Susquehanna International Group, LLP v. Securities & Exchange Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 20, 2017 Decided August 8, 2017

No. 16-1061

SUSQUEHANNA INTERNATIONAL GROUP, LLP, ET AL.,

PETITIONERS

v.

SECURITIES AND EXCHANGE COMMISSION,

RESPONDENT

OPTIONS CLEARING CORPORATION,

INTERVENOR

On Petition for Review of an Order of

the Securities & Exchange Commission

David H. Thompson argued the cause for petitioners. With

him on the briefs were Howard C. Nielson Jr., Peter A.

Patterson, and Harold S. Reeves.

Robert Battalio and Robert Jennings, pro se, were on the

brief for amicus curiae Robert Battalio and Robert Jennings in

support of petitioners.

Tracey A. Hardin, Assistant General Counsel, Securities

and Exchange Commission, argued the cause for respondent.

With her on the brief were Anne K. Small, General Counsel,

2

Sanket J. Bulsara, Deputy General Counsel, Michael A. Conley,

Solicitor, and Emily T.P. Rosen, Senior Counsel.

William J. Nissen argued the cause for intervenor. With

him on the brief were Steven E. Sexton and Kristen E. Rau.

Before: GARLAND, Chief Judge, GRIFFITH, Circuit Judge,

and SENTELLE, Senior Circuit Judge.

Opinion for the court filed by Chief Judge GARLAND.

GARLAND, Chief Judge: Seeking to increase its capital

reserves, the Options Clearing Corporation proposed a change

in its rules. That change was subject to approval by the

Securities and Exchange Commission, which granted approval

without itself making the findings and determinations prescribed

by the Securities Exchange Act of 1934. Instead, it effectively

abdicated that responsibility to the Corporation. Because this

does not represent the kind of reasoned decisionmaking required

by either the Exchange Act or the Administrative Procedure Act,

we remand the case to the Commission for further proceedings.

I

The Options Clearing Corporation (OCC), a Delaware

corporation, is a clearing agency that facilitates trades in options

and other financial instruments. It is the only clearing agency

for standardized U.S. options listed on U.S. national securities

exchanges. Given its significant role, OCC has been designated

a systemically important financial market utility and is closely

regulated by the Securities and Exchange Commission (SEC).

See Order Approving Proposed Rule Change Concerning the

Options Clearing Corporation’s Capital Plan, 81 Fed. Reg. 8294,

8294 (Feb. 18, 2016) (“Order”).

3

At the time of the events in this case, there were twelve

national securities exchanges on which listed options were

traded. Five were equal shareholders in OCC; seven were

nonshareholders, lacking any ownership interest. All of the

exchanges clear their trades in listed options through OCC. In

addition to the exchanges, OCC has “clearing members” that

clear and settle options trades for their customers through the

exchanges. See Order, 81 Fed. Reg. at 8294; OCC, Bylaws Art.

V (amended 2009).

OCC charges clearing members fees for the transactions

they make. For each upcoming year, OCC sets the fees to cover

the year’s projected expenses, plus a buffer. If, at the end of the

year, OCC has taken in more fees than needed to cover its

expenses and maintain its reserves, it refunds the excess fees to

the clearing members, allocated in proportion to what they had

paid. Until the developments at issue here, OCC refunded all

such excess fees. See Notice of Filing of a Proposed Rule

Change Concerning a Proposed Capital Plan, 80 Fed. Reg. 5171,

5175 (Jan. 30, 2015) (“Notice of Proposed Rule Change”).

This case concerns OCC’s attempt to boost its capital

reserves and, in order to do so, to alter how fees and refunds are

calculated. In 2014, OCC began evaluating its capital level and

eventually determined that it did not have enough to cover

“business, operational, and pension risks.” Order, 81 Fed. Reg.

at 8296. While these capital needs exclude counterparty and on-

balance-sheet risks, which are covered by billions of dollars in

other funds, they are still significant. OCC determined that on

top of its existing capital reserves of $25 million, it needed an

additional $222 million of capital immediately on hand, plus

another $117 million in backup “Replenishment Capital” that it

could call upon if necessary. See Notice of Proposed Rule

Change, 80 Fed. Reg. at 5172; Order, 81 Fed. Reg. at 8295-96.

