Too Fast, Too Frequent? High-Frequency Trading and Securities Class Actions

Abstract

The advent of computerized trading in the 1970s and 1980s changed the landscape of securities litigation. Now, high-frequency trading (HFT) again threatens to do the same. By using sophisticated technological tools and computer algorithms to execute trades in fractions of a second and moving in and out of short-term positions at high volume, traders aim to capture sometimes just a fraction of a cent in profit on every trade. Along with the advantages of increased speed, however, come many negative effects for investors still utilizing slower, more conventional electronic trading strategies. Such investors, stung by lost profits and increased prices, have begun to seek protection and relief from the federal securities laws — but how likely are their claims to succeed? And, in the event that HFT becomes a standard practice among investors, how should litigants in securities class actions react to this new technology? This Comment explores these and other questions related to HFT and the fraud-on-the-market presumption of reliance, and proposes solutions and suggestions for how courts should treat these issues.