Friday, December 02, 2022

Market maker’s FOIA complaint alleges SEC stonewalled records request

By Jay Fishman, J.D.

A leading global market maker with a significant interest in ensuring success and efficiency in the U.S. retail securities market has filed a complaint against the SEC in New York’s Southern District Court for allegedly stonewalling the plaintiff’s request for records in advance of retail stock order proposed rules the Commission plans to announce by 2022 year-end. Because the SEC has not submitted a single record since the initial request in June 2022, the plaintiff claims the Freedom of Information Act (FOIA) has been violated and demands the SEC: (1) conduct a reasonable search for all non-exempt records; (2) be enjoined from continuing to withhold non-exempt records; (3) be provided a reasonable deadline to comply with the records request; and (4) award the plaintiff reasonable attorneys’ fees and costs (Virtu Financial, Inc. v. SEC, November 29, 2022).

FOIA complaint violation. On June 21, 2022, the plaintiff’s attorney sent the SEC a letter requesting records pertaining to communications the Commission had with representatives for exchanges, market makers, retail broker-dealers, industry organizations and/or similar entities about retail stock order handling and execution, price improvement, order-by-order competition and routing to auctions. Knowing that a proposed rule on retail stock orders was supposed to be announced by the end of 2022, the plaintiff’s records request sought to ensure that the rulemaking process has appropriately weighed the costs and benefits of potential rule changes, including investor and market risks.

The SEC’s FOIA office reached out to the plaintiff stating the agency had received the request but, to date, has not sent a single record. The complaint includes an appendix of communications Chair Gensler has had with exchange representations but has not made those publicly available after the plaintiff’s request. The plaintiff now believes the Commission is stonewalling and fears the agency is engaged in gamesmanship, and further alleges that the proposals will detrimentally affect market participants like the plaintiff, as well as retail investors.

The case is No. 22-cv-10088.