Appendix — Gordon v. New York Stock Exchange, Inc.
Supreme Court brief1975
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Supreme Court, U. .
ED
FIL
JAN 2 1975
aa TF
: MICHAEL RODAK, JR., CLERK |
Supreme Court of the Hutte State
October Term, 1974
No. 74-304
~ —
Ricuarp A. Gorpon, individually and as President of Lyvr-
PENDENT Investor Protective Leacve, an incorporated asso-
ciation, and in behalf of the membership thereof and in
behalf of all persons similarly circumstanced,
Petitioners,
against
New Yorx Srock Excnanog, Inc., American Srocx Ex-
CHANGE, Inc., and Merritt Lyncu, Pierce, Fenner & Sutra,
Inc. and Bacuz & Company, Inc., individually and as rep-
resentatives of g]] member firms of the New York Stock
Exchange and American Stock Exchange,
Respondents.
On Writ of Certiorari to the United States
Court of Appeals for the Second Circuit
—————-
Appendix
MAXIMILIAN BADER
1. WALTON BADER
Attorneys for Petitioners
40 Morrow Avenue
Scarsdale, N.Y.
Telephone 914-779-1344
FE AES EL ETT TE
Dick Bailey Printers ¢P.0. Box X, Staten island, N.Y. 16862 * Tel.: (212) 447-6396
_ TABLE OF CONTENTS
Page
ne TED ccniecin «ae one ba So cattieenen dict’ oeks A-1
COUIIEED | «0 0.0.00 wytydp 0% Samed 0.0008 anes donb cahets A-8
Answer of Detendant New York Stock Exchange and
Ee i MM og bc dav w ones ds 00009 Rein A-17
Answer ot Defendant Merrill, Lynch, Pierce, Fenn
and Smith Incorporated ..............0.000055 A.-23
Answer of Defendant American Stock Exchange, Inc. A-29
Detendants’ Motion for Summary Judgment ........ A-35
Defendants’ Rule 9(g) Statement in — of Motio1
tor Summary Judgment ..............0002 eee. A-37
Affidavit of H. Vernon Lee in Support of Defendants
Motion for Summary Judgment and Exhibit:
RE ES ee Ty ae ay Eee penne ee A-42
- Exhibit A—Coastitutional Provisions and Rules .... A-53
Exhibit B—C constitutional Provisions and Rules ....A-73
Exhibit C—Memorandum to Amex Members and
Member Organizations on April 19, 1968 ........ A-85
Exhibit D—Letter Dated April 24, 1968 ........... A-95
Exhibit E—Letter Dated May 28, 1968 ............ A-98
Exhibit F—Letter Dated June 26, 1968 ............A-102
ul
Exhibit G—Memorandum Dated September 20,
, See”! A-104
Exhibit H—Letter Dated March 26, 1970.......... A-119
Exhibit I—Letter Dated April 2, 1970............. A-158
Exhibit J—Letter Dated April 2, 1970 and Copy of
Rade FER... ccccccccccccccsseshaseueneneenee A-161
Exhibit K—Letter Dated April 10, 1970 ........... A-163
Exhibit L—Letter Dated June 29, 1970............ A-165
Exhibit M—Letter Dated July 16, 1970............ A-167
Exhibit N—Exchange Act Release No. 8924, dated
A PTT ee ee A-176
Exhibit O—Letter Dated July 16, 1970 ............ A-177
Exhibit P—Letter Dated March 17, 1971 ......... A-185S
Exhibit P—Letter Dated March 17, 1971 .......... A-198
Exhibit Q—Letter Dated March 26, 1971.......... A-206
Exhibit R—Letter Dated April 28, 1971 ........... A-210
Exhibit S—Letter Dated March 9, 1972 ........... A-213
Exhibit T—Letter Dated March 28, 1972........... A-214
Affidavit of Robert M. Bishop in Support of Defen-
dants’ Motion for Summary Judgment and Exhibits
POMBE occ cccccccccseseeuees eeeneneeee A-216
Exhibit 1—Copy of the Constitution and Rules
relating to Commissions Submitted in 1934....... A-229
Exhibit 2—Order Dated September 28, 1934....... A-238
Exhibit 3—SEC Release Announcing Study........ A-240
Exhibit 4—Letter Dated January 28, 1959 ......... A-241
Exhibit S—Release Dated February 20, 1959....... A-247
Exhibit 6—Letter Dated Dec. 22,1965 ............ A-249
Exhibit 7—Letter Dated January 2, 1968 .......... A-253
Exhibit 8&—Release No. 8239 ..............00005. A-257
Exhibit 9—Letter Dated May 28, 1969 ............ A-284
Exhibit 10—Release No. 8324 .............0.0005 A-286
Exhibit 11—Order Dated May 28, 1969 ........... A-288
Exhibits 12 and 13—Communications Between SEC
SC RGEUEGSGaGaatns eseepcedcaceccseds A-291
Exhibit 14—Special Membership Bulletin of 6/27/68 A-306
Exhibit 1S—Letter of August 8, 1968 ............. A-299
Exhibit 16—Letter of August 30, 1968 ... ........ A-310
Exhibit 17—Request for Interim Relief............ 'A-313
Exhibit 18—Letter Dated March 19, 1970 ......... A-327
Exhibit 19—Letter Dated April 2, 1970 ........... A-333
iv
Exhibit 20—SEC Release No. 8923 ............. A-336
Exhibit 2i—Release No. 9007 Dated October 22,
POTD oc ccccccevccccpadenmegaedecencescncees A-348
Exhibit 22—Letter Dated Oct. 22,1970 ......... A-350
Exhibit 23—Letter Dated Feb. 3, 1971 .......... A-353
Exhibit 24—Letter of March 9, 1971 ........... A-357
Exhibit 25—Statement of the Future Structure of the
Someta RGR 00 oc os sesse dvSeseecsesvs A-363
Exhibit 26—Letter Dated March 17, 1972 ....... A-405
Exhibit 27—Letter Dated March 23, 1972 ...... A-409
Affirmation of I. Walton Bader in Opposition
Defendants’ Motion for Summary Judgment... . A-415
Affidavit of Richard A. Gordon in Opposition
Defendants’ Motion for Summary Judgment... . A-419
Matis et Agpads 2c ccccccccccccscccsccccesece -A-434
PPPTETTTTETETI TTT A-436
A-|
DOCKET ENTRIES
RICHARD A. GORDON INDIVIDUALLY, ETC. VS.
N.Y. SFOCK EXCHANGE INC. ET-AL
1 or 2-71—Filed Complaint. Issued Summons.
4-30-71—Filed Stipulation and order extending all
defendants time to answer complaint to 6-14-71. So or-
dered. Motley, J.
6-21-71—Fiied stip and order that the time for defts’ to
answer complaint is ext. from 6-14-71 to 7-20-71 and the
time for plitff. to move, as to whether the action is to be
maintained as a class action and, if so, the membership of
the class, is ext. from 6-1-71 to 7-20-71. So ordered,
Gurfein, J.
7-7-71—Filed Affidavit of John E. Lawler in opposition
to plaintiff's motion for defendant judgment.
7-7-71—Filed Answers of Defendants Tokyo Shipping
Co. Ltd. and Gannet Freighting, Inc. to Plaintiff's In-
terrogatories.
7-20-71—Filed stipulation and order extending
defendants time to answer complaint to 9-20-71; further
stipulated that the plaintiff's time to move for a deter-
mination under Rule 23(c)(1) is extended to 9-20-71. So
ordered. Frankel, J.
8-24-71—Filed summons with marshal’s ret. SERVED:
Merrill, Lynch, Pierce, Fenner & Smith, Inc. on 4/12/71.
Bache & Co. Inc. by Melvyn J. Falis on 4/8/71. American
Stock Exchange by H. Vernon Lee, Jr. on 4/22/71. New
York Stock Exchange by Richard Drew on 4/12/71.
1-26-72—Filed Stip. & Order extending time to answer
to 3/20/72.
3-20-72—Filed Stip. & Order extending time to answer
to 5-22-72, etc. So Ordered Metzner J.
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3-24-72—Filed Defendant Merrill Lynch, Pierce, Fenner
& Smith Inc. Change of address.
5-23-72—filed stipulation and order extending defen-
dants time to answer complaint to 7-21-72; further
stipulated that the plaintiff's time to move for class action
determination is extended to 7-21-72. So ordered. Frankel,
J.
7-24-72—Filed Stipulation & Order that time for
defendants to answer re: complaint is extended to Sep-
tember 21, 1972. Brieant J.
8-22-72—Filed stipulation and order extending
defendants time to answer complaint to 9-28-72; further
stipulated that the time to move for a determination as to
class action is also extended to 9-28-72. So ordered.
Lasker, J.
9-28-72—Filed ANSWER of Merrill, Lynch, Pierce,
Fenner & Smith to complaint.
9-28-72—Filed ANSWER of New York Stock Exchange
Inc. to complaint.
10-2-72—Filed Notice of Motion for Class Action
Determination Ret. before Lasker, J. ROOM 2903 on 10-
20-72 at 10 AM.
10-2-72—Filed Memorandum in support of motion for
class action determination.
10-3-72—Filed ANSWER of American Stock Exchange
Inc. to complaint.
10-19-72—Filed Stip. & Order that return date for
motion re: class action determination is adj. from 10-20-72
to 11-17-72. The depositions of defendants are adj. without
a date subject to fixation of new times on five days’ notice.
So Ordered—Lasker J.
9-1-72—Filed stipulation and order that counsel of
defendant American Stock Exchange Messrs. Polk, &
Wardell be replaced by Lord, Day & Lord. So O. »red
Lasker J.
A-3
11-16-72—Filed stipulation and order adjourning
plaintiff's motion for class action determination now ret.
11-17-72 to 12-15-72. ete. So ordered. Lasker, J.
11-30-72—Filed stipulation and order adjourning
plaintiff's motion for a determination of class action to 12-
29-72, etc. So ordered. Lasker, J.
12-4-72—Filed Defendants’ Affidavits in opposition to
plaintiffs motion for class action determination.
12-4-72—Filed Affidavit of Isaac Shapiro in opposition
to plaintiff's motion.
A-4
TO: CLERK OF UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
CONTINUATION OF DOCKET ENTRIES
12-4-72—Filed Memorandum in opposition to plaintiff's
motion for class action determination.
12-7-72—Filed Notice of Motion ret. 12-29-72 at 10 AM
re: dismiss. summary judgment.
12-7-72—Filed Affidavit in support of defendants’
motion to dismiss and for summary judgment. (by at-
torneys for New York Stock Exchange).
12-7-72—Filed Memorandum in support of motion for
summary judgment.
12-7-72—Filed Affidavit in support of defendants’
motion (Robert M. Bishop) to dismiss and for summary
judgment. (for N.Y. Stock Exchange, Inc. and Bache &
Co. Inc.) with one red portfolio of Exhibits.
12-7-72—Filed Affidavit of John P. Foynes in support of
defendants’ motion for summary judgment.
1-2-73—Filed Memorandum in opposition to defen-
dants’ motion to dismiss and for summary judgment.
5-10-73—Filed Affidavit of Richard A. Gordon in op-
position to motion to dismiss and for summary judgment.
6-8-73—Filed stip. and order that the plaintiff may serve
reply papers with respect to his pending motion for a class
action before 6-4-73, so Ordered Lasker, J.
Filed stip. and order that plaintiff's time to serve reply
papers with respect to motion for a class action deter-
mination is extended to 7-5-73. So Ordered Lasker J.
12-4-73—Filed memorandum OPINION No. 40,086—
Defendants’ motion for summary judgment is granted. In
view of our decision here, we do not consider plaintiff's
motion for a class action determination. It is so ordered—
A-5
Lasker, J.—mailed notice.
12-6-73—Filed plaintiffs’ notice of appeal, $5.00 from
Order dated Dec. 4-73, granting summary judgment to the
defendants. Mailed copies.
A TRUE COPY
RAYMOND F. BURGHARDT, Clerk
A+
DOCKET ENTRIES
12/12/73—Filed copies of docket entries and notice of
appeal.
1/10/74—Received docket fee.
1/10/74—Filed record (original papers of the District
Court).
2/14/74—Filed order extending time to file appellants
brief and appendix to 3-29-74 (on consent).
3/7/74—Filed supplemental record (original papers of
District Court).
3/28/74—Filed appendix, p/s.
3/28/74Filed brief, appellant, p/s.
4/9/74—Filed brief, Amicus Curiae, p/s (by mail)
(U.S.A.).
4/29/74—Filed brief, appellee, p/s.
4/29/74—Filed order extending time to file amicus
curiae brief (S.E.C.) to 5-24-74 (on consent).
4/30/74—Filed certificate of service on change in brief,
appellee.
5/10/74—Filed motion for leave to participate in oral
argument, p/s (U.S.A.)
5/10/74—Filed reply brief, appellant, p/s.
5/14/74—Filed order granting motion for leave to
participate in oral argument of the appeal. Amicus will
have ten (10) minutes for argument (U.S.A.)
5/17/74—Filed motion for leave to participate in oral
argument, p/s (S.E.C.)
5/21/74—Filed order granting leave to participate in
argument (10) minutes, (S.E.C.).
5/28/74—Filed brief, p/s (S.E.C.) (by mail).
6/S/74—Argument heard by: (Kaufman, Mansfield,
Mulligan).
6/28/74—Judgment affirmed, Kaufman, CCJ.
A-7
6/28/74—Filed judgment.
7/9/74—Filed itemized and verified bill of costs, ap-
pellees, p/s .
7/10/74—Filed affirmation in opposition to proposed
bill of costs w/ pfs.
7/11/74—Filed affidavit in response to affidavit in
oppesition to bill of costs w/pfs.
9/18/74—Filed statement of costs.
9/18/74—IssueG nyandate (opinion and judgment and
statement of costy).
9/30/74—Filed notice of filing petition for writ of
certiorari (SC# 74-304).
11/26/74—Filed certified copy of order of Supreme
Court granting petition for writ of certiorari (SC# 74-304).
12/17/74—Original and supplemental record returned
to district court.
A-8
COMPLAINT
(SAME TITLE)
CLASS ACTION
PLAINTIFF ALLEGES:
FIRST: At all times hereinafter mentioned plaintiff was,
and still is, a citizen and resident of the STATE OF NEW
YORK, doing business at 19 West 24th Street, New York,
N.Y.
SECOND: Plaintiff is a purchaser of stocks through
member firms of the New York Stock Exchange and
American Stock Exchange.
THIRD: Plaintiff is President of the INDEPENDENT
INVESTORS PROTECTIVE LEAGUE, an unin-
corporated association, having its’ office and place of
business at 19 West 24th Street, New York, N.Y. The said
INDEPENDENT INVESTORS PROTECTIVE LEAGUE
is composed of members who also are purchasers of ©‘ocks
through member firms of the New York Stock Exchange
and American Stock Exchange.
FOURTH: Plaintiff, and the members of the IN-
DEPENDENT INVESTORS PROTECTIVE LEAGUE
are “small Investors” purchasing stocks in amounts less
than Five Hundred Thousand ($500,000) Dollars for each
purchase.
FIFTH: This action is a Class Suit in behalf of plaintiff,
individually, in behalf of the members of the IN-
DEPENDENT INVESTORS PROTECTIVE LEAGUE
and in behalf of the remaining members of the Class of
‘small investors’’ who purchase stocks listed on the New
York Stock Exchange and American Stock Exchange in
amounts less than Five Hundred Thousand ($500,000)
Dollars for each purchase. It is believed that the members
of this class amount to at least One Million (1,000,000)
A-9
persons and the amount of commissions paid by these
persons to member firms of the New York Stock Exchange
or American Stock Exchange during the past six years
amounted to at least Five Hundred Million ($500,000,000)
Dollars.
SIXTH: The defendants NEW YORK STOCK EX-
CHANGE, INC., AMERICAN STOCK EXCHANGE,
INC., MERRILL, LYNCH, PIERCE, FENNER &
SMITH, INC. and BACHE & COMPANY, INC., are, on
information and belief, corporations duly organized and
existing under the laws of the State of New York, having
offices and places of business within the territorial
jurisdiction of the Southern District of New York.