4

To amass those reserves, OCC developed a Capital Plan.

Under the Plan, OCC’s five shareholder exchanges would make

immediate capital contributions to reach OCC’s current capital

target and also pledge to provide Replenishment Capital upon

request. The Plan compensates those contributions with

dividends paid out of OCC’s fees. In particular, after fees are

applied to OCC’s operating expenses, and then used to restore

capital reserves if they have dipped, the remaining unused fees

are split between dividends and refunds. Approximately half of

the unused fees go to shareholders as dividends; approximately

half are refunded to clearing members. In other words, whereas

clearing members previously received all of the excess fees as

refunds, the Plan diverts roughly half of those refunds to

dividends. See Notice of Proposed Rule Change, 80 Fed. Reg.

at 5173-75.

The Plan makes other changes to OCC’s fee practices as

well. The buffer used to calculate each year’s fees -- that is, the

amount by which that year’s projected expenses are inflated to

arrive at the amount to be charged as upfront fees -- decreases

under the Plan from 31% to 25%. And the Plan provides for a

permanent end to refunds (but not dividends) if Replenishment

Capital becomes necessary and is not repaid in 24 months or if

the target capital requirement is not restored within that period.

See id.

OCC’s Plan cannot go into effect unless approved by the

SEC because OCC is a “self-regulatory organization” under the

Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.

(“Exchange Act”). In early 2015, OCC brought its Plan to the

SEC, which published a Notice of Filing of a Proposed Rule

Change and solicited public comments. The SEC issued a final

Order approving the Plan in early 2016. See Order, 81 Fed. Reg.

at 8294-95.

5

Petitioners -- two nonshareholder exchanges (Miami

International Securities Exchange, LLC and BOX Options

Exchange LLC), a clearing member (KCG Americas LLC, a

subsidiary of Petitioner KCG Holdings), and a market

participant (Susquehanna International Group, LLP) -- sought

judicial review. They also moved to stay the SEC’s Order to

prevent the OCC’s Plan from going into effect, but a panel of

this court denied the stay. Susquehanna Int’l Grp., LLP v. SEC,

No. 16-1061 (D.C. Cir. Feb. 23, 2016) (order denying motion

for stay). As a consequence, OCC currently operates according

to the Plan.

II

We have jurisdiction to review the SEC’s Order pursuant to

15 U.S.C. § 78y(a)(3). We review the Order under the

Administrative Procedure Act (APA), which requires us to hold

unlawful agency action that is “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law” or that is

“unsupported by substantial evidence.” 5 U.S.C. § 706(2)(A),

(E); see 15 U.S.C. § 78y(a)(4); NetCoalition v. SEC, 615 F.3d

525, 532 (D.C. Cir. 2010). To satisfy the “arbitrary and

capricious” standard, “the agency must examine the relevant

data and articulate a satisfactory explanation for its action

including a ‘rational connection between the facts found and the

choice made.’” Motor Vehicle Mfrs. Ass’n v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck

Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)).

OCC is registered as a clearing agency with the SEC, and

is therefore classified as a “self-regulatory organization.” See 15

U.S.C. §§ 78c(a)(26), 78q-1(b). The SEC “shall approve” a self-

regulatory organization’s proposed rule change only “if it finds

that such proposed rule change is consistent with” provisions of

the Exchange Act. Id. § 78s(b)(2)(C)(i); see id.

6

§ 78s(b)(2)(C)(ii). In turn, a clearing agency’s rules are

consistent with the Act only if “the Commission determines

that” they meet certain specified requirements. Id. § 78q-

1(b)(3). Petitioners argue that the SEC erred in approving

OCC’s Plan because it does not meet several of those

requirements.

First, the Exchange Act requires that a clearing agency’s

rules “not impose any burden on competition not necessary or

appropriate in furtherance of the purposes of” the Act. Id.

§ 78q-1(b)(3)(I). Petitioners object that the Plan

overcompensates shareholder exchanges, which unjustifiably

burdens competition by nonshareholders. See Pet’rs’ Br. 24.1

Second, the Act requires that a clearing agency’s rules be

“designed . . . , in general, to protect investors and the public

interest.” Id. § 78q-1(b)(3)(F). Petitioners contend that the Plan

harms investors and the public by transforming OCC from a

public utility to a profit-seeking monopoly and by increasing the

fees charged to OCC’s customers. See Pet’rs’ Br. 33-40.

