Flash Boys Class Actions: Civil Fraud, Conspiracy, and the Certifiability of High-frequency Trading Cases in Canada

• Author: Lindsay Frame
• Pages: 9-50

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Flash Boys Class Actions: Civil Fraud, Conspiracy, and

the Certif‌iability of High-Frequency Trading Cases in

Canada

Lindsay Frame

: The global COVID-19 pandemic has caused signif‌icant vola-

tility in global stock markets, reigniting concerns around the regulation

of high-frequency traders. High-frequency traders are electronic traders

who use algorithms to execute hundreds of trades in the time it takes to

blink an eye. Although some of these traders are harmless, others use their

speed advantage to prey on ordinary investors, generating over $5 billion

globally in increased trading costs. This article proposes that class action

law could protect investors from predatory high-frequency trading behav-

iours where regulation falls short.

Part A provides an overview of high-frequency trading, discussing

both its purported market benef‌its as well as its harmful ef‌fects on invest-

ors and capital market volatility. Part B discusses the problem of regula-

tors lagging behind in the complex high-frequency trading industry. It

then contends that class actions can supplement def‌icient enforcement

ef‌forts, increase investor conf‌idence in the market, compensate harmed

investors, and force high-frequency traders to internalize the costs of their

behaviour. Part C discusses two high-prof‌ile high-frequency trading class

actions in the United States. It then analyzes the doctrinal dif‌ferences

between Canadian and US securities law, and applications to the certif‌i-

cation process. Part D concludes by suggesting that high- frequency trad-

ing class actions are ultimately a viable, although challenging, solution.

This article, therefore, proposes modest reforms to securities law — such

as modernizing the statutory of‌fences of fraud and market manipulation

and creating private rights of action for such of‌fences — to increase the

availability of class actions and enhance access to justice for investors in

modern capital markets.

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FLASH BOYS CLASS ACTIONS: CIVIL

FRAUD, CONSPIRACY, AND THE

CERTIFIABILITY OF HIGH-FREQUENCY

TRADING CASES IN CANADA

Lindsay Frame*

A. HIGH-FREQUENCY TRADING: THE GOOD,

THE BAD, AND THE UGLY

1) An Overview

“The U.S. stock market was now a class system, rooted in speed, of haves and

have-nots. The haves paid for nanoseconds; the have-nots had no idea that a

nanosecond had value.” — Michael Lewis1

In 2010, a company called Spread Networks secretly constructed a f‌iber

optic cable connecting the New York and Chicago exchanges.2 Instead of

following railroad rights of way, the cable ran an almost perfectly straight

line between the two cities.3 Spread Networks bore holes through moun-

* Lindsay Frame, currently completing her articles at a large national f‌irm, is an incoming

Law Clerk at the British Columbia Supreme Court (2021–22). She received her law

degree as well as her Bachelor of Science from the University of British Columbia.

“Flash Boys Class Actions” was written in the author’s f‌inal year of law school and

received the 2020 Harvey T. Strosberg essay prize. The views expressed herein are

entirely the author’s own. The author wishes to thank her professors, Luciana P

Brasil and Chelsea D Hermanson, for sharing their knowledge and experience in the

f‌ield of class actions and for their helpful comments in developing this paper.

1 Michael Lewis, Flash Boys (New York: WW Norton & Company, 2014) at 69.

2 Eric Budish, Peter Cramton, & John Shim, “The High-Frequency Trading Arms Race:

Frequent Batch Auctions as a Market Design Response” (2015) 130:4 Quarterly Journal

ofEconomics 1547 at 1548–49.

3 Christopher Steiner, “Wall Street’s Speed War” Forbes (9 September 2010), online:

www.forbes.com/forbes/2010/0927/outfront-netscape-jim-barksdale-daniel-spivey-

wall-street-speed-war.html#7b25602a741a.

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