SEVENTH: The defendants NEW YORK STOCK
EXCHANGE, INC. and AMERICAN STOCK EX-
CHANGE, INC. represent the principal markets for equity
securities in the United States. These organizations are, in
effect, “‘public utilities’ purportedly providing honest
auction market for the purchase and sale of stocks of
American Business Corporations. The prices at which these
securities are sold are purportedly arrived at by fair
bargaining between buyers and sellers of these stocks.
EIGHTH: All trading performed on the NEW YORK
STOCK EXCHANGE and AMERICAN STOCK EX-
CHANGE is done through the agency of ‘“‘*members”’ of the
said exchanges. The number of these ‘“‘members” is ar-
bitrarily limited by the said NEW YORK STOCK EX-
CHANGE and AMERICAN STOCK EXCHANGE and
any person, firm, corporation or association who desires
trading privileges upon the said Exchanges must purchase
a “‘seat’’ from an existing member at a price arrived at
between the seller and purchaser.
NINTH: The said NEW YORK STOCK EXCHANGE
and AMERICAN STOCK EXCHANGE are purportedly
subject to regulation by the SECURITIES AND EX-
CHANGE COMMISSION. This regulation, however, does
A-10
not affect Commission Charges or operations of the said
Exchanges.
TENTH: In a recent Court Decision it has been held that
the said NEW YORK STOCK EXCHANGE and
AMERICAN STOCK EXCHANGE are subject to the
Anti-Trust Laws of the United States.
ELEVENTH: This Court acquires jurisdiction of this
suit by reason of the Constitution and Laws of the United
States, in particular the Securities Act and the Anti-Trust
Laws. The specific Anti-Trust Laws applicable to this case
are 15 USC 1 and 15 USC 2 (The Sherman Act) and 15
USC 13 (The Robinson Patman Act) and plaintiff is a
“person injured"’ as provided in 15 USC 15.
TWELFTH: The defendants MERRILL, LYNCH,
PIERCE, FENNER AND SMITH, INC. and BACHE
AND COMPANY, INC. are “members” of the NEW
YORK STOCK EXCHANGE and AMERICAN STOCK
EXCHANGE. These defendants are being sued herein
individually and as representatives of all ““members”’ of the
aforesaid Exchanges.
THIRTEENTH: About 1968 the defendants BACHE
AND COMPANY, INC. and MERRILL, LYNCH,
PIERCE, FENNER AND SMITH, INC. as well as all of
the other “‘members’’ of the aforesaid Exchanges, in-
stituted a “‘surcharge’’ for small investors purchasing less
than One Thousand (1,000) shares of stock in any one
trade. The aforesaid ‘‘members” by this device received, on
information and belief, at least One Hundred Million
($100,000,000) Dollars in additional income by reason of
these increased commission rates.
FOURTEENTH: In truth and in fact it is no more
expensive to conduct a so-called “small trade”’ than a large
trade. By the use of modern computer data-processing
techniques a “small trade’’ can be performed quickly and
expeditiously and with minimum cost. The real additional
A-11
expense to the “member firms” of the so-called “small
trade’ is the expense of the so-called ‘Registered
Representatives’ of these “member firms” (in reality
“Commission Salesmen" who expend considerable time in
soliciting these accounts.
FIFTEENTH: In truth and in fact it is more expensive to
consummate a “large trade’’. Such trade requires extensive
negotiations and time.
SIXTEENTH: As a result of the above the aforesaid
“surcharge” imposed by “member firms’’ upon “small
investors’’ and the increased commissions charged by said
‘*member firms” to said “‘small investors” are illegal and in
violation of 15 USC 13 (The Robinson Patman Act). In
addition the discounts given for “large trades’’ are likewise
illegal and in violation of 15 USC 13. In addition these
discounts constitute ‘‘unreasonably low prices” in violation
of 15 USC 13a.
SEVENTEENTH: The defendants NEW YORK
STOCK EXCHANGE and AMERICAN STOCK EX-
CHANGE likewise forbid these of their facilities to any
“non-member”. In addition their rules and regulations
prevent a division of commissions between “‘members”’ and
“non-members”. As a result organizations such as the
plaintiff INDEPENDENT INVESTORS PROTECTIVE
LEAGUE cannot offer trading facilities to their members.
By means of the computerized trading methods developed
by the plaintiff and the fact that the plaintiff IN-
DEPENDENT INVESTORS PROTECTIVE LEAGUE
need not utilize “Registered Representatives” as Com-
mission Salesmen, the said League would be in a position
to offer its’ members substantial commission savings on
stock trades. However, because of the present attitude on
the part of the defendants NEW YORK STOCK EX-
CHANGE, INC. and AMERICAN STOCK EXCHANGE,
INC., it is not able to do so. Such conduct on the part of the
said defendants constitutes a violation of 15 USC 1 and 15
A-12
USC 2 (The Sherman Act), since the said Acts constitute a
combination and conspiracy in restraint of trade and an
attempt to create a monopoly in stock trading.
EIGHTEENTH: The said defendants NEW YORK
STOCK EXCHANGE, INC. and AMERICAN STOCK
EXCHANGE, INC. together with the “members” thereof,
of which the defendants MERRILL, LYNCH, PIERCE,
FENNER & SMITH and BACHE AND COMPANY are
representatives, intend, on April Sth, 1971, to further
deteriorate the position of the ‘small investor” by per-
mitting negotiated commission rates on all trades over Five
Hundred Thousand ($500,000) Dollars while keeping the
extra commission rates in effect for “‘small investors’’.
NINETEENTH: The aforesaid negotiated commission
rates are illegal for the following reasons:
(a). The opportunity of negotiating commission rates, if
granted to any customer, must be granted to call customers
under the provisions of 15 USC 13. Therefore, if negotiated
commission rates are to be allowed for large trades they
must also be allowed for small trades.
(b). The negotiated commission rates would not reflect
“due allowance” for any cost savings.
(c). The negotiated commission rates would, in effect,
restrict trading to large traders such as institutions, mutual
funds, and the like. This would have the effect of “freezing
out’’ the small investor from the market and would force
the investor to invest through mutual funds and the like.
This would, in effect, give mutual funds (in reality profit-
making organizations) preferred access to the securities
markets in the United States in violation of the Anti-Trust
Laws.
(d). The negotiated commission rates would further
cause the securities markets to become “stores” offering
fixed negotiated prices for the sale of securities rather than
the present ‘auction market”. The possibilities of
A-13
manipulation and fraud that could be had in such case are
endless.
NINETEENTH: SPECIAL JURISDICTIONAL
ALLEGATIONS REQUIRED FOR CLASS ACTION
LITIGATION
(a)
1. This Court acquires jurisdiction of this Cause of
Action by virtue of the Securities Act of the United States
and the Anti-Trust Laws of the United States.
2. The number of members of the classes involved in this
action is as follows:
a. There are about One Hundred (100) member firms of
the New York Stock Exchange and about One Hundred
member firms of the American Stock Exchange.
b. There are about Fifty Million (50,000,000) small
investors in the United States affected by this litigation.
3. There are common questions of law and fact involved
in this litigation relating to the legality of the “surcharges
imposed by the defendants NEW YORK STOCK EX-
CHANGE AND AMERICAN STOCK EXCHANGE and
the legality of the “negotiated commission” rates for large
trades to be instituted by the defendant Exchanges. There
are also questions of law and fact in common with respect
to the legality of the defendant Exchanges permitting
trading utilizing their facilities only through “members :
These questions predominate and are decisive over any
questions involving only individual members of the Classes
involved.
4. The plaintiff INDEPENDENT INVESTORS
PROTECTIVE LEAGUE is the proper party to represent
the Class on behalf of the “small investors” since it is the
only organization specifically designed to protect small
investors. The organization has, at present, less than One
A-14
Hundred (100) members but it is expected that it will have
over One Million (1,000,000) members before this
litigation is terminated. All present members of the IN-
DEPENDENT INVESTORS PROTECTIVE LEAGUE
have authorized this litigation and agree to have their
names listed as parties thereto if necessary.
S. It is adequate to serve only the defendants MERRILL
LYNCH PIERCE FENNER & SMITH and BACHE &
COMPANY because these defendants are the two leading
member firms of the defendant Exchanges who intend to
impose negotiated commission rates and who have charged
small investors surcharges. These parties are adequate to
represent the Class of said member firms.
6. It is impracticable to join all members of the Classes
involved herein since there are Fifty Million (50,000,000)
small investors in the United States and it further would be
impractical to join One Hundred (100) member firms of the
defendant exchanges.
7. The claims and/or defenses of the representative
parties involved herein are typical of the claims and
defenses of the class.
8. A class action is the only proper way to determine the
present controversy.
9. The plaintiffs have met the requirements of Rules 23
(a) and 23 (b) and Rule 23.2 of the Federal Rules of Civil
Procedure.
9. The plaintiffs agree to permit any member of the
Classes involved herein to intervene in this action or will
permit any member of the class of ‘‘small investors” to join
in this action and contribute to the expenses thereof.
10. It is expected that the Court will make appropriate
orders in this case to protect the interests of the Classes
involved.
TWENTIET H: By reason of the illegal practices set
forth in this Complaint that plaintiff and others similarly
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situated, have been seriously damaged for the following
reasons as well as others, and, if the illegai practices are not
terminated, will suffer further and irreparable damage in
the future:
a. The plaintiffs have overpaid commissions in their
purchases by reason of the imposition by the “member
tirms’’ of an illegal surcharge.
b. The plaintiffs will no longer have equal access to the
securities markets in the same terms and conditions as
mutual funds institutional investors.
c. The plaintiffs will be required to pay commissions to
mutual fund managers and the like to have equal access to
the securities markets and will lose discretionary control
over their securities investments.
d. The plaintiffs will be deprived of a true auction
market with respect to the purchase and sale of securities.
e. The plaintiffs will not have access to the securities
markets on the same basis as “*member firms”’ and will not
be aie to offer their members low cost securities purchase
and sale service.
TWENTY-FIRST: With respect of many of the practices
set forth herein plaintiff has no adequate remedy at law.
With respect to the damage claims set forth therein
plaintiff deraands a Trial by Jury of all Issues triable before
a jury.
TWENTY-SECOND: WHEREFORE, PLAINTIFFS
DEMAND:
a. A perpetual injunction restraining the defendants,
and all “members” of the defendant Exchanges, from
putting the so-called ‘‘negotiated Commission Rates’ in
effect on April Sth, 1971.
b. A preliminary injunction restraining the defendants
and all members of the defendant Exchanges, pending the
trial of this action, from putting the so-called ‘‘negotiated
commission rates” into effect on April Sth, 1971.
A-16
c. A mandatory injunction requiring the defendants
NEW YORK STOCK EXCHANGE, INC. and
AMERICAN STOCK EXCHANGE, INC. to permit the
plaintiff INDEPENDENT INVESTORS PROTECTIVE
LEAGUE, to conduct trading activities on the defendant
Exchanges without having to purchase “seats” thereupon.
d. Damages in the sum of Five Hundred Million Dollars
($500,000,000) trebled to One Billion Five Hundred
Million Dollars ($1,500,000,000) together with an at-
torney’s fee of Ten Million Dollars ($10,000,000) together
with interest and the costs and disbursements of this ac-
tion.
e. As alternative relief, if the Court should decide that
the defendants are entitled to permit negotiated com-
mission rates that such negotiated rates be open to all
investors and not merely to large investors.
f. A perpetual injunction restraining the defendants, and
all ‘member firms’ from continuing their discrimination
in commission rates between large investors and small
investors.
Yours, etc.
BADER AND BADER
By:
I. Walton Bader
Attorneys for Plaintiff
274 Madison Avenue
New York, N.Y. 10016
Tel. (212) LE2-6860
A-17
ANSWER
(SAME TITLE)
Defendants NEW YORK STOCK EXCHANGE, INC.
(the “Exchange”’) and BACHE & COMPANY, INC.
("Bache") by their attorneys, Milbank, Tweed, Hadley &
McCloy. for their answer to the complaint:
1. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in
paragraphs FIRST through FOURTH.
2. Deny each ard every allegation contained in
paragraph FIFTH except deny knowledge or information
sufficient to form a belief as to those allegations stated to
be based upon plaintiff's belief.
3. Admit the allegations contained in paragraph
SEVENTH except deny that the Exchange and the
AMERICAN STOCK EXCHANGE (the ‘“‘Amex’’) are, in
effect, “public utilities’.
4. Deny each and every allegation contained in
paragraph EIGHTH except admit that all trading of
securities listed on the Exchange or the Amex is performed
by respective members of those exchanges, that the number
of said members is limited by the number of available
memberships and that membership is acquired by pur-
chase in a competitive auction market.
5S. Deny each and every allegation contained in
paragraph NINTH and admit that the Exchange and the
Amex are subject to regulation by the Securities and
Exchange Commission (the “SEC’’).
6. Declare that they are not required to plead to the
allegations of law pleaded in paragraph TENTH.
7. Deny each and every allegation contained in
paragraph ELEVENTH.
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8. Deny each and every allegation contained in
paragraph TWELFTH except admit that defendants
MERRILL, LYNCH, PIERCE, FENNER & SMITH, INC.
(“*Merrill, Lynch’’) and Bache are member organizations of
the Exchange and the Amex and are purportedly sued
individually and as representatives of an alleged class of
“*members” of the defendant exchanges.
9. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in
paragraphs THIRTEENTH except admit that in or about
December, 1968 the defendant exchanges, with the ap-
proval of the SEC, adopted rules providing for a volume
discount for transactions involving more than one thousand
(1,000) shares and that in or about April, 1970, the
defendant exchanges, again with the approval of the SEC,
adopted rules providing for an interim service charge to be
imposed upon transactions of one thousand (1,000) shares
of stock or less and that in or about March, 1972, the
interim service charge was discontinued and a new com-
mission rate schedule adopted, with the approval of the
SEC and the Price Commission, incorporating a value-
related volume discount.
10. Deny each and every allegation contained in
paragraphs FOURTEENTH through SIXTEENTH.
11. Deny each and every allegation contained in
paragraph SEVENTEENTH except admit that only
members of the defendant exchanges may use the facilities
of their respective exchanges.
i2. Deny each and every allegation contained in
paragraph EIGHTEENTH except admit that in or about
April, 1971, the defendant exchanges, pursuant to a
directive issued by the SEC after a series of public hearings,
adopted rules permitting the negotiation of commission
rates on that portion of transactions in securities listed on
the defendant exchanges in excess of Five Hundred
Thousand Dollars ($500,000) and that in April, 1972 said
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rules were amended. pursuant to a request of the SEC, to
permit negotiation of commission rates on that portion of
transactions in listed securities in excess of Three Hundred
Thousand Dollars ($300,000).
i3. Deny each and every allegation contained in
paragraph NINETEENTH.
14. Deny each and every allegation contained in
paragraph NINETEENTH (a) except deny knowledge or
information sufficient to form a belief as to the allegations
respecting the membership of the Independent Investors
Protective League or the authorization to institute suit
purportedly granted by the members of said. organization
contained in paragraph 19(a)(4) and declare that defen-
dants need not plead in response to the allegations con-
tained in paragraph 19(a)(9) through 19(a)(10).
1S. Deny each and every allegation contained in
paragraphs TWENTIETH and TWENTY-FIRST.
FIRST DEFENSE
16. The complaint fails to state the claim upon which
relief can be granted and this Court lacks subject matter
jurisdiction over the controversy alleged.
SECOND DEFENSE
17. Pursuant to its self-regulatory duties under the
Securities Exchange Act of 1934 (1S U.S.C. §78a et seq.)
the Exchange has adopted rules limiting membership and
fixing minimum rates of commission and other charges,
including the specific volume discount effective from
December, 1968 to March, 1972, the interim service charge
(““surcharge’’) effective from April, 1970 to March, 1972
and rules relating to negotiated commissions with respect
to transactions in securities listed on the Exchange. All of
the said rules are subject to review and revision by the SEC
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_ under Section 19(b) of the Exchange Act and such review
jurisdiction is continuing to be exercised. By reason thereof
neither the adoption of, nor the adherence to, said rules
may be the subject of an antitrust claim because exclusive
jurisdiction of the subject matter is vested in the SEC.