Third, the same subsection requires that rules not be

“designed to permit unfair discrimination . . . among participants

in the use of the clearing agency.” 15 U.S.C. § 78q-1(b)(3)(F).

Petitioners maintain that the Plan unfairly discriminates between

shareholder exchanges and nonshareholder exchanges by

denying nonshareholders the opportunity to contribute capital in

exchange for dividends. Petitioners argue further that the Plan

1

Petitioners make a similar argument under § 3(f) of the

Exchange Act, which requires the SEC to “consider . . . whether the

action will promote . . . competition.” 15 U.S.C. § 78c(f).

7

discriminates between shareholder exchanges and clearing

members by denying clearing members compensation for the

capital they contribute as fees. See Pet’rs’ Br. 41-43.2

Fourth, the Act requires that a self-regulatory organization

“comply with . . . its own rules.” 15 U.S.C. § 78s(g)(1). OCC’s

bylaws provide that nonshareholder exchanges “will be

promptly provided with information that [OCC’s] Executive

Chairman considers to be of competitive significance” and that

a “requesting [nonshareholder exchange] shall be afforded the

opportunity to make presentations” to OCC’s Board or to a

committee of the Board. OCC, Bylaws Art. VIIB,

Interpretations & Policies § 1.01, .02 (§ 1.01 amended 2014;

§ 1.02 adopted 2002). Petitioners object that OCC violated both

provisions by failing to notify nonshareholder exchanges while

OCC was developing the Plan. See Pet’rs’ Br. 43-48.

We do not reach any of those arguments, all of which

contend that the OCC’s Plan is inconsistent with the above-

described requirements of the Exchange Act. We do not reach

them because, as Petitioners also argue, the SEC’s Order

approving the Plan fails in a more basic respect: the

Commission did not itself “find[]” or “determin[e],” 15 U.S.C.

§§ 78q-1(b)(3), 78s(b)(2)(C)(i), that the Plan met any of those

requirements. Instead, the SEC effectively abdicated that

responsibility to OCC -- the proponent of the Plan and the entity

whose rule changes the SEC is statutorily obligated to approve

or disapprove, id. § 78s(b)(2)(C)(i), (ii). Moreover, the SEC’s

Order reflects little or no evidence of the basis for the OCC’s

2

To support these objections, Petitioners also invoke

§ 17A(b)(3)(D) of the Act, which requires that a clearing agency’s

rules “provide for the equitable allocation of reasonable dues, fees,

and other charges among its participants.” 15 U.S.C. § 78q-1

(b)(3)(D).

8

own determinations -- and few indications that the SEC even

knew what that evidence was.

We have rejected this kind of agency “decisionmaking”

before. In Gerber v. Norton, we held:

When a statute requires an agency to make a finding as

a prerequisite to action, it must do so. Merely

“[r]eferencing a requirement is not the same as

complying with that requirement.” . . . Nor may the

agency delegate its responsibility to the regulated

party. See State of Idaho v. ICC, 35 F.3d 585, 596

(D.C. Cir. 1994) (holding that the ICC failed to meet

its responsibilities under [the National Environmental

Policy Act] by “deferr[ing] not only to the judgments

of other agencies, but also to that of Union Pacific, the

licensee”).

294 F.3d 173, 185-86 (D.C. Cir. 2002) (quoting Sugar Cane

Growers Coop. v. Veneman, 289 F.3d. 89, 97 (D.C. Cir. 2002)).

To be sure, SEC appellate counsel acknowledges that the SEC

cannot “simply accept what [a self-regulatory organization] has

done,” but rather is “obligated to make an independent review.”

Oral Arg. Tr. 24. And the SEC’s Order states that the

Commission did make the necessary findings. See Order, 81

Fed. Reg. at 8300-04. But “‘[s]tating that a factor was

considered’ -- or found -- ‘is not a substitute for considering’ or

finding it.” Gerber, 294 F.3d at 185 (quoting Getty v. Fed.

