Edmar Financial Company, LLC v. Currenex, Inc.

Background

Currenex operates an electronic platform for foreign-exchange transactions. Participants submit bids to buy or offers to sell, and Currenex’s matching logic pairs them to complete trades. Plaintiffs alleged that Currenex represented that equal bids or offers would be resolved on a “first in, first out” basis, and later represented that firm orders would receive priority over orders subject to the platform’s “last look” feature. Plaintiffs alleged that Currenex instead used undisclosed tie-breaking rules that favored certain trading participants.

The discovery dispute involved two competing motions to compel. A motion to compel asks the court to order a party to produce information in discovery. Plaintiffs sought Currenex’s matching-algorithm source code—the computer instructions implementing the algorithm—and related documents, including changes to the code, records concerning changes to the tie-breaking rules, data dictionaries, and instruction manuals. Plaintiffs argued that the code was central to determining whether Currenex misrepresented its tie-breaking rules. Currenex had produced sample transaction data, but plaintiffs concluded that the data was not an adequate substitute for the source code.

Currenex cross-moved to compel plaintiffs to produce their foreign-exchange trading methodologies and algorithms. The court construed that request as seeking XTX’s source code because the parties agreed that XTX was the only plaintiff using source code to trade on Currenex’s platform. Currenex argued that the code would help test plaintiffs’ allegations about how they would have traded, including whether they would have stopped trading on Currenex, whether they profited from the alleged conduct, and how they evaluated trading platforms and execution quality.

Legal Standard

Under Federal Rule of Civil Procedure 26, discovery may cover nonprivileged information relevant to a claim or defense and proportional to the needs of the case. Relevance for discovery is broad: information need not be admissible at trial if it could make an important fact more or less likely. Proportionality requires weighing factors such as the importance of the issues, the amount at stake, the parties’ access to the information, the importance of the discovery, and the burden or expense of producing it. The party seeking discovery has the initial burden of showing relevance.

Plaintiffs’ Motion to Compel

Currenex did not dispute that its matching-algorithm source code and related materials were relevant. It also did not argue that production would be disproportionate or that the burden of producing the materials outweighed their likely benefit. Plaintiffs had considered alternative ways to identify the tie-breaking rules but concluded that analyzing transaction data would be burdensome and potentially futile because of the data’s volume, complexity, and gaps.

The court held that Currenex’s source code and related documents were relevant to plaintiffs’ claims and proportional to the needs of the case. It therefore granted plaintiffs’ motion to compel and directed Currenex to produce the source code containing its matching algorithm and the related documents described in Document Request No. 49.

Currenex’s Cross-Motion to Compel

The court explained that Currenex could not establish the relevance of XTX’s source code merely by pointing out that plaintiffs sought Currenex’s source code. Currenex had to show why XTX’s code was independently relevant.

Currenex presented several relevance arguments. It argued that XTX’s source code would show why XTX selected Currenex rather than other trading platforms, whether XTX pursued strategies that could have profited from the alleged conduct, how XTX evaluated execution quality and spreads, whether XTX missed trades because of Currenex’s tie-breaking rules, and whether XTX was harmed by trades rejected through the “last look” feature. Currenex also argued that the code might reveal trading methods relevant to class-certification issues.

XTX submitted a sworn declaration stating that its source code did not contain the information Currenex sought. According to the declaration, human personnel selected trading venues and evaluated execution quality and spreads; transaction records, rather than source code, would show profits, missed trades, and trades following a rejection; and XTX’s algorithms did not operate across platforms in the way Currenex asserted. The court found that Currenex’s reply did not directly rebut these statements, provide supporting evidence, or explain why the declaration should not be credited. The court also found Currenex’s class-certification argument too speculative.

The court further held that production would not be proportional even if the source code were relevant. XTX described the code as highly sensitive and proprietary, protected by security measures and limited access. XTX also stated that reviewing and securely producing the code would require hundreds of staff hours and impose substantial financial and operational burdens. Currenex did not dispute those assertions or show that the likely benefit of production would outweigh the burden. The court noted that Currenex could seek information through less intrusive means, including stipulations, interrogatories, and depositions.

Disposition

The court granted plaintiffs’ motion to compel production of Currenex’s source code and related documents. The court denied Currenex’s cross-motion to compel production of plaintiffs’ trading algorithms. The Clerk of Court was directed to terminate the open letter motion at ECF No. 132. Magistrate Judge Henry J. Ricardo signed the decision and order.