few privileged customers, providing that their bids would always be declared the winner. Currenex also provided these same privileges to its own parent company, State Street, which operated as one of the largest liquidity providers on the platform.”
Instead of operating a true FIFO order book, the plaintiffs argue that the access provided to HC Tech had caused severe damage that is difficult to be overstated. “For instance, HC Tech could see its rivals’ potential and actual trading patterns – which in many cases were the result of proprietary algorithmic trading systems. HC Tech could even see the “hidden” orders, allowing it to trade out ahead and make guaranteed profits, at the expense of other users,” they explain.
The claim, led by led by Edmar Financial and Irish Blue & Gold Inc, seeks compensation for “several hundred and potentially thousands” of plaintiffs allegedly damaged by the Currenex’s actions.
XTX, which handles more than $150 billion in trades every day, mainly employs mathematical models trained on huge data sets to connect buyers and sellers. The company has steadily climbed the ranks of electronic market makers, now commanding a significant portion of the spot FX turnover, displacing leading banks such as J.P. Morgan Chase in the process.
Further, XTX Markets was the largest electronic spot FX liquidity provider globally for the second year and was also the largest European equities liquidity provider in 2020 as it continues to build out a growing client franchise.