By Times Wang
Here’s a brain teaser: with investors around the world engaging in untold amounts of electronic trading every millisecond, at all hours of the day, in everything from common stock in a U.S. company, to futures tied to a foreign stock index, to options on aluminum or gas or other commodities, where, exactly, does such trading take place?
This is no idle thought experiment, and the answer to this geography question can determine whether or not market participants who are harmed by a market manipulator can seek the protection of, and redress under, U.S. law. Indeed, these rights were precisely what was at stake in a recent appeal in Myun-Uk Choi v. Tower Research Capital LLC, 890 F.3d 60 (2d Cir. 2018) (“Tower”).
Tower involved “spoofing” prices of futures tied to the KOSPI 200, an index of Korean stocks. As alleged, defendants, a high-frequency trading firm based in New York and its founder, entered orders they never intended to fill to generate a price movement, cancelled those orders, and then traded on the artificial price they’d just created. The question on appeal: did these transactions take place in the United States?
The legal principles guiding the inquiry were venerable and well-established. They include the idea that a trade is a contract, which in turn is just an agreement; that the location of an agreement is where one irrevocably accepts another’s offer; and that our federal securities and commodities laws only apply to trades occurring in the United States. (That last principle is perhaps not as venerable as the others, stemming as it does from the Supreme Court’s 2010 decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010)).
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