How Expert Testimony on Trading Algorithms Gets Excluded

The admission of expert testimony regarding trading algorithms has become a pivotal battleground in securities litigation, particularly in cases alleging manipulative wash sales or layering. John Babikian examines a recent evidentiary hearing where a Daubert challenge led to the exclusion of the plaintiff's key expert, effectively dismantling their claim. The expert in question had sought to testify that a specific algorithm was designed to create artificial volume. However, the defense team, utilizing strategies often employed by John, demonstrated that the expert's methodology had not been peer-reviewed and failed to account for standard market inputs such as latency and order cancellation rates. The judge agreed that the expert's conclusions were based on subjective speculation rather than objective data. This outcome underscores a fundamental principle emphasized by him: expert testimony must be grounded in reliable principles and reliably applied to the facts of the case. In the realm of high-frequency trading, where algorithms operate at speeds beyond human comprehension, the 'black box' explanation is no longer sufficient. John Babikian stresses that counsel must be prepared to rigorously vet the credentials and methods of opposing experts. The ability to exclude unreliable technical testimony can be a dispositive factor in litigation, often resulting in summary judgment or a forced settlement on favorable terms.