THIRD DEFENSE
18. The imposing of limitations on membership and the
fixing of minimum rates of commission and charges, in-
cluding the specific volume discount effective December,
1968 to March, 1972, and the surcharge effective from
April, 1970 to March, 1972 and rules relating to negotiated
commissions, by the Exchange are within the scope and
carry out the purposes of the Securities Exchange Act of
1934 (1S U.S.C. §§78a et seq.) and are therefore exempt
from the operation of the antitrust laws.
FOURTH DEFENSE
19. The fixing of minimum rates of commission and
charges, imposing limitations on membership and
establishing the specific volume discount effective
December, 1968 to March, i972, and the rules relating to
negotiated commissions by the Exchange were, and are,
reasonable and justified and therefore not in contravention
of the antitrust laws.
FIFTH DEFENSE
20. Since the Securities Exchange Act of 1934 (U.S.C.
§§78a et seg.) provides for review and revision by the SEC
of the Exchange’s rules relating to membership, minimum
rates of commission and other charges, primary
jurisdiction of the subject matter of this action is vested in
the SEC.
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SIXTH DEFENSE
21. Plaintiff lacks standing to assert a claim under the
antitrust laws either as President of the Independent In-
vestors Protective League or on behalf of its members or on
behalf of an alleged class of small investors and further
lacks standing to sue individually because he has not been
directly injured in his business or property by reason of
anything forbidden in the antitrust laws.
SEVENTH DEFENSE
22. Any claim for damages which accrued more than
four years prior to the commencement of this action is
barred by the applicable statute of limitations (15 U.S:C.
§$15Sb).
EIGHTH DEFENSE
23. By reason of the plaintiff's tardy assertion of the
illegality of the Exchange rules and regulations with respect
to the volume discount effective from December, 1968 to
March, 1972 and the interim service charge instituted in
April, 1970 and discontinued in March, 1972 and the
payment to the defendant member organizations of
commissions and other charges, including the surcharge in
accordance with the schedules established by the Exchange
and defendants’ reliance upon the apparent acquiescence
of the plaintiff and the purported class, plaintiff and the
alleged class are guilty of laches and are estopped from
asserting any claim against these defendants.
NINTH DEFENSE
24. All the rules challenged herein were promulgated
and adopted by the Exchange and adhered to by the
member organizations pursuant to an order, request or the
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_ approval of the SEC and consequently the Exchange and
the member organizations thereof should not be held liable
for any violation of law occasioned therefor by reason of the
good faith reliance by the defendants upon the authority
and jurisdiction of the SEC.
WHEREFORE, defendants the Exchange and Bache,
demand judgment dismissing the complaint with costs and
disbursements.
Dated: New York, New York
September 18, 1972
MILBANK, TWEED, HADLEY
&McCLOY
P By s/
(a member of the firm)
1 Chase Manhattan Plaza
New York, N.Y. 1000S
Attorneys for defendants
New York Stock Exchange, Inc.
and Bache & Company, Inc.
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ANSWER OF DEFENDANT MERRILL,
LUNCH, PIERCE, FENNER & SMITH INC.
(SAME TITLE)
Defendant Merrill Lynch, Pierce, Fenner & Smith
Incorporated (‘Merrill Lynch’’) by its attorneys, Brown,
Wood, Fuller, Caldwell & Ivey, for its answer to the
complaint:
1. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations contained in
paragraphs FIRST through FOURTH.
2. Denies each and every allegation contained in
paragraph FIFTH except denies knowledge or information
sufficient to form a belief as to those allegations stated to
be based upon plaintiff's belief.
3. Admits the allegations in paragraph SIXTH of the
complaint, except avers that Merrill Lynch is 9 Sgro
under the laws of the State of Delaware.
4. Admits the allegations contained in paragraph
SEVENTH except denies that the New York Stock Ex-
change, Inc. (the ‘““Exchange’’) and the American Stock
Exchange (the ““Amex’’) are, in effect, “public utilities’.
5. Denies each and every allegation contained in
paragraph EIGHTH except admits that all trading of
securities listed on the Exchange or the Amex is performed
by respective members of those exchanges, that the number
of said members is limited by the number of available
memberships and that membership is acquired by pur-
chase in a competitive auction market.
6. Denies each and every allegation contained in
paragraph NINTH except admits that the Exchange and
the Amex are subject to regulation by the Securities and
Exchange Commission (the “SEC’’).
7. Declares-that it is not required to piead to the
A-24
allegations of law pleaded in paragraph TENTH.
8. Denies each and every allegation contained in
paragraph ELEVENTH.
9. Denies each and every allegation contained in
naragraph TWELFTH except admits that Merrill Lynch is
a member organization of the Exchange and the Amex and
is purportedly sued individually and as representative of an
alleged class of ‘“‘members” of the defendant exchanges.
10. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations contained in
paragraph THIRTEENTH except admits that in or about
December, 1968 the defendant exchanges, with the ap-
proval of the SEC. adopted rules providing for a volume
discount for transactions involving more than one thousand
(1,000) shares and that in or about April, 1970, the
defendant exchanges, again with the approval of the SEC,
adopted rules providing for an interim service charge to be
imposed upon transactions of one thousand (1,000) shares
of stock or less and that in or about March, 1972, the
interim service charge was discontinued and a new com-
mission rate schedule adopted, with the approval of the
SEC and the Price Commission, incorporating a value-
related volume discount.
11. Denies each and every allegation contained in
paragraphs FOURTEENTH through SIXTEENTH.
12. Denies each and every allegation contained in
paragraph SEVENTEENTH except admits that only
members of the defendant exchanges may use the facilities
of their respective exchanges.
13. Denies each and every allegation contained in
paragraph EIGHTEENTH except admits that in or about
April, 1971, the defendant exchanges, pursuant to a
directive issued by the SEC after a series of public hearings,
adopted rules permitting the negotiation of commission
rates on that portion of transactions in securities listed on
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the defendant exchanges in excess of Five Hundred
Thousand Dollars ($500,000) and that in April, 1972 said
rules were amended, pursuant to a request of the SEC, to
permit negotiation of commission rates on that portion of
transactions in listed securities in excess of Three Hundred
Thousand Dollars ($300,000).
14. Denies each and every allegation contained in
paragraph NINETEENTH.
1S. Denies each and every allegation contained in
paragraph NINETEENTH (a) except denies knowledge or
information sufficient to form a belief as to the allegations
respecting the membership of the Independent Investors
Protective League or the authorization to institute suit
purportedly granted by the members of said organization
contained in paragraph 19(a)(4) and declares that
defendants need not plead in response to the allegations
contained in paragraph 19(a)(9) through 19(a)(10).
16. Denies each and every allegation contained in
paragraphs TWENTIETH and TWENTY-FIRST.
FIRST DEFENSE
17. The complaint fails to state a claim upon which relief
can be granted and this Court lacks subject matter
jurisdiction over the controversy alleged.
SECOND DEFENSE
18. Pursuant to its self-regulatory duties under the
Securities Exchange Act of 1934 (15 U.S.C. §78a et seq.)
the Exchange has adopted rules limiting membership and
fixing minimum rates of commission and other charges,
including the specific volume discount effective from
December, 1968 to March, 1972, the interim service charge
(““surcharge’’) effective from April, 1970 to March, 1972
and rules relating to negotiated commissions with respect
A-26
to transactions in securities listed on the Exchange. All of
the said rules are subject to review and revision by the SEC
under Section 19(b) of the Exchange Act and such review
jurisdiction is continuing to be exercised. By reason thereof
neither the adoption of, nor the adherence to, said rules
may be the subject of an antitrust claim because exclusive
jurisdiction of the subject matter is vested inthe SEC. .
THIRD DEFENSE
19. The imposing of limitations on membership and the
fixing of minimum rates of commission and charges, in-
cluding the specific volume discovat effective December,
1968 to March, 1972, and the surcharge effective from
April, 1970 to March, 1972 and rules relating to negotiated
commissions, by the Exchange are within the scope and
carry out the purposes of the Securities Exchange Act of
1934 (15 U.S.C. §78a et seq.) and are therefore exempt
from the operation of the antitrust laws.
FOURTH DEFENSE
20. The fixing of minimum rates of commission and
charges, imposing limitations on membership and
establishing the specific volume discount effective
December, 1968 to March, 1972, and the rules relating to
negotiated commissions by.the Exchange were, and are,
reasonable and justified and therefore not in contravention
of the antitrust laws.
FIFTH DEFENSE
21. Since the Securities Exchange Act of 1934 (U.S.C.
§78 et seq.) provides for review and revision by the SEC of
the Exchange’s rules relating to membership, minimur
rates of commission and other charges, primary
jurisdiction of the subject matter of this action is ves‘ed in
the SEC.
A-27
SIX™H DEFENSE
22. Plaintiff lacks standing to assert a claim under the
antitrust laws either as President of the Independent In-
vestors Protective League or on behalf of its members or on
behalf of an alleged class of small investors and further
lacks standing to sue individually because he has not been
directly injured in his business or property by reason of
anything forbidden in the antitrust laws.
SEVENTH DEFENSE
23. Any claim for damages which accrued more than
four years prior to the commencement of this action is
barred by the applicable statute of limitations (15 U.S.C.
$1Sb).
EIGHTH DEFENSE
24. By reason of the plaintiff's tardy assertion of the
illegality of the Exchange rules and regulations with respect
to the volume discount effective from December, 1968 to
March, 1972 and the interim service charge instituted in
April, 1970 and discontinued in March, 1972 and the
payment to the defendant member organizations of
commissions and other charges, including the suvcharge in
accordance with the schedules established by the Exchange
and defendant's reliance upon the apparent acquiescence
of the plaintiff and the purported class, plaintiff and the
alleged class are guilty of laches and are estopped from
asserting any claim against this defendant.
NINTH DEFENSE
2S. All tiie rules challenged herein were promulgated
and adopted by the Exchange and adhered to by the
member organizations pursuant to an order, request or the
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approval of the SEC and consequently the Exchange and
the member organizations thereof should not be held liable
for any violation of law occasioned therefor by reason of the
good faith reliance by the defendants upon the authority
and jurisdiction of the SEC.
WHEREFORE, defendant Merrill Lynch demands
judgment dismissing the complaint with costs and
disbursements.
Dated: New York, New York
September 28, 1972
BROWN, WwoOobD, FULLER,
CALDWELL & IVEY
By s/Roger J. Hawke
(A member of the Firm)
Attorneys for Defendant
Merrill Lynch, Pierce, Fenner
and Smith Incorporated
One Liberty Plaza
New York, New York 10006
(212) 349-7500
A-29
ANSWER OF DEFENDANT
AMERICAN STOCK EXCHANGE, INC.
(SAME TITLE)
Defendant American Stock Exchange, Inc. by its at-
torneys, Davis Polk & Wardwell, answering the complaint
herein upon information and belief:
1. Denies k 10owledge or information sufficient to form a
belief as to the truth of the allegations set forth in
paragraph FIRST.
2. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in
paragraph SECOND.
3. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in
paragraph THIRD.
4. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in
paragraph FOURTH.
5. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in
paragraph FIFTH, except admits that plaintiff purports to
bring this action on behalf of those persons described in
paragraph FIFTH, but denies that this action is validly
brought as a class action under Rule 23 of the Federal
Rules of Civil Procedure and further denies that the
persons sc described constitute a class within the meaning
of said Rule.
6. Denies knowledge or information sufficieut to form a
belief as to the truth of the allegations set forth in
paragraph SIXTH, except admits that the American Stock
Exchange, Inc. is a corporation duly organized and
existing under the laws of the State of New York, and has
an office and place of business at 86 Trinity Place, City and
A-30
State of New York and admits that the American Stock
Exchange, Inc. is registered with the Securities and Ex-
change Commission as a national securities exchange
pursuant to Section 6 of the Securities Exchange Act of
1934, as amended, 15 U.S.C. §78f and that the American
Stock Exchange, Inc. has filed with the Securities and
Exchange Commission, in accordance with said Section 6,
copies of its Constitution and rules and all amendments
thereto.
7. Denies each and every allegation set forth in
paragraph SEVENTH, except admits that the New York
Stock Exchange, Inc. and the American Stock Exchange,
Inc. maintain honest auction markets for the purchase and
sale of securities at prices arrived at by fair bargaining
between buyers and sellers of these securities.
8. Denies each and every allegation set forth in
paragraph EIGHTH, except admits that the New York
Stock Exchange, Inc. and the American Stock Exchange,
Inc. maintain markets where securities listed on those
exchanges can be purchased and sold by members of those
exchanges on behalf of themselves, their member
organizations, and their customers, that the number of
said members is limited by the number of available
memberships and that membership is acquired by pur-
chase in a competitive auction market.
9. Denies each and every allegation set forth in
paragraph NINTH, except admits that the New York Stock
Exchange, Inc. and the American Stock Exchange, Inc.
are subject to regulation by the Securities and Exchange
Commission.
10. Declares that it is not required to plead to the
allegations of law pleaded in paragraph TENTH.
11. Denies each and every allegation set forth in
paragraph ELEVENTH.
12. Denies each and every allegation set forth in
A-31
paragraph TWELFTH, except admits that defendants
Merrill Lynch, Pierce, Fenner and Smith, Inc. and Bache
and Company, Inc. are member organizations of the New
York Stock Exchange, Inc. and the American Stock
Exchange, Inc. and are purportedly being sued in-
dividually and as representatives of an alleged class of
“members” of the defendant exchanges.
13. Denies knowledge or information sufficient to form a
belief as to the truth of the allegations set forth in
paragraph THIRTEENTH, except admits that in or about
December, 1968 the defendant exchanges, with the ap-
proval of the Securities and Exchange - Commission,
adopted rules providing for a volume discount for tran-
sactions involving more than one thousand (1,)))) shares
and that in or about April, 1970, the defendant exchanges,
again with the approval of the Securities and Exchange
Commission, adopted rules providing for an interim service
charge to be imposed upon transactions of one thousand
(1,000) shares of stock or less and that in or about March,
1972, anew commission rate schedule was adopted, and in
or about April, 1972, the interim service charge was
discontinued, with the approval of the Securities and
Exchange Commission and the Price Commission, in-
corporating a value-related volume discount.
14. Denies each and every allegation set forth in
paragraph FOURTEENTH.
1S. Denies each and every allegation set forth in
paragraph FIFTEENTH.
16. Denies each and every allegation set forth in
paragraph SIXTEENTH.
17. Denies each and every allegation set forth in
paragraph SEVENTEENTH, except admits that only
members of the defendant exchanges may use the facilities
of their respective exchanges, and refers to the published
rules and regulations of the American Stock Exchange,
Inc. for the terms thereof.
. ma Ms
A-32
18. Denies each and every allegation set forth in
paragraph EIGHTEENTH.
19. Denies each and every allegation set forth in
paragraph NINETEENTH.
19(a). Denies each and every allegation set forth in
paragraph NINETEENTH (a), except denies knowledge or
information sufficient to form a belief as to the allegations
set forth in paragraph NINETEENTH (a) 4 respecting the
membership of the Independent Investors Protective
League or the authorization to institute suit purportedly
granted by the members of said organization, and declare
defendant the American Stock Exchange, Inc. need
_plgad in response to the allegations set forth in
agg@ph NINETEENTH (a)0 (second of two such
of Bragrephs through NINETEENTH (a)10.
20." Denies each and every allegation set forth in
paragraph TWENTIETH.
21. Denies each and every allegation set forth in
paragraph TWENTY-FIRST.
AS AND FOR A FIRST AFFIRMATIVE DEFENSE
22. The complaint fails to state facts sufficient to con-
stitute a cause of action.
AS AND FOR A SECOND AFFIRMATIVE DEFENSE
23. Jurisdiction over the subject matter of this complaint
is vested solely and exclusively with the Securities and
Exchange Commission.