Savings & Loan Ins. Corp., 805 F.2d 1050, 1055 (D.C. Cir.

1986)). As explained below, stating, not finding, is what the

Commission did here.

9

A

The Order’s shortcomings are apparent in its discussion of

whether the Plan pays dividends to shareholder exchanges at a

reasonable rate. That is a central issue: if the dividend rate

represents an unnecessary windfall for shareholders, as

Petitioners argue, then the Plan may run afoul of the Exchange

Act’s prohibitions by unnecessarily or inappropriately burdening

competition, harming the interests of investors and the public, or

unfairly discriminating against nonshareholders and clearing

members. See 15 U.S.C. § 78q-1(b)(3)(F), (I). The SEC found

that the Plan heeds those statutory prohibitions because the

dividends represent a reasonable return on the shareholders’

capital contribution. See Order, 81 Fed. Reg. at 8301-03

(declaring that the dividend level is “appropriate” as

“compensation” for the costs and risks incurred by the

shareholders).

Why did the SEC find the return reasonable? The Order

says only that the Plan is “designed to set the dividends . . . at a

level that [OCC’s] Board, with the assistance of independent

outside financial experts, has determined to be reasonable for the

cost and risks associated” with the shareholders’ obligations. Id.

at 8300.

That explanation raises more questions than it answers.

Who were those independent experts? How does the SEC know

they were independent? What analysis did they and OCC’s

Board perform? How did they measure the “level” of the

dividends? How did they measure the “cost and risks”? And

how did they determine that the dividend level was reasonable

for the associated cost and risks? The Order is silent on all

counts. Instead, the SEC candidly admits that it simply “rel[ied]

on the Board’s analysis” of “the rate of return the Stockholder

Exchanges were receiving for their capital investment.” SEC

10

Br. 30. That is, to decide whether the dividend level was

reasonable, the SEC took OCC’s word for it.

This is not the reasoned analysis that the Exchange Act and

the APA require. The Exchange Act permits the SEC to

approve OCC’s proposed rule change only “if it finds that” the

proposal is consistent with the requirements of the Act. 15

U.S.C. § 78s(b)(2)(C)(i), (ii). That is possible only if the SEC

“determines that” the rule complies with specified requirements,

15 U.S.C. § 78q-1(b)(3). Thus, to approve the Plan, the SEC

must make “find[ings]” and “determin[ations]” -- not merely

accept those made by OCC. See Gerber, 294 F.3d at 185.

Nor may the SEC reach a conclusion that is “unsupported

by substantial evidence” or “arbitrary [and] capricious.” 5

U.S.C. § 706(2)(A), (E); 15 U.S.C. § 78y(a)(4). That was the

flaw that led us to vacate an SEC order approving a self-

regulatory organization’s proposed rule change in NetCoalition,

615 F.3d at 537-44. There, we faulted the SEC for reaching a

conclusion despite a “lack of support in the record.” Id. at 541.

The SEC had tried to rely on statements by the self-regulatory

organization, but we saw “little” supporting value in the “self-

serving views of the regulated entit[y].” Id. Here, too, the

SEC’s unquestioning reliance on OCC’s defense of its own

actions is not enough to justify approving the Plan. Instead, the

SEC should have critically reviewed OCC’s analysis or

performed its own. See Bradford Nat’l Clearing Corp. v. SEC,

590 F.2d 1085, 1113-14 (D.C. Cir. 1978) (finding the SEC’s

reasoning inadequate when it approved registration of a clearing

agency by deferring to the clearing agency’s “business

judgment” on an issue governed by the Act).

On appeal, the SEC defends the Order’s approach to the

dividend rate in several ways. The SEC’s principal argument is

that it was reasonable for it to trust “the process” undertaken by

11

OCC. Oral Arg. Tr. 20, 29. Restating the words of the Order,

the SEC’s brief says that the process included “independent

analysis” by outside consultants. SEC Br. 31. But the SEC does

not appear to have identified the consultants or seen their

analysis, so it came as no surprise that the SEC disclaimed

reliance on that outside analysis at oral argument. Oral Arg. Tr.

