2 F.4th 10
2d Cir.2021Background
- Plaintiffs (five South Korean traders) traded KOSPI 200 futures on the KRX overnight market; overnight orders are matched via CME Globex in Aurora, Illinois but settled on the KRX.
- Tower, a New York HFT firm, executed ~4,000,000 overnight KOSPI 200 trades in 2012 (≈53.8% of overnight volume); plaintiffs allege spoofing/manipulation that yielded over $14 million.
- Plaintiffs sued under the Commodity Exchange Act (CEA); district court initially dismissed on extraterritoriality grounds, and this Court reversed as to Morrison’s “domestic transactions” test (Choi III).
- On remand plaintiffs alleged KOSPI overnight trading was “subject to the rules of” the CME (a registered entity under Section 9 of the CEA); after discovery the district court granted summary judgment for defendants, finding the CME does not regulate KRX KOSPI contracts.
- The district court excluded plaintiffs’ expert (Professor Greenberger) as legal advocacy rather than admissible expert opinion.
- Plaintiffs appealed, arguing genuine dispute on CME rule coverage, erroneous expert exclusion, law-of-the-case conflict with the earlier Morrison ruling, and adverse public-policy consequences; the Second Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether overnight KOSPI 200 trading is “subject to the rules of” a registered entity (CME) | KOSPI trades matched on CME Globex are governed by CME rules (Chapter 5, Globex-related materials, and negative-space in rulebook create a triable issue) | CME Rulebook defines coverage only for contracts listed on CME; CME/CME Group declarations and KRX rulebook show KRX—not CME—regulates KOSPI contracts | Not subject to CME rules; Rulebook and unrebutted CME Group declaration conclusively show KRX governs KOSPI trading; no genuine issue of material fact |
| Exclusion of plaintiffs’ expert report (Greenberger) | Expert’s report explains how Chapter 5 and other authorities show CME rule coverage; would create a factual dispute | Report is legal argument/policy brief, not admissible expert testimony under Rule 702/Daubert | No abuse of discretion; report largely advances legal arguments/usurps factfinder and would not change outcome |
| Law of the case / conflict with prior ruling (extraterritoriality) | District court’s ruling contradicts this Court’s earlier decision rejecting extraterritoriality defense (Morrison analysis) | Prior opinion addressed only Morrison/domestic-transactions; it did not decide whether trading is subject to a registered entity’s rules under Section 9 | No conflict; prior opinion resolved only extraterritoriality plausibility, not the Section 9 registered-entity question |
| Public-policy consequences of narrowing CEA reach | Ruling creates a loophole letting manipulators evade CEA enforcement for Globex-matched foreign futures | CEA’s text requires trading be on/subject to registered-entity rules; KRX already prohibits manipulation and enforces rules; courts must follow statute as written | Policy concerns insufficient to override statutory requirement; plaintiffs remain protected by KRX enforcement; statutory text controls |
Key Cases Cited
- Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010) (limiting extraterritorial application of U.S. securities laws; domestic-exchange and domestic-transaction tests)
- Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014) (applying Morrison’s domestic-transaction test to the CEA)
- Myun-Uk Choi v. Tower Rsch. Cap. LLC, 890 F.3d 60 (2d Cir. 2018) (prior panel decision vacating dismissal and holding plaintiffs plausibly alleged irrevocable liability in U.S. via Globex)
- Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) (standards for admissibility of expert testimony)
- Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997) (abuse-of-discretion standard for exclusion of expert evidence)
- Psimenos v. E.F. Hutton & Co., 722 F.2d 1041 (2d Cir. 1983) (futures contracts have no lawful existence independent of the designated contract market)