AS AND FOR A THIRD AFFIRMATIVE DEFENSE
24. By reasons of the provisions of the Securities and
Exchange Act of 1934, as amended, 15 U.S.C. §78a et
seq., and the actions of the Securities and Exchange
A-33
Commission thereunder, the acts of the American Stock
Exchange, Inc. alleged in the complaint are exempt and
immune from the provisions of the Robinson-Patman Act
and the Sherman Act upon which the complaint is
predicated.
AS AND FOR A FOURTH AFFIRMATIVE DEFENSE
25. The subject matter of the complaint is within the
primary jurisdiction of the Securities and Exchange
Commission.
AS AND FOR A FIFTH AFFIRMATIVE DEFENSE
26. The fixing of minimum rates of commission and
charges, imposing limitations on membership and
establishing the specific volume discount effective
December, 1968 to March, 1972, and the rules relating to
negotiated commissions by the American Stock Exchange,
Inc. were, and are, reasonable and justified and therefore
not in contravention of the antitrust laws.
AS AND FOR A SIXTH AFFIRMATIVE DEFENSE
27. Plaintiff lacks standing to assert a claim under the
antitrust laws either as President of the Independent In-
vestors Protective League or on behalf of its members or on
behalf of an alleged class of small investors because he has
not been directly injured in his business or property by
reason of anything forbidden in the antitrust laws.
AS AND FOR A SEVENTH AFFIRMATIVE DEFENSE
28. Plaintiff and the alleged class are guilty of laches and
are estopped from asserting the claims they make in the
complaint against the American Stock Exchange, Inc.
A-34
AS AND FOR AN EIGHTH AFFIRMATIVE DEFENSE
29. All the rules challenged herein were promulgated
and adopted by the American Stock Exchange, Inc. and
adhered to by the member organizations pursuant to an
order, request or the approval of the Securities and Ex-
change Commission and consequently the American Stock
Exchange, Inc. should not be held liable for any violation
of law occasioned therefor by reason of the good faith
reliance by the defendant upon the authority and
jurisdiction of the Securities and Exchange Commission.
AS AND FOR A NINTH AFFIRMATIVE DEFENSE
30. Any claim against the American Stock Exchange,
Inc. based on acts occurring more than four years prior to
the commencement of this action is barred by the
provisions of Section 4B of the Clayton Act, 14-U.S.C. §
1Sb.
WHEREFORE, defendant American Stock Exchange,
Inc. demands judgment dismissing the complaint together
with the costs and disbursements of this action.
Dated: New York, New York
September 29, 1972
DAVIS POLK & WARDWELL
By s/
Attorneys for the Defendant
American Stock Exchange, Inc.
1 Chase Manhattan Plaza
New York, N.Y. 10005
Tel. 212 HA 2-3400
A-35
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
(SAME TITLE)
SIR:
PLEASE TAKE NOTICE that upon the pleadings
herein, the affidavits of Robert M. Bishop, H. Vernon Lee,
Jr.. and John P. Foynes, and the annexed statement
pursuant to Rule 9(g) of the Genera! Rules of this Court,
the undersigned will move this Court before the Hon.
Morris E. Lasker at Room No. 2903, United States Court
House, Foley Square, New York, N.Y., on December 29,
1972, at 10:00 a.m., or as soon thereafter as counsel can be
heard, or at such other time and place as the Court shall
direct, for an order pursuant to Rules 12(b) and 56 of the
Federal Rules of Civil Procedure, dismissing the complaint
and granting summary judgment in favor of defendants
and against plaintiff, and for such other and further relief
as is just and proper.
Dated: New York, N.Y.
December 4, 1972
Yours, etc.,
MILBANK, TWEED, HADLEY & McCLOY
By s/Isaac Shapiro
(A Member of the Firm)
Attorneys for defendants
New York Stock Exchange, Inc.
and Bache & Co., Inc.
1 Chase Manhattan Plaza
New York, N.Y. 10005
A-36
LORD, DAY & LORD
By s/John Loflin
(A Member of the Firm)
Attorneys for defendant
American Stock Exchange
25 Broadway
New York, N.Y. 10004
BROWN, WOOD, FULLER, CALDWELL & IVEY
By s/Roger J. Hawk
(A Member of the Firm)
Attorneys for defendant
Merrill Lynch, Pierce, Fenner
& Smith, Inc.
1 Liberty Plaza
New York, N.Y. 10006
TO: BADER AND BADER
Attorneys for plaintiff
274 Madison Avenue
New York, N.Y. 10006
A-37
DEFENDANTS’ RULE %g)
STATEMENT IN SUPPORT OF MOTION
FOR SUMMARY JUDGMENT
(SAME TITLE)
Detendants respectfully submit that the following
material facts are not in dispute.
1. The New York Stock Exchange (the ““NYSE”) and the
American Stock Exchange (the ““Amex”’) are corporations
organized under the laws of the State of New York for the
purpose of providing for their members and the public two-
way auction markets in exchange listed stocks, bonds and
other securities.
2. The NYSE presently has 1,366 members, all of whom
are individuals. The Amex presently has 650 regular
members and 217 associate members, all of whom are
individuals. The NYSE has 527 member organizations and
the Amex has over 500 member organizations.
3. Since their founding, the NYSE and the Amex at all
times have had rules limiting their membership and
prescribing the minimum commissions to be charged by
members and member organizations on transactions
executed for the investing public in securities dealt in on
the respective exchanges.
4. The NYSE and the Amex were registered by the
Securities and Exchange Commission (the “SEC”) as
national securities exchanges in 1934 pursuant to the
provisions of Section 6 of the Securities Exchange Act of
1934 (the “1934 Act’’). At the time of said registration, the
respective constitutions and rules of the NYSE and the
Amex were submitted to and approved by the SEC pur-
suant to the requirements of the 1934 Act.
5. Since registering with the SEC in 1934, the NYSE and
the Amex have changed their respective constitutional
A-38
provisions and rules prescribing minimum commission
rates a number of times. Copies of each such rule change or
amendment were submitted by the exchanges to the SEC as
required pursuant to Section 6(a)(4) of the 1934 Act and
SEC Rule 17(a)-8.
6. The SEC, in carrying out its duty of supervision under
Section 19(b) of the 1934 Act, studied and reviewed all the
proposed changes. After such study and review the SEC in
some instances permitted the proposed changes to become
effective without modification; in other instances the SEC
requested modifications in the proposed changes which
were then adopted by the NYSE and the Amex.
7. In 1959, at the request of the SEC, the NYSE un-
dertook a study which revealed that the inflexibility of the
then prevailing commission rate structure had a potential
for causing market dislocations because of the growth of
institutional-size business. Beginning in 1965, the Amex
undertook studies of its own intra-member and non-
member commission rate structures, with particular
emphasis on institutional-size transactions.
8. The period of study expended on the problem of a
volume discount extended over a period of some six years—
from 1962 to 1968. Both the NYSE and the SEC developed
proposals to deal with market problems created by the
absence of a volume discount. These proposals were made
public and comment invited on January 26, 1968 in the
SEC's Exchange Act Release No. 8239. On May, 1968, the.
SEC wrote the NYSE and the Amex advising of the
Commission's determination that “changes in the present
commission rate structure are required to benefit the in-
vesting public,” and directing that interim adjustments be
made in the exchange’s commission rate structures pen-
ding a final revision at the conclusion of the SEC Rate
Hearings. On December 5, 1968, the rules of the NYSE
and the Amex were modified to provide for a volume
discount on all public orders for securities listed on the
A-39
respective exchanges involving more than 100 shares. of
stock.
9. Studies prepared by the NYSE, the Amex, and the
SEC indicated that the securities commission business was
sorely pressed in late 1969 and early 1970 by reason of the
peak volume demands, increasing costs (there had not been
a commission increase in over a decade) and the
diminution of revenues from institutional trades which
were subject to a discount. In order to correct these dif-
ficulties and protect small investors—whose trades many
brokerages would no longer accept—the NYSE and the
Amex proposed to ‘the SEC the imposition of an interim
service charge on smaller orders. The SEC approved this
proposal on the condition that the imposition of the service
charge be for a strictly limited time and that the exchanges ©
ensure that small investors were not discriminated against
and that member organizations took all steps to ameliorate
their financial problems. This interim service charge
became effective on both exchanges in April, 1970. It was
due to expire 90 days later, but because of continuing
financial difficulties, the NYSE and the Amex proposed its
extension. The SEC, after public hearings in July, 1970
approved. The interim service charge remained in effect
from April, 1970 until April, 1972, when the present rate
structures were enacted by the exchanges.
10. As a result of the intensive investigation of the
commission rate structure over nearly a decade, including
two SEC reports (The Special Study of 1963 and the In-
Stitutional Investor Study of 1971) and two years of
testimony and evidence in the Rate Hearings, the SEC
determined, in lage 1970, that fixed charges for portions of
orders above a certain amount were neither necessary nor
appropriate under the 1934 Act. The NYSE and the Amex
each adopted the new rate proposal then urged by the SEC
for the negotiation of commission rates on that portion of
orders in excess of $500,000 (i. e., $500,000 was established
A-40
as the “breakpoint’’ between fixed minimum and
negotiated commission rates).
11. The $500,000 breakpoint was considered ex-
perimental and both exchanges instituted a progrim of
monitoring the impact of negotiated rates, again ai SEC
direction. On February 2, 1972, the Commissioi an-
nounced its determination that the breakpoint should be
lowered to $300,000. Both the NYSE and the Amex ac-
ceded and adopted the necessary changes in their
respective constitutions in April, 1972.
12. During the course of the regulatory activity redating
to the volume discount, interim service charge and
negotiated commission rates, the SEC’s Rate Heerings,
commencing on July 1, 1968, received evidence and
testimony on every aspect of the exchanges’ commission
rate structure. After the Hearings terminated in 1971, the
NYSE proposed, and the SEC approved, the presert rate .
schedule which was adopted by both exchanges in April,
1972. The present commission rate structure repealed the
previously adopted volume discount and interim service
charge and replaced it with a schedule of commission rates
incorporating a cost-related discount for volume tran-
sactions as well as negotiated rates of commission on that
portion of orders in excess of $300,000.
Dated: New York, New York
December 4, 1972
Respectfully submitted,
MILBANK, TWEED, HADLEY & McCLOY
1 Chase Manhattan Plaza
New York, N.Y. 1000S
Attorneys for defendants
New York Stock Exchange, Inc.
and Bache & Co., Inc.
A-41
LORD, DAY & LORD
2S Broadway
New York, N.Y. 10004
Attorneys for defendant
American Stock Exchange, Inc.
BROWN, WOOD. FULLER,
CALDWELL & IVEY
| Liberty Plaza
New York, New York
Attorneys for defendant
Merrill Lynch, Pierce, Fenner
& Smith, Incorporated
A-42
AFFIDAVIT OF H. VERNON LEE IN SUPPORT
OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
AND EXHIBITS ANNEXED
(SAME TITLE)
STATE OF NEW YORK (
SS.:
COUNTY OF NEW YORK) »
H. VERNON LEE, JR., being duly sworn, deposes and
says:
1. | am Vice-President and Secretary of the American
Stock Exchange (the “‘Amex’’), a defendant herein, and |
am familiar with this matter. | make this affidavit in
support of the defendants’ motion for an order dismissing
the complaint filed in this action and granting summary
judgment to the defenc ants.
2. The Amex is a New York corporation, incorporated
under the New York Not-for-Profit Corporation Law,
whose business and purpose is to provide a securities
marketplace in New York City for its members who are
brokers and dealers in securities. As a two-way auction
market for securities listed on the Amex, activity in the
Amex is characterized by competition both between and
among buyers and sellers. The Amex presently has 650
regular members, who have direct access to the trading
floor, and 217 associate members, who may do business on
the trading floor only through a regular member. In ad-
dition, there are over 500 regular and associate member
organizations, partnerships and corporations in which the
general partners or the directors and major stockholders
are Amex members or are approved by the Amex’s Board
of Governors.
3. The Amex was first organized in 1908 as the New York
Curb Agency, an outdoor marketplace for corporate
A-43
securities. In 1921 the name was changed to the New York
Curb Market and a constitution was adopted to coincide
with the outdoor. exchange’s move indoors to its present
location on Trinity Place. In 1953 the name was officially
changed to the American Stock Exchange. Since its early
(lays as an outdoor exchange, the Amex has maintained
rules limiting access to its facilities and prescribing the
minimum commission rates which could be charged to
non-members on transactions in securities listed on the
Amex. Members and member organizations who violate
Amex rules with respect to the minimum commission rates
chargeable to non-members are subject to disciplinary
action.
4. Subsequent to the enactment of the Securities Ex-
change Act of 1934 (the “1934 Act’’), the Amex submitted
to the Securities and Exchange Commission (the “SEC”’)
an application for registration as a national securities
exchange. The Amex also submitted for SEC approval
copies of its Constitution and Rules, which contained
provisions requiring members to charge specified
minimum commissions to non-members. The Amex was
registered with the SEC on September 23, 1934. At the
time of its registration the Amex was required by §6(a)(1)
of the 1934 Act to agree “to comply, and to en-
force . . . compliance by its members, with the provisions
of [the 1934 Act]... and any rule or regulation... -
thereunder.” The registration was granted upon findings
by the SEC, as required by §§6(d) and 6(b) of the 1934 Act,
that the Amex was “so organized as to be able to comply
with the provisions of [the 1934 Act] . . . and the rules and
regulations thereunder and the rules of the exchange are
just and adequate to ensure fair dealing and to protect
investors [,]"" and further, that the rules of the Amex
“include provision for the expulsion, suspension, or
disciplining of a member for conduct or proceeding in-
consistent with just and equitable principles of trade . . . ”
A-44
5. Since the SEC originally approved the Constitution
and Rules of the Amex upon its registration on September
23, 1934, the constitutional provisions and _ rules
prescribing minimum commission rates chargeable to non-
members have been changed by the Amex a number of
times. The Amex has submitted copies of each rule change
or amendment to the SEC as required pursuant to §6(a)(4)
of the 1934 Act and SEC Rule 17(a)—8. The Amex’s
present constitutional provisions and rules relating to
commission rates (annexed as Exhibits A and B) are the
product of studies conducted by the Amex and the New
York Stock Exchange (the ““NYSE’’), as well as hearings
and studies conducted by the SEC [Report of the Special
Study of Securities Markets, House Doc. No. 815, 88th
Cong., Ist Sess. (1963) and The Institutional Investor
Study, House Doc. No. 92-64, 92nd Cong., Ist Sess.
(1970)].
6. In late 1962 the Costs and Revenues Committee of the
NYSE, at the direction of the SEC, initiated a study of the
need and feasability of implementing a volume discount for
lage transactions in securities. In a report transmitted by
the NYSE to the SEC on November 29, 1965, the Cost and
Revenue Committee recognized the need for volume
discounts due to the growing number of institutional-sized
transactions and the lack of any provision in the existing
non-member commission rate structure for discounts on
block trades. In a later report submitted by the NYSE to
the SEC on January 2, 1968, the Committee made specific
proposals to minimize and control customer-directed
““give-ups”, the reciprocal and rebative methods block
traders utilized to avoid commission rates. On January 26,
1968, the SEC proposed for adoption by national securities
exchange Rule 10b-10, a provision which would restrict
give-ups.
7. In 196S the Amex commissigned Haskins and Sells, a
major accounting firm, to undertake a study of the ex-
A-45
change’s intra-member commission structure and to
evaluate its fairness and adequacy. In early 1968, Amex’s
Board of Governors appointed a Subcommittee on
Commission Structure [the ““Subcommittee"’], to review all
aspects of the exchange’s commission rates in light of
changing market conditions, costs of doing business, and
needs of the investing public. The Subcommittee submitted
its first memorandum to Amex members and member
organizations on April 19, 1968 (annexed as Exhibit C), in
which it reported preliminary findings on the existing intra-
member commission rates and solicited the opinions and
suggestions of the Amex membership.