18. Instead, the SEC ultimately relies on another aspect of

OCC’s decisionmaking process: what it describes as

“arm’s-length negotiations” between those OCC Board directors

who represented clearing members and those who represented

shareholders, which culminated in a “supermajority” Board vote

in favor of the plan. SEC Br. 31, 38 & n.16; see also Oral Arg.

Tr. 19-20.

“Trust the process” may be a reasonable slogan for the

hometown basketball team of lead petitioner Susquehanna

International Group.3 But the process alone cannot justify the

dividend rate in this case. For one thing, it is hardly accurate to

describe the negotiations between Board members as “arm’s

length.” OCC’s shareholders have effective veto power over

certain proposals, giving them outsize bargaining power

compared to clearing members represented on the Board. See

Letter from James E. Brown, Executive Vice President, OCC, to

Brent J. Fields, Secretary, SEC at 6 n.10 (Feb. 23, 2015) (J.A. 85

n.10). Indeed, only four of nine directors representing clearing

members voted in favor of the Plan, see id. at 7 n.12 (J.A. 86

n.12), making it less than clear that the process struck an

appropriate balance between the interests of shareholders and

clearing members. What is more, not all of the interested parties

3

See Trust The Process? 76ers Hope So, Have the No. 1 Pick

Again, USA TODAY, June 21, 2017 (describing the Philadelphia 76ers’

strategy that accepts losses in the short term to build a stronger team

in the long term, embodied by “the three words that have defined the

organization since the implosion started: Trust The Process”).

12

were even part of the negotiations among Board members. Only

a small fraction of clearing members are on the Board, and none

of the nonshareholder exchanges are. See Order Approving

Proposed Rule Change Concerning a Proposed Capital Plan, 80

Fed. Reg. 13058, 13060 n.8 (Mar. 12, 2015). So, as to any

agreement between OCC and shareholders regarding the

dividend rate, the shareholder exchanges were on both sides of

the transaction (because they were both OCC Board members

and recipients of the dividends), while nonshareholder

exchanges were on neither.

More fundamentally, the SEC cannot rely on OCC’s

process totally divorced from any examination of the substance

of the Plan, especially when the procedural features that the SEC

cites are little more than the general elements of OCC’s

governance structure. Indeed, were we to accept this

justification, that would mean the SEC could or should approve

nearly any plan OCC proposes -- hardly the result the Exchange

Act envisions. See, e.g., 15 U.S.C. § 78s(b)(2)(C)(i), (ii) (“The

Commission shall disapprove a proposed rule change of a

self-regulatory organization if it does not make a finding” that

“such proposed rule change is consistent with the requirements

of” the Act.).

The SEC also defends its approval of the Plan’s dividend

rate by arguing that the Plan’s structure guarantees reasonable

dividends. See Order, 81 Fed. Reg. at 8301 (“The Commission

believes that various components of the Capital Plan operate to

set reasonable dividends for the cost and risks associated with

the Stockholder Exchanges’ contributed and committed

capital.”); id. at 8303; Oral Arg. Tr. 21. In particular, the SEC

notes that the Plan sets fees based on a fixed percentage of

projected costs, and allocates unused fees between dividends

and refunds in a fixed proportion. Those inputs, the SEC argues,

13

ensure that the dividend rate will turn out to be reasonable. Oral

Arg. Tr. 21, 23.

That reasoning begs the question. The resulting dividend

rate will only be reasonable if the Plan’s structure (most

significantly, the portion of unused fees allocated to dividends)

is reasonable. But the Order does not analyze whether -- or

explain why -- it is reasonable to allocate roughly half of unused

fees to dividends, as opposed to using a different percentage or

a formula other than a fixed proportion of unused fees. In other

words, the SEC defends its unquestioning reliance on OCC’s

claim that the dividend rate is reasonable by its unquestioning

reliance on OCC’s claim that the Plan’s structure is reasonable.

That is no defense at all.

B

The SEC’s lack of reasoned decisionmaking in assessing the

dividend rate is enough to make its Order arbitrary and

capricious. But that is not the Order’s only flaw. A similar lack

of reasoned decisionmaking recurs throughout the Order,

including in the four additional instances that follow.4

First, the Order fails to support its conclusion that the Plan’s

capital target is reasonable. Commenters disputed whether the

Plan raises a reasonable amount of capital at a reasonable pace

(as OCC argues), or raises more capital more quickly than OCC

actually needs (as Petitioners argue). As with the dividend-rate

issue, the Order adopts OCC’s claims at face value. The Order

accepts that the target is “appropriately designed” simply

because “OCC represents that it used various measures and took

4

We do not mean to imply approval (or disapproval) of other

aspects of the Order that Petitioners challenge but that we do not

discuss.

