Citadel Securities LLC v. U.S. Securities and Exchange Commission

Summary

The Eleventh Circuit reviews Citadel Securities LLC’s petition challenging the SEC’s approval of Investors Exchange LLC’s proposed options exchange. The court holds that substantial evidence supports the SEC’s findings regarding latency arbitrage in options markets and concludes that the Commission’s approval was not arbitrary or capricious. The court denies Citadel’s petition for review.

Holdings

1. The SEC's finding that latency arbitrage exists in options trading and negatively affects liquidity and market makers was supported by substantial evidence, including public comments from market participants and the SEC's expertise and experience in analogous securities markets.
2. Substantial evidence supported the SEC's finding that the Options Risk Parameter would activate during the brief periods of price dislocation associated with latency arbitrage and would generally have minimal effects on ordinary trading.
3. Quotations subject to the Options Risk Parameter qualify as protected quotations under the Options Order Protection and Locked/Crossed Market Plan and do not fall within the Plan's non-firm-quotation exception.
4. The SEC reasonably concluded that the IEX proposal did not permit unfair discrimination under 15 U.S.C. § 78f(b)(5). Treating market makers differently was permissible because the risk protection was commensurate with the risks uniquely borne by market makers and was expected to benefit market participants generally through increased liquidity and better prices.
5. The SEC reasonably concluded that the IEX proposal would not impose an undue burden on competition not necessary or appropriate to further the purposes of the Exchange Act.

Questions Presented

1. Whether substantial evidence supported the SEC's findings that latency arbitrage exists in and detrimentally affects the options market.
2. Whether substantial evidence supported the SEC's finding that IEX's Options Risk Parameter would accurately target latency arbitrage without substantially impeding ordinary trading.
3. Whether quotations subject to the Options Risk Parameter qualify as protected quotations under the Options Order Protection and Locked/Crossed Market Plan.
4. Whether the SEC reasonably concluded that the IEX proposal was not designed to permit unfair discrimination under 15 U.S.C. § 78f(b)(5).
5. Whether the SEC reasonably concluded that the IEX proposal would not impose an undue burden on competition under 15 U.S.C. § 78f(b)(8).

Disposition

writ_denied