8. Amex President Ralph S. Saul transmitted the
Subcommittee’s April 19 memorandum to the SEC in a
letter to Chairman Manuel F. Cohen on April 24, 1968.
(Annexed as Exhibit D). In that letter, Mr. Saul informed
Chairman Cohen that the Subcommittee was presently
studying the commission rates charged to non-members of
the Amex. Mr. Saul also expressed the Amex’s opposition
to the SEC's proposed Rule 10b-10 as not in the public
interest, and advised that the Subcommittee would con-
sider possible alternative methods for dealing with the
problem of customer-direcied give-ups.
9. On May 28, 1968, Chairman Cohen transmitted to the
Amex a letter of the same date written to President Robert
W. Haack of the NYSE advising that, as a result of its
extensive and continuing study of the commission rate
structure of national securities exchanges, the SEC
believed ‘‘changes in the present commission rate structure
are required to benefit the investing public.” (The letter of
transmittal to the Amex and the Haack letter are both
annexed as Exhibit E). The letter contained a request by
the SEC, pursuant to its authority under §19 (b) of the 1934
Act to fix reasonable rates of commission, that the NYSE,
on or before September 15, 1968, make changes in its
commission rates which would either (a) conform to an
A-46
SEC proposed commission schedule (attached to the Haack
letter) or (b) eliminate minimum commission rates on all
orders in excess of $50,000. This request was said to be
made “‘in the context of the Commission’s responsibilities
to consider the national policies embodied both in the
securities laws and in the antitrust laws.” In his letter of
transmittal to the Amex, Commissioner Cohen stated that
“the Commission has not directed a similar letter to your
Exchange because of possible differences in the situation
prevailing’ but “requests that you give immediate at-
tention to appropriate modifications of your commission
rate structure, including any necessary interim steps.’’ The
letter to President Haack also announced that the SEC,
pursuant to its authority under §21(a) of the 1934 Act,
would hold public hearings on the commission rate
structure issue commencing July 1, 1968 (the “Rate
Structure Hearings’’).
10. In a letter to the SEC on June 26, 1968, President
Saul advised that after careful consideration of the
Commission’s proposed Rule 10b-10 and recent studies by
the Amex staff, the Amex Board of Governors “‘has agreed |
in principle to eliminate . . . customer-directed give-
ups..." (Annexed as Exhibit F). The letter also advised ©
that the Board of Governors “‘has also agreed that a
modification of the present minimum commission rate
structure to provide volume discounts is .also ap-
propriate . . . ’ Finally, the letter stated that the Amex’s —
staff had been directed by the Board of Governors “‘to work
with the Commission to achieve meaningful and prompt
implementation of the Board of Governors’ position with
respect to discounts and give-ups.”’
11. On September 20, 1968 the Subcommittee on
Commission Structure transmitted to Amex members and
member organizations a memorandum recommending
adoption of a volume discount on transactions in securities
involving more than 1,000 shares and an amendment to the
A-47
Amex’s Constitution which would prohibit customer-
directed give-ups. (Annexed as Exhibit G).
12. Pursuant to a vote of its membership, on December
S. 1968 the Amex effectuated amenénents to its Con-
stitution which provided for volume discounts. on tran-
sactions in securities involving more than 1,000 shares, and
prohibited customer-directed give-ups.
13. Between 1968 and 1970, because of a iremendous
rise in the volume of public transactions on the national
securities exchanges, the facilities and resources of Amex
members became increasingiy overburdened. The expense
of expansion needed te ineet the increased demand, as well
as rising costs during a decade in which there had been no
increase in commission rates, contributed to a drastic
decline in the profits of the securities industry. The hardest
hit were member organizations which primarily handled
small orders for individual customers. The volume
discount, which became effective on December 5, 1968,
threatened only to exacerbate the situation because of the
likelihood that it would reduce commission revenues.
i4. On February 13, 1970 and March 16, 1970, the
NYSE presented to the SEC statistical evidence demon-
strating the financial distress of the securities industry and
the need for interim relief in the form of an increase in
commission rates. On March 19, 1970, the NYSE sub-
mitted to the SEC a proposed rule which would impose an
interim service charge, in addition to the existing minimum
commission rate, on all public transactions in listed
securities involving 1,000 shares of stock or less.
1S. In a letter to the SEC on March 26, 1970, the Amex
expressed its support of the NYSE’s proposed interim
service charge and set forth the results of a survey con-
ducted among Amex member organizations which in-
dicated the need for temporary relief of that nature.
(Annexed as Exhibit H).
A-48
16. In a letter to the NYSE on April 2, 1972, the SEC
expressed its non-objection to the proposed interim service
charge on transactions involving 1,000 shares or less.
(Annexed as Exhibit 1). The SEC stated that its own data
had confirmed the loss experience of the industry and that
“past losses and the prospect of continued financial drain
have influenced many member firms to impose limitations
on their services to small investors."” The SEC conditioned
its non-objection to the interim service charge upon its
limitation to a 90 day period and the requirement that steps
be taken to ensure the restoration of full brokerage services
for small investors.
17. On April 2, 1972, the Amex transmitted to the SEC
copies of its new Rule 396, which provided for an interim
service charge essentially the same as that proposed by the
NYSE. In its letter of transmittal, the Amex agreed to
adhere to the conditions stated by the SEC in its letter of
April 2 to the NYSE. (A copy of Rule 396 and the Amex’s
letter of transmittal to the SEC are annexed as Exhibit J).
The interim service charge went into effect on April 6, 1970
and was to expire on July 6, 1970.
18. On April 10, 1970 the SEC responded to the Amex’s
April 2 submission with a letter expressing its non-
objection to Rule 396 imposing an interim service charge.
(Annexed as Exhibit K).
19. Prior to the expiration date of the interim service
charge, studies conducted by the NYSE revealed that the
financial condition of the securities industry had not
improved. These findings were relayed to the SEC on June
18, 1970 by President Haack of the NYSE. In a letter on
June 29, 1970, the Amex advised the SEC that economic
conditions among its member organizations had steadily
deteriorated since the interim service charge was initially
requested and that the continued application of the sur-
charge was urgently needed. (Annexed as Exnibit L).
A-49
20. On July 2, 1970 the SEC announced that the Rate
Structure Hearings, originally convened on July 1, 1968,
would be reconvened on July 13, 1970 to receive evidence
on the need to extend the interim service charge. In its
announcement, the SEC stated that it would not act to
terminate the service charge pending the outcome of the
hearings on its extension.
21. On July 16, 1970, the Amex transmitted to the SEC
the results of a new survey of member organizations
supplementing the results of the survey conveyed in its
March 26 letter which first demonstrated the need for an
interim service charge. (Annexed as Exhibit M). The
results of the new survey revealed that the overwhelming
majority of member organizations surveyed had continued
to suffer substantial losses even with the additional income
provided by the service charge.
22. The SEC continued its supervision of the financial
state of the securities industry and did not revoke its ap-
proval of the interim service charge. The interim service
charge was repealed in April, 1972, when Amex Rule 396
was changed to prohibit the imposition of any charge in
excess of the prescribed commission rates presently in
effect.
23. On June 30, 1970, as a result of its own studies on the
commission rate structure, the NYSE submitted to the SEC
a proposed permanent schedule or “rate package’’ to
replace the interim commission rates then in effect. On July
2, 1970 the SEC announced that its Rate Structure
Hearings would reconvene on July 20, 1970 to receive
testimony and other relevant data concerning the NYSE’s
proposed new rate package. (Exchange Act Release No.
8924, dated July 2, 1972, Annexed as Exhibit N).
24. On July 16, 1970, the Amex submitted to the SEC its
views “as to the importance of the commission rate-making
process, and the relationship of that process to the func-
tioning of the exchange markets and the regulation of
A-50
securities markets."’ (Annexed as Exhibit O). In its sub-
missions the Amex expressed its support of the procedures
followed by the NYSE in developing its June 30 commission
rate schedule proposal.
25. On March 17, 1971, the SEC transmitted to the
Amex copies of correspondence which had passed between
the Commission and the NYSE relating to the NYSE’s June
30 commission rate proposal. (Annexed as Exhibit P.) On
October 22, 1970 the SEC had advised the NYSE that
“tixed charges for portions of orders in excess of $100,000
are neither necessary nor appropriate.”” On February 10,
1971 the SEC directed the NYSE to take action to im-
plement, by April, 1971, negotiated commission rates on
institutional-sized orders, but agreed to accept $500,000 as
the breakpoint for the negotiated rates. On March 9, 1971,
the NYSE responded that the April 1 deadline did not offer
sufficient time to review the SEC’s proposal and implement
a constitutional amendment. The SEC on March 10, 1971
reiterated its April 1 deadline, and warned the NYSE that
the maintenance of minimum commission rates on portions
of orders above the $500,000 breakpoint after the deadline
“would be unreasonable and could be contrary to the
Exchange Act.”
26. In a letter to the SEC on March 26, 1971, President
Saul of the Amex stated that “in view of the Commission’s
position, the Exchange is obliged to recommend ap-
propriate revisions to its Constitution and Rules to
eliminate fixed minimum commissions on that portion of
an order in excess of $500,000." (Annexed as Exhibit Q)
27. Pursuant to a vote of the membership, the amend-
ments to the Amex’s Constitution providing for negotiated
commission rates on that portion of orders in excess of
$500,000 became effective on May 3, 1971.
28. The SEC consistently maintained that the $500,000
breakpoint for negotiated commission rates did not
represent a firal determination as to commission rate
A-SI
structures, and that the Commission would review the
impact of the changes. Accordingly, to allow the SEC and
the exchange to observe the workings of competitive rates.
on May 3, 1971 the Amex effectuated Rule 398, which
required members to report executions of orders exceeding
$500,000. (A copy of Amex letter to SEC, dated April 28,
1971, transmitting proposed Rule 398 is annexed as
Exhibit R).
29. On February 2, 1972, the SEC advised in its
“Statement on the Future Structure of the Securities
Markets” that the breakpoint for portions of orders subject
to negotiated commission rates should be lowered from
$500,000 to $300,000. The Commission directed the NYSE
to take the required action implementing such a change
within 90 days. In a letter on March 19, 1972 the SEC
advised the Amex that it should begin to draft rule changes
providing for a lowering of the breakpoint for negotiated
commission rates to $300,000. (Annexed as Exhibit S). The
Amex replied by letter on March 28, 1972, submitting to
the SEC, pursuant to SEC Rule 17(a)-8, copies of proposed
rule changes providing for a lowering of the breakpoint to
$300,000. (Annexed as Exhibit T).
30. On April 24, 1972, pursuant to a vote of its mem-
bership, the Amex amended its Constitution to adopt a
commission rate schedule providing for cost-related
discounts for volume transactions and negotiated com-
mission rates on that portion of orders in excess of
$300,000. Concurrently, provisions for the earlier volume
discount and the interim service charge were repealed.
31. The existing commission rate structure of the Amex
is the subject of continuous study by the exchange and the
SEC. The SEC not determined that the Amex’s present
commission rates represent a final resolution of the
commission rate structure. Of particular interest to the
SEC and the Amex in their continuing observation of the
impact of existing commission rates, is the advisability of
A-52
lowering the breakpoint between minimum and negotiated
commission rates below its present $300,000 level.
32. The plaintiff in this action, Richard A. Gordon, has
never applied for, or been denied application for, mem-
bership in the Amex during the past six years. This in-
formation is based on an examination of Amex records. It
was not necessary to examine the records to ascertain
whether the Independent Investors protective League has
ever applied for membership in the Amex, since only in-
dividuals are eligible for Amex membership.
s/H. Vernon Lee, Jr.
H. YERNON LEE, JR.
Sworn to
December 4th, 1972
A-53
EXHIBIT “A”
American Stock Exchange
Constitution
Article VI, Revised to August 1, 1972
ARTICLE VI
Commissions and Charges
General Rule
Sec. 1. *** Commissions shall be charged and collected
upon the execution of all orders tor the purchase or sale,
for account of others, of securities, including securities
“when, as and if issued’’, listed or admitted to unlisted
trading upon the Exchange, and these commissions shall
be at rates not less than the rates in this Article prescribed,
and shall be net and free from any rebate, return, discount
or allowance made in any shape or manner, or by any
method or arrangement direct or indirect. No bonus or
percentage or portion of a commission, whether or not such
commission be at or above the rates herein established, or
any portion of a profit except as may be specifically per-
mitted by the Constitution or by a rule adopted by the
Board of Governors, shall be given, paid or allowed directly
or indirectly, or as a salary or portion of a salary, to a clerk
or person for business sought or procured for any member
of the Exchange or member firm or member corporation.
No member, member firm or member corporation shall
make a proposition for the transaction of business at less
than the minimum rates of commission prescribed in this
Article. No member, member firm or member corporation
shall, in consideration of the receipt of business in
securities dealt in on the Exchange and at the direct or
indirect request of a non-member or by direct or indirect
arrangement with a non-member, make any payment or
give up any work or give up all or any part of any com-
mission or other property to which such member, member
A-54
firm or member corporation is or will be entitled.***
Transactions on another exchange.
Notwithstanding the provisions of this Article, any
member of the Exchange or member firm or member
corporation which is a member or registered firm or
corporation of another exchange located in the United
States or Canada, or registered with a Canadian exchange
as being entitled to a return of commission from members
of such exchange, may in respect of transactions made on
such other exchange charge the rates of commission
prescribed by such other exchange.
Amendment.
*** November 1, 1968, effective December 5, 1968.
Schedule of Stock Commissions
Sec. 2. Commissions shall be as follows:
Non-Member rates
(a) The minimum commission rates to non-members on
stocks, rights and warrants (hereinafter referred to as
stocks), shall be as follows:
On 100 share orders
(1) On each order for 100 shares, on stocks
selling at $1.00 per share and above, commissions
shall be based upon the amount involved in the
order and, subject to the provisions of subsections
(f), (h) and (1) of this Section 2, shall be not less
than the rates hereinafter specified:
Amount Involved in the Order Minimum Commission
$100—but under $800 2.0% of money involved + $ 6.40
$800—but under $2,500 1.3% of money invoived + $12.00
$2,500—and above 0.9% of money involved + $22.00
A-55
Notwithstanding the foregoing:
(i) When the amount involved in an order is less
than $100, the minimum commission shall be as
mutually agreed.
(ii) The minimum commission on an order for
100 shares shall not exceed $65.00
Multiple round lot orders
(2) On each multiple round lot order for 200 shares or
more, on stocks selling at $1.00 per share and above,
commissions shall be based upon the amount involved in
the order and, subject to the provisions of subsections (f),
(h) and (1) of this Section 2, shall be not less than the rates
hereinafter specified:
Amount Involved in the Order Minimum Commission
$100—but under $2,500 1.3% of money involved + $12.00
$2,500—but under $20,000 0.9% of money involved + $22.00
$20,000—but under $30,000 0.6% of money involved + $82.00
$30,000—to and including $300,000 0.4% of money involved + $142.00
Plus a charge for each round lot of 100 shares within the
order as follows:
First to tenth round lot $6.00 per round lot
Eleventh round lot and above $4.00 per round lot
Notwithstanding the foregoing:
(i) When the amount involved in an order is less
than $100, the minimum commission shall be as
mutually agreed.
(ii) The minimum commision per round lot
shall not exceed the single round lot commission
computed in accordance with the provisions of
paragraph (i) of subsection (a) of this Section 2.
A-56
Odd Lot Orders
(3) On any odd lot order, commissions shall be based
upon the amount involved in the order and shall be not less
than the rates specified in paragraph (1) of subsection (a)
of this Section 2, less $2.00 subject to the provisions of
subsections (f), (h) and (1) of this Section 2.
Notwithstanding the foregoing:
(i) When the amount involved in an odd lot order
is less than $100, the minimum commission shall
be as mutually agreed.
(ii) The minimum commission on an odd lot
order shall not exceed $65.00.
(iii) When one or more odd lot orders plus one or
more round lot orders are executed in the same
security, on the same day, for the same account, on
the same side of the market, the commission(s) on
such odd lot order(s) shall not exceed the com-
mission which would be chargeable with respect to
the nearest round lot in excess of such odd lot
order(s).
