Currenex Plaintiffs Move Denial Motion Following Defence Attempt to Dismiss

The plaintiffs, led by XTX Markets, in the ongoing class action against Currenex, State Street, HC Tech and Goldman Sachs over “jump-in-line” privileges provided by the former to the latter three, have filed a motion to deny an attempt by the defendants to dismiss the case, which was brought in late 2021 and updated earlier this year.

The case revolves around allegations that Currenex provided the three firms (the trading defendants) with special, privileges, undisclosed to other users, that allowed them to effectively cherry pick all trade requests on the platform and jump to the front of the queue to accept the trade (and, if necessary, then reject it using last look). Furthermore, the action alleges, by citing previous employees of the platform, that HC Tech was granted special administrative access to the platform which enabled it to see all orders and, presumably, the identities of the trading participants behind the orders.

In moving the motion to deny the dismissal, the plaintiffs argue, “The Court’s task here is easier than it is in many fraud cases. This is because Defendants tacitly concede that the Complaint adequately pleads the dispositive facts. It is undisputed, for instance, that the Complaint adequately pleads that the rules a trading platform uses to break “ties” are of utmost importance to traders, and that Defendants knew the Platform’s trump-card tiebreaking rule was that a Trading Defendant would win every tie. But the Trading-Defendants-always-win tiebreaking rule and administrator access allegedly granted to HC Tech were never disclosed.”

Among several arguments used by the defendants in their attempt to dismiss is to repeatedly state that the plaintiffs were “mistaken” and “confused” about whether or not the platform was following “strict FIFO” (first-in-first-out) rules and that Currenex did indeed disclose there was a “benefit” to liquidity providers. In rebutting the argument, however, the plaintiffs argue that their complaint revolves around the secret “Trading-Defendants-always-win” tiebreaking rule and the secret administrator-access practices. “Those practices were shocking departures from industry norms and were literally unheard of prior to the filing of this case,” the motion to deny argues.

It adds it is not the plaintiffs’ claim that they believed Currenex was “strict FIFO”, rather, “Plaintiffs could have read Defendants’ disclosures a million times, and still not have had a clue about the Trading-Defendants-always-win tiebreaking rule or the administrator-access practices. Those specific practices were not mentioned, or even hinted at, anywhere. And indeed, those specific practices created a tiebreaking regime that was the exact opposite of what was disclosed.” (original italics)

The plaintiffs also argue that the “benefits” cited by the defendants involved last look, which was/is available to LPs on the Currenex platform and the real problem was an undisclosed benefit. Certainly, if the “benefit” in question was the ability to jump the queue as inferred by the defendants, if all LPs had access to it, it would be nullified.

An adverse decision and I can’t see how State Street keeps the former Currenex mechanism running, more importantly will there be questions over its ownership of FX Connect?

Another argument provided by the defendants was that Currenex unilaterally granted the jump-the-queue privileges, but again the plaintiffs rebut this, citing “former insiders” who worked at the platform, who confirm they were granted by agreement. “Indeed, the main point of the bribes was to influence the behaviour of the Trading Defendants. It would not make sense to give privileges to a Trading Defendant, without telling that Trading Defendant about the privileges,” the plaintiffs argue.

Perhaps one of the more bizarre arguments hinted at by the plaintiffs is the claim that the defendants were trying to blame the alleged victims for not asking Currenex, specifically its help desk, about whether there was a jump-the-queue arrangement. “Because of the obvious futility of asking a liar if he is lying, the law imposes no such requirement. To suggest Currenex’s information technology help desk was standing by ready to admit the company was engaged in a massive fraud, if only someone had asked, is absurd,” the motion to deny states.

The defence argument to dismiss the case also focuses on XTX Markets’ questioning of the platform. The latter says it asked Currenex how it could win more business on the platform because it was puzzled at its relatively low success rate, however the defendants argue because XTX thought to ask a question, it knew the disclosures were incomplete. The motion to deny argues there is an “illogical leap” from someone asking a question about winning more business and suspecting there were undisclosed rules in place to benefit certain participants that were actually “the opposite of what the disclosures said”.

On the same subject, the defendants argue that if XTX was unsatisfied with Currenex’ “transparency”, it should not have traded on the platform, and that the contracts with the plaintiffs “did not expressly bar the use of secret tie-breaking rules”.

A US legal source (unconnected, but familiar with the case) spoken to suggests the case is unlikely to be dismissed, because to do so, defendants have to prove the accusations have no basis in law, “which does not appear to be the case here”. The source adds the court is likely to allow the case to continue because the defence “does not seem to have a particularly strong core argument,” rather “they have taken a scattergun approach in the hope that something sticks”.

Anecdotally, in the FX industry opinion appears to be unchanged from when the news of the case first broke – if proven the charges are serious, especially the granting of special access to one firm that allowed it to see the entire book. “There is a trust issue at the core of this which would see major participants – even if the events occurred under a previous regime – move away from the platform if the court finds against Currenex,” says a senior FX manager in London. “A re-branding won’t be enough and if too many good LPs leave, the trading environment will deteriorate and the good customers will follow. An adverse decision and I can’t see how State Street keeps the former Currenex mechanism running, more importantly will there be questions over its ownership of FX Connect?”