14

a methodical and reasoned approach.” Order, 81 Fed. Reg. at

8301 (emphasis added); see also id. at 8300 (“The [OCC] Board

determined that the historical practice . . . did not allow OCC to

reach adequate capitalization.”(emphasis added)). The Order

then relies on that representation in finding the Plan consistent

with the Act. See id. at 8301 (concluding that the Plan’s capital

target is not excessive and hence does not burden competition

more than “necessary or appropriate,” 15 U.S.C. § 78q-1

(b)(3)(I)); id. at 8300-01 (concluding that the Plan’s capital

target is appropriately “designed . . . to protect investors and the

public interest,” § 78q-1(b)(3)(F)).5

In the Order, the SEC states that it “review[ed] the process

used by OCC to establish” the target. Order, 81 Fed. Reg. at

8301. But what was that process? OCC states that “[a]n outside

consultant conducted a ‘bottom-up’ analysis of OCC’s risks”

and, “[b]ased on internal operational risk scenarios and loss

modeling,” OCC quantified its operational and pension risk.

Notice of Proposed Rule Change, 80 Fed. Reg. at 5172-73. But

since there is no indication that the SEC knew who the

consultant was, what analysis he or she conducted, or what

additional analysis OCC performed, the Commission was in no

position to make a reasoned finding that OCC’s process was

sound -- let alone that the resulting capital target was reasonable.

In short, the SEC’s Order reflects the same lack of reasoned

decisionmaking when assessing the capital target as it displays

5

See also Order, 81 Fed. Reg. at 8304 & n.141 (rejecting

commenters’ suggestions to raise capital through other means, partly

on the ground that “OCC represents that, in considering alternatives,

OCC’s Board determined that the Capital Plan was financially

superior to accumulating capital through fees” (emphases added)); id.

at 8302-04 (faulting alternative proposals for failing to raise capital

quickly enough, as “forecasted by OCC”).

15

when assessing the dividend rate. “Trusting the process” is

simply not enough.

Second, the SEC was also too quick to accept OCC’s claims

that the Plan would not increase fees for customers. In

determining that the Plan is designed to protect investors and the

public interest, 15 U.S.C. § 78q-1(b)(3)(F), the SEC’s Order

relies on the proposition that the Plan will “allow[] generally

lower fees,” Order, 81 Fed. Reg. at 8301, or at least will not

make higher fees “inevitable,” id. To support that proposition,

the Order only addresses the Plan’s lowering of upfront fees --

that is, the amount OCC initially charges clearing members,

before refunding excess fees at the end of each year. It does not

take into account the Plan’s reduction of year-end refunds.

Taking both into account, Petitioners argue that the Plan harms

investors and the public by driving up net fees. Pet’rs’ Br. 37 &

n.20.

The only thing the Order says to justify ignoring net fees in

favor of focusing on upfront fees is that the Plan is “designed to

give market participants the benefit of lower upfront transaction

costs, especially those customer end users who do not receive

passed through refunds from the clearing member.” Order, 81

Fed. Reg. at 8302-03 (emphasis added). The underlying

assumption of this justification must be that there are so few

market participants who do receive passed-through refunds that

net fees are irrelevant. But the SEC’s Order does not provide

record support for that assumption. Instead, it cites, see id. at

8303 n.127, a portion of the Notice of Filing of a Proposed Rule

Change, prepared by OCC, stating that “OCC is aware that a

portion -- possibly a significant portion -- of those refunds are

not passed through by the clearing members to their end user

customers.” 80 Fed. Reg. at 5175. That is, the SEC Order’s

only basis for not taking passed-through refunds into account is

a statement by OCC, prepared to justify OCC’s own proposal,

16

that a “possibly” significant portion of refunds are not passed

through. That does not qualify as a “satisfactory explanation,”

State Farm, 463 U.S. at 43. See NetCoalition, 615 F.3d at 540-

41 (criticizing the SEC’s reliance on the “self-serving views of

the regulated entities” in that case).