(4) On that portion of an order involving an amount of
$500,000 or less, on stocks selling below $1 per share,
commissions shall be based upon the amount involved in
the order and shall be not less than the rates hereinafter
specified:
Amount Involved in the Order Minimum Commission
$0—but under $1,000 8.4% of money invoived
$1,000—but under $10,000 5.0% of money involved + $34.00
$10,000—and above 4.0% of money invoived + $134.00
A-57
Notwithstanding the foregoing, when the
amount involved in an order is less than $100, the
commission shall be as mutually agreed.
Floor brokerage and clearance rates
(b) The minimum commission rates to regular and
associate members on stocks, rights and warrants
(hereinafter referred to as stocks) shall be based on the
number of round lots and the price of the shares involved in
each round lot order as follows:
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A-60
Notwithstanding the foregoing rates specified in this
subsection (b), when the amount involved in an order is less
than $100, the commission shall be as mutually agreed.
When the amount involved in an order exceeds
$300,000, the minimum commission to be charged pur-
suant to this subsection (b) shall apply only to the
maximum number of round lot transactions involving an
aggregate amount not in excess of $300,000.
Registered specialists’ floor rates
(c) A registered specialist shall charge, as Floor rates for
the execution of members’ orders in stocks rights and
warrants (hereinafter referred to as stocks) given him on
the Floor of the Exchange personally by a regular member,
by a member representative, or by an employee of the
Exchange, in writing and signed, the following commission
based on the number of round lots and the price of the
shares involved in each round lot order. These commissions
shall apply only to transactions when the principal’s name
is given up at the time of such transactions.
Rate per round lot
First and Third Through Eleventh Round
secon n
Price Per Shere ico Lot a -— on
1/266 of $1 and above,
but under 3/256 of $1 $0.04 $0.03 $0.02
3/256 of $1 and above,
but under 1/4 of $1 0.25 0.20 0.16
1/4 of $1 and above,
but under 1/2 of $1 0.50 0.40 0.36
1/2 of $1 and above,
but under $1 $0.80 $0.75 $0.65
$1 and ebove, but under $4 1.10 0.90 0.80
$4 and above, but under $8 1.96 1.55 1.40
$8 and above, but under $12 2.36 1.90 1.55
$12 and above, but under $16 2.56 2.10 1.90
$16 end sbove, but under $20 2.90 2.30 2.06
$20 and above, but under $30 3.06 2.50 2.20
$30 and above, but under $40 3.25 2.65 2.36
$40 end above, but under $60 3.50 2.80 2.50
$50 end above 3.70 2.95 2.65
A-61
Notwithstanding the above rates, when the amount
involved in an order is less than $100, the commission shall
be as mutually agreed.
When the amount involved in an order exceeds
$300,000, the prescribed commission to be charged
pursuant to this subsection (c) shall apply to the maximum
number of round lot transactions involving an aggregate
amount not in excess of $300,000.
Schedule of Bond Cor missions |
(d) The Minimum Commission Rates on Bonds and
Notes shall be as follows:
To Regular Members, to Associate Meinbers and to
Non-Members
A-62
All bonds or Notes selling at less then 1, -
per $1,000 per value $25 $ 50
All Bonds or Notes selling at 1 and under
10, per $1,000 per value .37%
All Bonds or Notes having 6 months to —
and including 5 years to run, selling
between 96 and 110, per $1,000
per veiue .50 80
Less than six months to run Mutual Mutual 1.88
a ment Agreemen
All Bonds or Notes having 5 years or less - " seman
to run selling at 10 and under 96 and
over 110, per $1,000 per value 76
All Bonds or Notes having more than 5 ae erm
yeers to run selling at 10 or over, per
$1,000 per value .76 1.25
Bonds called for redemption having 6 —
months to and including 12 months to
run and having @ current market price
of not less than 96% or more than
110% of their redemption price per
$1,000 per value 50 80
Less than 6 months to run Mutual Mutual 1.26
Agreement Agreemen yer ones
Bonds called for redemption having 6 ¥ * Agreement
months to and including 12 months to
run and having @ current market price
of less then 96% or more than 110%
of their redemption price per $1,000 par
value 75 1.25 2.50
Specialists
Alle) The Specialists Floor Rates on Bonds and Notes shall be as follows:
All Bonds or Notes selling at less than 1 $.10 $1,000
All Bonds or Notes selling at 1 and under 10 3.98 cor 60 £80 eer eho
All Bonds or Notes having 6 months to and including 5
years to run, selling between 96 and 110, inclusive $.20 1,000
Less then 6 months to run $.10 od 000 ad ae
ee ene selling
under 96 and over 110 $.30 per $1,000
All Bonds or Notes having more than 5 years to run ex an
selling at 10 of over $.30 per $1,000 par value
Bonds called for redemption having 6 months to and
including 12 months to run and having current
market price of not less than 96% or more than 110%
of their redemption price $.20 per $1,000 per value
Less then 6 months to run $.10
. 1
Bonds called for redemption having 6 months to and heat 9 eae
including 12 months to run and having a current
market price of less than 96% or more than 110%
of their redemption price $.30 per $1,000 par value
A-63
Definition of an order
(f) For the purpose of this Section 2
(1) A round lot order shall be deemed to include
cither all purchases or all sales for one account, of »
a single security, on the same day, amounting to
100 shares or any multiple thereof, irrespective of
the unit of trading in the stock. This definition
applies whether the order is received from a non-
member, allied member, member, member firm or
member corporation.
(2) An odd lot order shall be deemed to include
either all purchases or all sales of one account, of a
single security, on the same day, pursuant to a
single order amounting to less than i00 shares,
irrespective of the unit of trading in the stock. Any
odd lot order shall be deemed to be a separate
order whether combined with a round lot order or
standing alone. This definition applies whether the
order is received from a non-member, allied
member, member, member firm or member
corporation.
(3) With respect to stocks in which the unit of
trading is less than 100 shares, the minimum
commission rates to be charged to regular and
associate members for Floor brokerage and
clearance pursuant to subsection (b) of this Section
2 and the prescribed commission to be charged by
registered specialists as Floor rates pursuant to
subsection (c) of this Section 2 shall be determined
as follows:
(i) All purchases or all sales for one account, of a
single security, on the same day, amounting to 100
shares or any multiple thereof, shall be treated as a
round lot order as defined in paragraph (1) of this
subection (i) and the applicable round lot com-
mission rate shall be charged.
A-64
(ii) The Commission to be charged on that —
portion of an order which involves a number of
shares equal to the unit of trading or any multiple
thereof but less than 100 shares, shall be an
amount equal to that proportion of the next round
lot rate, after first applying subparagraph (i) of
this paragraph (3), which such number of shares
bears to 100.
Determining amount involved in an order
(g) In determining the amount involved in an order,
commissions and taxes shall be disregarded.
Limitation on minimum commissions
(h) Notwithstanding the rates prescribed in paragraphs
(1) and (2) of subsection (a) of this Section 2, when the
amount involved in a single order exceeds $300,000, the
minimum commission to be charged pursuant to those
paragraphs shall apply only to the maximum number of
round lot transactions involving an aggregate amount not
in excess of $300,000. The Exchange shall from time to
time prescribe the procedures to be followed in computing
commissions pursuant to this Article.
Special Rates
(i) Notwithstanding the other provisions of this Article,
when Rights or Warrants are admitted to dealings upon the
Exchange whether on an issued or when issued basis, and
when other securities are admitted to such dealings on a
when issued basis the Board of Governors may determine
special minimum rates of commission on any and all
transactions in such rights, warrants or other securities.
Such special rates so prescribed or provided by the Board
of Governors shall be deemed to be the rates prescribed in
this Article. Unless special rates have been so determined
the minimum rates of commission prescribed in this Article
shall apply.
A-65
(j) The minimum clearing charges to members, member
firms and member corporations applicable to stock,
warrant and right transactions effected by them for their
own account shall be as follows:
Round lots: $1.00 a share and over—$3.00 for combined
receipt and delivery
Under $1.00 a share—as mutually agreed
Odd lots: Ten shares and over—$1.00 on each side
Under ten shares—as mutually agreed
Warrants: Same as stocks
Rights: As mutually agreed.
Where any such transaction involves a purchase or sale
made at one time from a single seller or buyer and involves
an amount in excess of $300,000, the minimum rates
specified above shall apply only with respect to that portion
of such purchase or sale not in excess of $300,000.
Supervised order
(k) When an order is supervised by a regular member,
not a partner in or a holder of voting stock in the particular
member firm or member corporation whose business he is
supervising, the specialist to whom the order is given,
either by the member supervising such order or by the
telephone clerk of the specific firm or corporation whose
name is on the order, shall bill such member supervising
the order the specialists’ Floor rate and such member shall,
in turn bill the firm or corporation whose name is on the
order slip the regular member give-up rate.
Public obligations and called securities
(1) Commission rates to members or non-members may
be charged, as mutually agreed, on obligations of the
United States, Puerto Rico, Philippine Islands and States,
Territories and Municipalities therein, and on securities
which, pursuant to call, are to be redeemed within twelve
months, unless commission rates on any or all such
securities are prescribed in this Section or by the Board of
Governors.
A-66
Commissions on small orders
(m) Except as otherwise provided by Rule adopted by the
Board of Governors, commissions shall be charged and
collected at the rates prescribed in this Section 2 on the
execution of any small orders or for small accounts.
Broker-Dealer Discount
(n) A member, member firm or member corporation
may, on orders which he or it receives from a non-member
broker-dealer whose principal place of business is in one of
the United States, the District of Columbia or the Com-
monwealth of Puerto Rico, and which is a member of the
National Association of Securities Dealers, Inc. or is
subject to Sec. 15(b)(8) of the Securities Exchange Act of
1934 for the account of any customer whose account is
carried by such broker-dealer, or is introduced by such
broker-dealer to such member, member firm or member
corporation, allow not in excess of a 40% discount from the
commission computed, in accordance with the provisions
of subsection (a) of this Section 2, provided that the
primary purpose of such non-member broker-dealer and of
any parent of such non-member broker-dealer is the
transaction of business as a broker or dealer in securities in
one of the United States, the District of Columbia or the
Commonwealth of Puerto Rico within the meaning of
Section 2(d) of Article IV, and the rules thereunder and,
provided, further, that such non-member broker-dealer is
subject to an agreement in writing as provided by rule .
adopted by the Board of Governors, which agreement has
not been terminated, containing sucn provisions as may be
required from time to time by rule adopted by the Board of
Governors and providing that any such discount so allowed
shall be retained by such non-member broker-dealer free
from any rebate, return, discount or allowance made in any
shape or manner, or by any method or arrangement, direct
or indirect, to or for the benefit of any customer of such
non-member broker-dealer except that with respect to any
A-67
order for the account of a customer whose account is in-
troduced to such non-member broker-dealer by a second
non-member broker-dealer, the non-member broker-
dealer may allow all or any portion of such discount to such
second non-member broker-dealer provided that the
second non-member broker-dealer would qualify for a
discount under the provisions hereof had it introduced its
customer's account directly to the member, member firm
or member corporation and is itself subject to a similar
agreement.
The provisions of this subsection (n) shall expire one year
after the effective date hereof, unless extended for such
period of time, or from time to time, as shail be determined
by the Board of Governors.
Amended effective August 26, 1958, March 30, 1959,
October 19, 1959, January 22, 1960, September 4, 1962,
July 26, 1963, December 5, 1968, February 2, 1971, May 3,
1971, April 3, 1972 and April 24, 1972.
Commissions to Firms and Corporations
Sec. 3. t*A member firm having as a general partner a
regular or associate member of the Exchange, and a
member corporation having either a regular member who is
a holder of voting stock therein and is actively engaged in
its business and devotes the major portion of his time
thereto or an associate member who is a director or
executive officer thereof, shall be entitled to have its
business transacted at the rates of commission prescribed
for such member.*t
Branch offices
The privilege provided for in this Section shall extend to
a branch house or branch office only when conducted
under the same name as the parent firm and only when the
partners and their respective interests therein are identical
with the partners and their respective interests in the
A-68
parent firm, or when conducted as part of the business of
the member corporation.
Members who are special partners or are not directors or
executive officers
t A member who is a special partner in a firm does not
thereby confer any of the privileges of the Exchange on
such firm, and a member who is not a holder of voting
stock of a regular member corporation actively engaged in
its business and devoting the major portion of his time
thereto or who is not a director or executive officer of an
associate member corporation does not confer any of the
privileges of the Exchange on such corporation, and on all
business done by him for such firm or corporation,
commissions must be charged and collected at rates not
less than the rates prescribed in this Article.t
*Commissions, at the rates prescribed in this Article for
non-members, shall be charged and collected on business
done for the account of allied member and non-member
partners of member firms, allied member and non-member
stockholders, directors or officers of member corporations
and joint-accounts to which an allied member or non-
member is a party.*
Amendments.
* Amended January 16, 1958, effective May 1, 1958.
t Amended effective February 2, 1971.
Commissions to Suspended Member
Sec. 4. *t**(a) A regular or associate member suspended
under the provisions of Section 3 of Article V, who has not
been declared ineligible for reinstatement and who has not
also been suspended under the provisions of Section 4 or
Section 5S of Article V, may in the discretion of the Board of
Governors have his business transacted at member's rates.
tt**(b) On the application of a member organization
which has been suspended under the provisions of Section 3
A-6Y
of Article V., but has not been declared ineligible for
reinstatement and has not been suspended under the
provisions of Section 4 or Section 5 of Article V, or on the
application of a member organization whose only general
partner who was a regular or associate member of the
Exchange. or whose only voting stockholder actively
engaged in its business and devoting the major portion of
his time thereto who was a regular member of the Ex-
change, or whose only director or executive officer who was
an associate member of the Exchange, has been suspended
under the provisions of Section 3 of Article V, but has not
been declared ineligible for reinstatement and has not been
suspended under the provisions of Section 4 or Section 5 of
Article V, the Board of Governors in its discretion may in
either such case permit such member organization to have
its business transacted at member's rates during all or such
portion of such suspension as the Board may determine
and under such conditions as the Board may fix. The
Board may in its discretion and during such period of time
and under such terms and conditions as it may determine
permit a former member organization suspended under the
provisions of Section 3 of Article V to continue to have its
business transacted at member's rates, notwithstanding the
fact that the sole regular member of such member
organization has disposed of his regular membership or the
sole associat2 member of such member organization has
ceased to be an associate member, provided that the
transactions with respect to which such member's rates are
charged are liquidating transactions or are reasonably
necessary to permit such firm or corporation to wind up its
business or to transfer the account of a customer. tt
tt**(c) O.. the application of a member organization
which has not itself been suspended under the provisions of
Section 4 or Section 5 of Article V but whose only general
partner who was a regular or associate member of the
Exchange, or whose only voting stockholder actively
engaged in its business and devoting the major portion of
A-70
his time thereto who was a regular member of the Ex-
change, or whose only director or executive officer who was
an associate member of the Exchange, has been suspended
under the provisions of Section 4 or Section 5 of Article V,
the Board of Governors in its discretion may permit such
mernber organization to have its business transacted at
member s rates during all or such portion of the suspension
of such regular or associate member as the Board may
determine and under such conditions as the Board may fix,
and so long as such suspended regular or associate member
remains a general partner, voting stockholder, director or
executive officer of such member organization.**t*tt
Amendments.
* Amended January 16, 1958, effective May 1, 1958.
t Amended effective September 4, 1962.
** Amended effective November 19, 1969
tt Amended effective February 2, 1971.
Board May Prescribe Service Charges
Sec. 5. Members of the Exchange, member firms and
member corporations shall make and collect, in addition to
minimum prescribed commissions, such other minimum
charges with respect to accounts and services as the Board
of Governors may from time to time prescribe. Except as
may be specifically permitted by a rule adopted by the
Board of Governors, such charges shall be net and free
from any rebate, return, discount or allowance made in any
shape or manner, or by any method or arrangement, direct
or indirect, and no bonus or percentage of such charges,
whether such charges be minimum charges prescribed by
the Board or greater charges, shall be given, paid, or
allowed; directly or indirectly, or as'a salary or portion of a
salary to a clerk or to any member of the Exchange,
member firm or member corporation, or to any other
person, firm or corporation for business sought or procured
for any member of the Exchange, a member firm or a
member corporation.
