Nasdaq Files Complaint Against Miami Exchanges Over Trading Tech

Nasdaq filed a complaint with the US District Court for the District of New Jersey on September 1, claiming that Miami International Holdings (MIH) infringed on a number of its patents relating to its core INET and FTEN technology, in the course of developing its own trading systems for the MIAX Options and MIAX Pearl derivatives markets.

The New York-headquartered operator further alleged it had conducted an investigation of 15 former employees that left Nasdaq for MIH, finding that some forwarded technical details of how Nasdaq’s systems operate and other trade secrets to their personal email addresses over a period of months before leaving.

The suit does not name specific persons but says that former employees included a director of technology, who subsequently joined MIAX to oversee the development of its in-house systems.

Trading on MIAX Options began in December 2012, while trading on MIAX Pearl commenced on February 6, 2017, following approval by the US Securities and Exchange Commission (SEC) to operate as securities exchanges.

Court documents seen by WatersTechnology allege substantial similarities in technical design between patents filed by Nasdaq and those by MIAX, in areas such as order handling, risk management, data feed protocols and the architecture of the matching engines. Patents cited by Nasdaq in the suit stretch back to the early 2000s.

The exchange operator is seeking damages, fees and royalties for the alleged ongoing use of its technology under patent law and the US Defend Trade Secrets Act of 2016, and has requested a jury trial. It has not, however, requested that the MIAX venues cease operation. The news was first reported by Bloomberg on September 1.

New Frontier 

The case bears similarities to others dealing with the treatment of intellectual property as it pertains to trading systems, which has proved to be a particularly difficult area of emerging law to prosecute. The most famous case of recent years has been the prosecution of Sergey Aleynikov, a former Goldman Sachs programmer who was accused by the bank of taking proprietary information regarding the code that powered its high-frequency trading (HFT) operations in order to build a similar system at a competitor. The case has dragged on through verdicts and appeals since 2009.

In a statement released on September 1, MIH CEO and chairman Thomas Gallagher said that the operator was “fully committed to vigorously defending ourselves against these baseless allegations.”

Gallagher further alleged that Nasdaq had attempted to recruit a number of key technology personnel from the company over “several years,” offering substantial cash and stock incentives. He added that MIH would explore “all legal avenues” to contest the claims. Spokespeople for Nasdaq declined to comment.

Both MIAX Options and MIAX Pearl accounted for just under 7 percent of US equity options trading for the month of August, according to monthly statistics compiled by the Options Clearing Corporation. Nasdaq’s various exchanges, including the Philadelphia Stock Exchange and the International Securities Exchange, accounted for over 40 percent.