Third, the Order fails to give any explanation at all for

rejecting one of Petitioners’ objections. Petitioners charged the

Plan with unfair discrimination for treating refunds to clearing

members differently from dividends to shareholders under the

following scenario: If Replenishment Capital becomes

necessary and is not repaid in 24 months (or if the target capital

requirement is not restored in the same period), refunds will end

permanently but dividends can resume. See Notice of Proposed

Rule Change, 80 Fed. Reg. at 5174-75 (explaining this feature);

Letter from James E. Brown, Executive Vice President, OCC, to

Brent J. Fields, Secretary, SEC at 4-5 (Feb. 24, 2015) (J.A. 105-

06) (discussing objections). The Order does not explain why

that criticism is unavailing. In fact, as the SEC concedes, the

Order misstates the Plan feature at issue, incorrectly explaining

at one point that both refunds and dividends will end

permanently if Replenishment Capital goes unpaid for 24

months. Order, 81 Fed. Reg. at 8297; Oral Arg. Tr. 13-14

(concession by SEC counsel that “that is mistaken”). Hence, not

only does the Order give no indication that the SEC analyzed

this Plan feature for compliance with the Act, but it instead

suggests that the SEC may have misunderstood the feature

entirely. That double deficiency demonstrates a lack of

reasoned decisionmaking.

Finally, the Order gives short shrift to Petitioners’ objection

that OCC, by failing to notify nonshareholder exchanges earlier

in its development of the Plan, violated its own bylaws.

Primarily at issue is OCC’s bylaw requirement that

nonshareholder exchanges “be promptly provided with

17

information that [OCC’s] Executive Chairman considers to be

of competitive significance.” OCC, Bylaws Art. VIIB,

Interpretations & Policies § 1.01 (amended 2014). Despite

recognizing that there was a dispute over whether the Plan was

competitively significant, the Order merely notes that “OCC

represented that it” had “completed all action required to be

taken under its . . . bylaws.” Order, 81 Fed. Reg. at 8305. On

remand, the SEC must resolve Petitioners’ argument that OCC

could not reasonably have considered the Plan to be

competitively insignificant. Or, if the SEC concludes that this

does not matter, it must give a reasoned explanation why.

III

Having concluded that the SEC’s Order is arbitrary and

capricious, unsupported by substantial evidence, and otherwise

not in accordance with law, we are left with the question of the

proper remedy. “An inadequately supported rule . . . need not

necessarily be vacated.” Allied-Signal, Inc. v. U.S. Nuclear

Regulatory Comm’n, 988 F.2d 146, 150 (D.C. Cir. 1993). “The

decision whether to vacate depends on ‘the seriousness of the

order’s deficiencies (and thus the extent of doubt whether the

agency chose correctly) and the disruptive consequences of an

interim change that may itself be changed.’” Id. at 150-51

(quoting Int’l Union, UMW v. Fed. Mine Safety & Health

Admin., 920 F.2d 960, 967 (D.C. Cir. 1990)).

Here, the SEC may be able to approve the Plan once again,

after conducting a proper analysis on remand. Moreover,

unwinding the Plan in the interim would be -- in Petitioners’

own words -- a “logistical nightmare.” Pet’rs’ Emergency Mot.

for Stay 9. Indeed, the parties may well awaken from that

nightmare just as the SEC decides to rewind the unwinding.

18

Thankfully, we can avoid that restless night. The SEC and

OCC assure us that it will be possible to unwind the Plan at a

later time, see SEC’s Opp’n to Pet’rs’ Emergency Mot. for Stay

2-3; Oral Arg. Tr. 12 (SEC); id. at 33-34 (OCC), and no party

contends that the task would be materially more difficult if done

then rather than now. Thus, with no immediate need to vacate

the Order, we will remand the case to give the SEC an

opportunity to properly evaluate the Plan. See Allied-Signal,

Inc., 988 F.2d at 151 (remanding rather than vacating “because

of the possibility that the Commission may be able to justify the

Rule, and the disruptive consequences of vacating”).

So ordered.