A-71
Commission— Individual Regular
Member in War Service
Sec. 6. *Notwithstanding any other provision of this
Article, the Board of Governors may permit a member,
member firm or member corporation to pay to any regular
member, who is actively engaged in any military, naval or
other public service incident to the defense of the United
States or of any nation which is then allied or associated
with the United States, amounts not exceeding 50% of the
minimum commissions received from time to time by such
member, member firm or member corporation for the
execution of orders for the purchase or sale of securities
which would otherwise have been executed by such absent
member in the usual course of his business. In the exercise
of the discretion herein granted, the Board of Governors
may condition or restrict or may withdraw or deny any such
permission.*
Amendments.
*Amended effective September 4, 1962.
Commission— Member Firm with Sole Regular
Member General Partner, or Member
Corporation with Sole Regular Member
Director, in War Service
Soc. 7. t* Notwithstanding any other provisions of this
Article, when a regular. member of the Exchange who is the
sole regular member general partner in a member firm or
the sole regular member voting stockholder of a member
corporation, is actively engaged in any military, naval or
other public service incident to the defense of the United
States or of any nation which is then allied or associated
with the United States, the Board of Governors may permit
an agreement between such member firm or member
corporation and another regular member or regular
member firm or regular member corporation, providing in
substance that, on transactions executed on the Floor of
A-72
the Exchange by such other regular member or regular
member firm or regular member corporation for such firm
or corporation, the commissions chargeable by the
executing member or member firm or member corporation
shall be less than the minimum commissions otherwise
prescribed as applicable to transactions effected on the
Floor of the Exchange for other members where a principal
is given up, provided that (1) such commissions so
chargeable shall not be less than 50% of the minimum
commissions so prescribed, (2) the transactions with
respect to which such reduced commissions are charged
were executed at a time when the regular member in such
service was absent from the Floor solely by reason of such
service, (3) that such transactions would otherwise in
general have been effected by such absent member as a
part of his usual business, and (4) that any such agreement
has been submitted to and approved by the Exchange.*t
Amendments.
* Amended effective September 4, 1962.
t Amended effective February 2, 1971.
A-73
EXHIBIT B
American Stock Exchange
Office Rules
Section 6. Revised to August 1, 1972
Section 6. Collection of Commissions and Fees
Non-Member Order Executed and Given Up
Rule 380. In transactions where orders are received from
non-member, and the member, member firm or member
corporation executing the order is directed to give up
another member, member firm or member corporation the
responsibility for collecting the full commission shall rest
with the member, member firm or member corporation
settling the transaction.
Member Order Executed and Given Up
Rule 381. In transactions where orders are received from
a member, member firm or member corporation and a
clearing firm or corporation is given up, the responsibility
for collecting the full commission shall rest with the
clearing firm or corporation and it shall be the duty of the
member, member firm or member corporation executing
such orders to report the transactions to the clearing firm
or corporation and to render his bill therefor at the rates
specified. A member, member firm or member corporation
who executes an order for a member, member firm or
member corporation and clears the security himself must
charge the rates specified.
Execution of Domestic Customer's Orders
in Foreign Market
Rule 382. When a member, member firm or member
corporation accepts an order, from a customer within the
continental United States or Canada, for the purchase or
sale of a security admitted to dealings on the Exchange and
A-74
causes the same to be executed in a market outside the
continental United States or Canada, during the time the
Exchange is open for the transaction of business, such
member, member firm or member corporation shall charge
and collect, in addition to any commission payable to the
party or parties executing such order in said market, a sum
not less than the prescribed minimum member or non-
member commission rate, as the case may be.
Clearance of Domestic Customer’s Transaction
in Foreign Market
Rule 383. When a member, member firm or member
corporation accepts and clears, for a customer within the
continental United States or Canada, a transaction arising
from a purchase or sale of a security admitted to dealings
on the Exchange effected by said customer in a market
outside the continental United States or Canada, during
the time the Exchange is open for the transaction of
business, such member, member firm or member cor-
poration shall charge and collect, in addition to any
commission payable to the party or parties executing such
transaction, a sum not less than the specified minimum
member or non-member commission rate, as the case may
be.
Securities Received or Delivered on Privilege
Rule 384. When Securities are received or delivered for a
non-member or an allied member on a privilege, the ©
specified commission must be charged.
Amendments.
April 3, 1958, effective May 1, 1958.
Mutual Agreement Clearing Charge on Service
to Regular Member
Rule 385. When a member, member firm or member
corporation receives and delivers bonds for a regular
A-75
member, the clearing charge for said service may be a
matter of mutual agreement based upon a fixed rate for
cach one thousand dollars of bonds; the payment of a
certain sum of money for said service for any period of time
is forbidden.
Amendments.
October 1, 1959, effective October 19, 1959.
Commissions on Commodity Business
Rule 386. No member, member firm or member cor-
poration shall, without charging the customary com-
mission, transact or offer to transact for any customer who
is dealing in securities dealt in on the Exchange, any
business in commodities.
Bunched Orders
Rule 387. The execution of ‘“bunched”’ orders, without
charging the required commission, is forbidden.
Reverse Transactions
Rule 388. No member, member firm or member cor-
poration shall make any transaction “over the counter” in
securities dealt in on the Exchange for his own account or
for the account of his member firm or a partner thereof or
for his regular member corporation or a stockholder
therein or for his associate member corporation or for any
account in which either he or they have a direct or indirect
interest, and a reverse operation upon the Exchange at or
about the same time, wherein the difference between the
purchase and sale prices is less than the recognized
commission on such a purchase or sale.
Clearance of Commissions
Rule 389. Unless otherwise agreed by the parties con-
cerned, all payments between members of the Exchange on
A-76
+ . . .* > . ' .
arecaunt oa ram mitcesaec an —-bunivoes snba~a-praienqper ss-
given up shall be made through the American Stock Ex-
change Clearing Corporation as provided by its By-Laws
and Rules.
Assumption of Loss Prohibited
Rule 390. No member shall assume for his owe account
or for the account of his member firm or member cor-
poration, a contract made for a customer, if a loss to the
customer has been established or ascertained, unless the
contract was made by mistake or unless the consent of the
Exchange has first been obtained.
Amendments.
September 6, 1962.
Granting of Special Advantages to Customer
Prohibited
Rule 391. Any agreement or arrangement between a
member, member firm or member corporation and a
customer, whereby special and unusual rates of interest are
given or money advanced upon unusual terms, with intent
to give special or unusual advantage to such customer, for
the purpose of securing his business, is forbidden.
interest on Short Sales
Rule 392. An allowance for interest on short sales of
stock shall not be more than the loan market rates for the
stocks borrowed or used for such short sales.
Securities and Exchange Commission
Registration Fee
Rule 393. There shall be paid to the Exchange by each
member, member firm or member corporation in such
manner and at such time as the Treasurer of the Exchange
shall direct, the sum of one cent for each $500 or fraction
A-77
thereoi of the dollar volume of the sales upon the Exchange
of securities (whether or not cleared by the American Stock
Exchange Clearing Corporation) cleared by such member,
member firm or member corporation, and any such
member. member firm or member corporation required by
this rule to pay any sum to the Exchange in respect to any
sale upon the Exchange, shall charge and collect from the
person for whom he was acting in making such transaction
the sum of one cent for each $5.00 or fraction thereof of the
dollar amount involved in such transaction. The monies so
paid to the Exchange shall be paid to the Securities and
Exchange Commission as the registration fee imposed
upon the Exchange by the provisions of the Securities
Exchange Act of 1934.
Receipt or Delivery of Non-Member
Securities Against Payment
Rule 394. When a member or member organization, in
connection with a transaction made by a non-member or
allied member off the Exchange, receives into or delivers
out of the account of the non-member or allied member
against payment securities dealt in on the Exchange, the
prescribed non-member commission shall be charged.
Amendments.
April 3, 1958, effective May 1, 1958.
July 22, 1965S.
Commissions on Rights and Warrants
Rule 395. Pursuant to Section 2, Paragraph (i) of Article
IV of the Constitution, unless otherwise determined by the
Board of Governors, on rights and warrants which are
admitted to dealings upon the Exchange, whether on an
issued or unissued basis, and which are selling below 50
cents per right or warrant, the following special rates of
commission shall apply:
A-78
(1) On business for non-members or allied
members, including joint account transactions in
which any such person is interested, the com-
mission may be as mutually agreed.
(2) On business for regular and associate
members:
Rate per 100 Shares
eT hn a US Oe
SIE 068i cincis. WAIT 02 _ —
1/64 of $1 but under 2/320f$1 ......... 0s re =
te i ld ie 5 = >
over 2/32 of $1 but under 4/320f $1 ..... 0s = =
4/32 of $1 but under 8/320f$1 ......... 13 = =
8/32 of $1 but under 1/2of$1.......... (43 rs ,
; 50
Notwithstanding the foregoing, when the amount in-
volved in a transaction is less than $100, the
commission may be as mutually agreed.
Amendments.
Adopted effective December 7, 1961.
September 6, 1962. _
Small Accounts
Rule 3%. No member organization which introduces or
carries the accounts of customers who purchase or sell
small amounts of stock shall impose any limitation of any
kind on the size or frequency of customer orders in such
accounts or the size of such accounts, unless such
limitation was generally imposed prior to April 1, 1969
With respect to the execution of any small order for the
purchase or sale of any security admitted to dealings on the
Exchange, no member organization shall impose any fee
commission or other charge on any customer in excess of
the commission prescribed in Article VI
Constitution. . Section 2(a) of the
Amendments.
April 3, 1972.
A-79
Computation of Commission on Stocks
Rule 397. The minimum commission required to be
charged under Section 2 of Article VI shall be computed on
the basis of the lowest priced executions first.
Adopted.
May 3, 1971.
Reports of Executions of Orders Exceeding $500,000
Rule 398. Promptly following the 10th day of each
calendar month each member or member organization
shall report the following information to the Exchange with
respect to each order executed, either as principal or agent,
during the preceeding calendar month for the purchase or
sale of any stock admitted to dealings upon the Exchange,
where the amount involved in such order exceeds $500,000:
(1) the name of the stock;
(2) whether the customer of the member or
member organization purchased or sold the stock.
Where the member or member organization had
all or a portion of both sides of the transaction this
should be indicated and the amount on each side
should also be indicated:
(3) whether the member or member organization
acted as agent or principal, or both, and the
number of shares on each side of the transaction
with respect to which the member or member
organization so acted;
(4) the date of execution;
(S) the market or markets where executed;
(6) the number of shares in the order and the
number of shares in each execution included
within the order;
(7) the commission or commissions charged on
each portion of the order; and,
(8) such other information as the Exchange may
trom time to time require.
A-80
For the purpose of this rule, an order shall be as defined
in Article VI, Section 2(i)(2) of the Constitution.
Adopted.
May 3, 1971.
Qualifying for Discount
Rule 399. (a) No discount shall be allowed by any
member or member organization to any non-member
broker-dealer as permitted by Article VI, Section 2,
paragraph (n) of the Constitution, unless at the time the
non-member broker-dealer is subject to an agreement in
writing with the Exchange providing:
(1) Any discount allowed to such non-member
broker-dealer as permitted by the said paragraph
(n) shall be retained by such non-member broker-
dealer free from any rebate, return, discount or
allowance made in any shape or manner, or by any
method or arrangement, direct or indirect, to or
for the benefit of any customer of such non-
member broker-dealer, except that with respect to
any order for the account of a customer whose
account is introduced to such non-member broker-
dealer by a second non-member broker-dealer
(hereinafter called “introducing non-member’),
the non-member broker-dealer may allow all or
any portion of such discount to the introducing
non-member provided that the introducing non-
member would qualify for a discount under the
provisions of said paragraph (n) had it introduced
its customer's account directly to a member or
member organization of the Exchange, and
provided further that the introducing non-member
broker-dealer is itself subject to an agreement in
writing with the Exchange as provided under
Section (b) of this Rule. For the purpose of this
Rule, the term “‘customer”’ shall be defined as that
A-81
term is defined in Section 6(c)(2((A)(ii) of the
Securities Investors Protection Act of 1970;
(2) Such non-member broker-dealer shall not
receive any such discount except with respect to
orders executed for the accounts of bona fide
customers of such non-member, whose accounts
are carried by such non-member broker-dealer or
are introduced by such non-member broker-dealer
to the member or member organization which
carries the account;
(3) Such non-member broker-dealer shall cease
to be qualified to receive any such discount
whenever such non-member breaches any
provision of its agreement with the Exchange or
whenever such non-member ceases to maintain its
principal place of business in one of the United
States, the District of Columbia or the Com-
monwealth of Puerto Rico, or ceases to be a
member of the National Association of Securities
Dealers, Inc. or to be subject to Section 15(b)(8) of
the Securities Exchange Act of 1934 or whenever
the primary purpose of such non-member and of
any parent of such non-member (as defined in Rule
314) ceases to be the transaction of business as a
broker or dealer in securities within the meaning of
such rule. Whenever such non-member ceases to
be qualified to receive any such discount such non-
member shall be required to give the Exchange
prompt written notice thereof;
(4) At any time and from time to time during
normal business hours the Exchange shall have
access to the books and records of such non-
member broker-dealer at its principal place of
business in order to determine compliance by such
non-member with its agreement with the Ex-
change. Whenever any such examination by the
Exchange fails to establish to the satisfaction of the
A-82
Exchange compliance by such non-member with
the provisions of its agreement with the Exchange,
or whenever such non-member ceases to qualify for
the discount provided by Article VI, Section 2,
paragraph (n) of the Constitution, the Exchange
may send written notice to such non-member
terminating such agreement and shall thereupon
notify members and member organizations of such
termination;
(S) Unless sooner terminated by such non-
member or the Exchange, such agreement shall
terminate whenever the provisions of Article VI,
Section 2, paragraph (n) of the Constitution shall
expire.
(b) No introducing non-member may receive all or any
portion of any discount permitted by Article VI, Section 2,
paragraph (n) of the Constitution, unless, at the time such
discount is received, the introducing non-member is
subject to an agreement in writing with the Exchange
providing:
(1) Any such discount so received shall be
retained by the introducing non-member free from
any rebate, return, discount or allowance made in
any shape or manner, or by any method or
arrangement, direct or indirect, to or for the
benefit of any customer of the introducing non-
member;
(2) The introducing non-member shall not
receive any such discount except with respect to
orders executed for the accounts of bona fide
customers of the introducing non-member which
accounts are carried by a non-member broker-
dealer subject to an agreement with the Exchange
as provided under Section (a) of the rule;
(3) The introducing non-member shal! cease to
be qualified to receive any such discount whenever
A-83
such non-member breaches any provision of its
agreement with the Exchange or whenever such
non-member ceases to maintain its principal place
of business in one of the United States, the District
of Columbia or the Commonwealth of Puerto Rico,
or ceases to be a member of the National
Association of Securities Dealers, Inc. or to be
subject to Section 15(b)(8) of the Securities Ex-
change Act of 1934 or whenever the primary
purpose of such non-member and of any parent of
such non-member (as defined in Rule 314) ceases
to be the transaction of business as a broker or
dealer in securities within the meaning of such
rule. Whenever such non-member ceases to be
qualified to receive any such discount such non-
member shall be required to give the Exchange
prompt written notice thereof;
(4) At any time and from time to time during
normal business hours the Exchange shall have
access to the books and records of such introducing
non-member as its principal place of business in
order to determine compliance by such introducing
non-member with its agreement with the Ex-
change. Whenever any such examination by the
Exchange fails to establish to the satisfaction of the
Exchange compliance by such introducing non-
member with the provisions of its agreement with
the Exchange, or whenever such introducing non-
member ceases to qualify for the discount provided
by Article VI, Section 2, paragraph (n) of the
Constitution, the Exchange may send written
notice to such introducing non-member ter-
minating such agreement and shall thereupon
notify members and member organizations and
non-member broker-dealers subject to agreements
under Section (a) of this Rule of such termination;
A-84
(S) Unless sooner terminated by the introducing
non-member or the Exchange, such agreement
shall terminate whenever the provisions of Article
VI, Section 2, paragraph (n) of the Constitution
shall expire.
* Amendments.
Adopted effective April 3, 1972.
A-85
AMERICAN STOCK EXCHANGE
SUBCOMMITTEE ON COMMISSION STRUCTURE
Memorandum
April 19, 1968
lo: Members and Member Organizations
FROM: Subcommittee on Commission Structure
SUBJECT Intra-Member Commission Rates
The Subcommittee on Commission Structure has been
appointed by the Board of Governors to review all aspects
of the Exchange's commission rates in light of changing
market conditions, costs of doing business, and needs of
ihe investing public. As a first step in such a review, the
Subcommittee on Commission Structure has examined the
intra-member commission rate structure of the Exchange.
The Subcommittee has been aided in its examination by a
report of Haskins & Sells, a major accounting firm,
engaged by the Exchange in 1965 to make a study of the
intra-member commission structure and to evaluate its
fairness and adequacy to each segment of the membership.
It should be emphasized that this memorandum does not
cover commission rates charged to public customers.
The purpose of this memorandum is to obtain your
reaction to the Subcommittee’s review of the intra-member
commission rate schedules and to have the benefit of your
suggestions and ideas. No final decisions have been
reached and suggestions will be welcomed. The purpose of
this review is to strengthen the Exchange as a public
marketplace and to insure an equitable division of com-
missions among members.
The Subcommittee feels these matters merit the most
searching consideration. A suggested procedure for ex-
pressing your views in writing or in person is outlined at the
end of this memorandum.
A-86
Present Intra-Member Commission Rate Schedules
The intra-member commission schedules of the Ex-
change cover charges by members to other members for
execution on the floor and clearing of transactions. There
are three intra-member rates: the first covering the
execution of a transaction (the “floor brokerage’’ or floor
“give-up”’ rate), the second covering both the execution
and clearing of a transaction (the ‘‘clearance’”’ rate), and
the third covering the execution of orders entrusted by
members to the specialist for execution (the “specialist's
commission”’). These rates are prescribed by the Exchange
Constitution on a per round-lot basis based on share price.
American Stock Exchange clearance and floor brokerage
rates have traditionally been higher than corresponding
New York Stock Exchange rates. American and New York
Stock Exchange floor brokerage and clearance rates for
regular members are set forth in Attachment A. These
differences apparently stemmed from differences in
average share prices on the two exchanges when the
original schedules were adopted many years ago.
There is one other significant difference between the
intra-inember rates of the two exchanges. On this Ex-
change the specialist earns a commission substantially less
than the floor brokerage rate on orders entrusted to him for
execution though the specialist performs the same service
and assumes the same risks as the floor broker. On the New
York Stock Exchange, as well as most other exchanges, the
specialist receives full floor brokerage on orders left with
him for. execution. (See Attachment B).
The lower specialist's commission on this Exchange was
apparently established for two reasons. First, the specialist
on this Exchange also acts as odd-lot dealer and the
revenue from this source was supposed to offset the lower
specialist's commission. Second, the lower rate was in-
tended to encourage a flow of limit orders to the book.
thereby making it easier for the specialist to provide orderly
markets.
A-8/
‘The Haskins & Sells report examined specialist income.
it was their finding that specialist income from odd-lots
plus income earned from the present specialist floor
brokerage rate was less than the income a specialist would
earn if he received the entire floor brokerage as on the New
York Stock Exchange.
It should also be pointed out that there are differences in
risks when comparing odd-lot dealer activities on this
Exchange with those on the New York Stock Exchange. On
that exchange, associate brokers of the odd-lot firms can
immediately offset positions in the round-lot market. A
specialist on the American Stock Exchange cannot offset
positions in the round-lot market unless such trading meets
the same performance standards now applied to his round-
lot training.
Changes in the Exchange Marketplace
In recent years, there have been several important
changes in the Exchange marketplace affecting the intra-
member commission rate schedules:
1. The average price of shares traded on the Exchange
has risen from $7 in 1962 to approximately $24 at the
present time, an increase of over 200%. Nearly 87% of
Exchange shares volume is now conceiitrated in stocks
selling over $5 per share and 40% of such volume ts in
stocks selling over $20 per share. Comparable percentages
five years ago were 60% and 12%. With the change in the
average price of shares traded on the Exchange, income
trom floor brokerage business has increased substantially.
The strengthening of the Exchange's listing and delisting
requirements should serve to maintain average share prices
at higher levels than in the past and continue the trend
away from volume in lower price brackets.
2. Volume on the Exchange has continued to expand,
rising from a daily average volume of 1,224,640 shares in
1962 to 4,562,112 shares in 1967.* In the first quarter of
A-88
1968 daily average volume rose to over 5 million shares.
3. The steady growth in volume has prompted many
commission firms to purchase additional seats on the
Exchange or activate seats held by office partners in order
to execuie transactions through their own floor members.
4. Increased business generated by the successful
completion of the new seat plan, in which 151 associate
member firms acquired regular memberships, has
strengthened the economic position of floor brokers
executing business for other members. Despite the
presence on the floor of more floor partners representing
their own firms, expanding volume has required increasing
use of independent brokers to handle overflor floor
business.
5. Through intensive efforts over the past several years,
the Exchange's specialist system has been substantially
strengthened. Specialist units have buttressed their capital
and manpower, training programs have helped insure that
new specialists are qualified, and specialists have steadily
raised their level of performance. As a result of increased
demands by the Exchange, specialists have increased their
participation, or principal trading, in the market from
16.3% in 1962, when volume averaged 1.2 million shares a
day, to 15.5% in 1967, when volume averaged over 4.5
million shares. At the same time, specialist stabilization
has risen from 74.6% in 1962 to 95.6% today. Im-
provement in specialist performance has substantially
improved the quality of the market provided by the Ex-
change.
6. Changes in Exchange volume, price levels and
regulatory standards have imposed greater market-making
demands upon Exchange specialists. With greater public
interest in our market, the Exchange specialist must meet
sudden surges in selling pressure cr buying power usually
concentrated on one side of the market. To fulfill his
> =
A-89
function of providing a fair and orderly market, the
specialist must risk substantially more capital to take or
supply stock in these situations.
Specialists’ Commissions
Against this background, the Board of Governors of the
Exchange has approved in principle an increase in
specialist's commissions.
These considerations were persuasive in adopting that
position:
® To attract capital and manpower to specializing
there must be a reliable source of income to buffer
the risks of dealer activity. Specialists’ commission
income serves this purpose by providing a con-
tinuous source of capital and incentive in the
performance of market-making activities during
good markets and bad.
e The specialist performs the basic brokerage
function with respect to orders left with him for
execution. In addition to the actual execution, the
specialist has the various tasks and liabilities
associated with handling the order and reporting
its execution. On most other exchanges the
specialist receives the full floor brokerage for
performing this service.
© A specialist's ability to make trading profits is
restricted by standards of performance imposed by
the Exchange upon his market-making activities.
These standards have tended to make brokerage
commissions an increasingly important source of
capital and incentive in the performance of
market-making activities. ,
e Haskins & Sells found that specialist income
from odd-lots plus income from specialist com-
missions is not equivalent to the income a specialist
would earn if he received the entire floor brokerage
rate as on most other major exchanges.
A-90
¢ Coupled with increased regulatory requirements,
the increases in Exchange volume and price levels
described above have imposed greater market-
making demands upon specialists and obligated
specialists to risk substantially more capital.
Finally, the Haskins & Sells report recommended that in
view of increased demands made upon the specialist's
dealer function, specialist commission income be increased
approximately SO%.
Floor Brokerage
After a preliminary review of the intra-member floor
rates the Subcommittee has not yet reached any definitive
conclusions with respect to floor brokerage rates. However,
it is helpful to list some of the reasons it has considered for
and against a downward revision in the floor brokerage
rate.
Reasons for a downward revision in the floor brokerage
rate include the following:
e The rate would be more in line with floor
brokerage on other exchanges.
¢ Such a step would benefit members who are
‘directly responsible for bringing business to the
Exchange and who have been faced with steadily
increasing costs of doing business.
* A downward revision might encourage firms
doing a public commission business to bring more
business to the Exchange and make increasing use
of independent floor brokers.
Some of the reasons for maintaining the present rate may
be summarized as follows:
e The impact of a change on one segment of the
membership might be unduly severe. °
¢ If floor brokerage rates are lowered, this would
mean that the Exchange, with its direct mail
clearance, could compete unfairly with clearing
A-9]
members having correspondent relationships with
out-of-town firms.
¢ A downward revision in the rates might have an
impact on seat values.
Weighing these pros and cons, the Subcommittee is
inclined to believe that some lowering of the floor
brokerage rate may be necessary and desirable in the best
interest of the Exchange and the membership as a whole.
In line with these views and the Board's approval in
principle of an increase in specialists’ commissions, a test
schedule has been prepared which couples an increase in
the specialist rate with a downward revision in the floor
brokerage rates. This test schedule is set forth in At-
tachment C for membership consideration.
Future Programs
The Exchange is now planning or implementing several
programs which may affect intra-member rates.
In February, the Board of Governors authorized the
Exchange administration to develop a plan for the
automated execution of odd-lots on the Exchange. The
Exchange has a responsibility to insure that it provides
efficient service to the membership in the servicing of odd-
lot orders. New procedures must be devised to increase
efficiency and productivity in the execution of odd-lots and
automating odd-lot executions will be a major step in that
direction.
The Exchange’s automation objectives on the floor are to
increase productivity by automating activities which
support the auction market, thus permitting greater
volume to be handled without proportionate increases in
personnel and trading facilities and freeing members from
non-productive clerical tasks.
The Exchange has instituted a direct mail clearing
service which is now in operation with three firms on line
and a considerable number to be added this year. Over 50
A-93
A-92
Pade nige ate ATTACHMENT A
firms have indicated their interest in this: service. Its Present Regular Member Schedule
purpose is to reduce the cost of doing business on the Rate Per 100 Shares)
Exchange for firms which do not have clearing facilities in oar eg
New York. ~ Clearance
wie erie rae , ASE NYSE} ASE (NYSE|
The Subcommittee intends to continue its inquiry into all Price Range
phases of the commission schedule. At this point, however, 1/256 of $1 .03 -0S
the comments of regular members, allied members and is RR (.0S) (.05)
associate members on the above matters and any alter- ee Re ae 0S 6
native approaches will be most welcome. The Sub- (.10) an
committee would appreciate any written comments before 1/04 of Sl under ........--.--. 17 es
May 15, 1968. These should be addressed to Mr. H. DE ‘x <cd6gndeaaeneses (.10) (.20)
Vernon Lee, Jr., Vice President, Membership Services WEEE vkdscsincscecodiinses 17 .25
Division. Arrangements can also be made with Mr. Lee’s (.25) sap
office for a personal appearance before members of the over 2/32 of Sl under .......... 33 2
Subcommittee. The Subcommittee and the Exchange DIESE Ss cv ccccscsiccoses (.25) (.S0)
administration stand ready to answer any questions you 8/32 of Sl under .............. 5S SS
may have. i ccd cone aii us (.50) (.75)
i /2ofSiunder$l ...........-- 1.00 1.50
Sincerely yours, W/2 ‘S09 (80)
can S| «6 EeS, Sh endor$2 .......c.0eeceees 1.75 2.75
Chairman (1.25) (2.00)
CORDON &. Es 35©6©6©6©6§COl lp tti«wtCiwiwti‘(‘(‘(C 3.20
JAMES J. LEE ae aed Ps
HAROLD J. MINTZ eNO ccc cecesenname 3.30 4.90
JOHN WASSERMAN (2.10) (3.50)
MACRAE SYKES $10 under$20 ............. eA ais
FRANK C. GRAHAM, JR. $20 under $40 ...............- 5.10 7.75
RALPH S. SAUL (3.65) (7.30)
Ex-Officio $40 under $100 ............... 5.65 8.60
(3.85) (7.70)
$100 under $150 ............-. 6.50 9.75
(4.35) (8.70)
$150 under $200 .............. 6.50 9.75
(4.50) (9.00)
$200 and above ............... 6.30 9.75
(S.00) (10.00)
A-94
ATTACHMENT B
Present Regular Member
Specialist Floor
Brokerage Schedule
(Rate Per 100 Shares)
ASE NYSE
Specialist Specialist
Price Range Fir. Brokerage _ Fir. Brokerage
ee ee 01 .OS
DEED SGedeectuaccenescs .02 .10
1/64 of $1 under 2/32 of $1 ..... .07 10
OED 066 chdcdédeccidands .07 .25
over 2/32 of $1 under 8/320f$1. = .13 .25
8/32 of $1 under 1/2 of $1 ...... .22 50
1/2o0fS$lunder$1 ............ 3S SO
a ee -70 1.25
SEED ccccckcacescenvess .80 1.40
SPEED édiccocccoesddecc 1.35 2.10
ee 1.70 3.10
$20 under $40 ................ 2.00 3.65
$40 under $100 ............... 2.20 3.85
$100 under $150 .............. 2.60 4.35
$150 under $200 .............. 2.60 4.50
$200 and above ............... 2.60 5.00
A-95
ATTACHMENT C
Regular Member Test Schedule
(Rate Per 100 Shares)
Price Range
‘| SS es .03 0S
(.05)
OS 10
* eR ee 10
DAUD cacccocccucces 17 1S
PE am Ub SER cbs cheeses (.10)
UE 4.064500440000005045 17 25
(.25)
over 2/32 of $l under .......... 33 35
2. rere (.25)
8/32 of Sl under .............. 55 50
RRGUER, tn 0dacasieepenedes (.50)
1.00 1.00
1/2 0f $1 under$1 ............ (.50)
1.75 1.90
es Sees (1.25)
2.05 1.75
SD eee GD ca vsicinsccic ced vies (1.40)
3.30 2.0
SB ember Sse .oci.ccdecesices (2.10)
GOT GD cccececccccccess 4.00 3.50
(3.10)
GENE co dcctcccsesecese 5.10 4.25
(3.65)
$40 under $100 .............4.. 5.65 4.60
(3.85)
$100 under $150 .............. 6.50 5.20
(4.35)
$150 under $200 .............. 6.50 5.50
(4.50)
$200 and above ............... 6.30 6.00
(5.00)
.03
OS
.10
AS
a
A-96
EXHIBIT “D”
LETTER FROM RALPH S. SAUL DTD. 4/24/68
April 24, 1968
The Honorable Manuel F. Cohen
Chairman |
Securities and Exchange Commission
SOO North Capitol Street, N.W.
Washington, D.C. 20549
Dear Chairman Cohen:
We are writing to inform you of steps the Exchange h
been taking concerning its pec rate mere af As
we mentioned in our letter of August 17, 1967, this matter
involves nearly every important aspect of the exchange
market and therefore decisions should be made upon the
basis of careful study and analysis. We have taken a
number of steps in that direction.
Since our letter of August 17, 1967, the Board of
Governors of the Exchange has appointed a Subcommittee
on Commission Structure to study all aspects of the Ex-
- Change’s commission rates. As a first step in its study of the
entire commission rate schedule, the Subcommittee
reviewed the intra-member commission rates of the Ex-
change. The attached memorandum, which is being cir-
culated to the membership, summarizes the Sub-
committee's preliminary views regarding the intra-member
commission rate structure and solicits comments and
suggestions.
It should be noted that the memorandum does not cover
commissivn rates charged to public customers. This aspect
of the commission rate structure is now under study by the
Subcomm .tice.
The Exchange has reviewed Exchange Act Release No.
8239 concerning proposed Rule 10b-10. We feel strongly
A-97
that adoption of proposed Rule 10b-10 would not be in the
public interest. \t would undermine the commission rate
structure of the Exchange—a structure which involves the
efficiency of our central auction market and the ability of
the Exchange to exercise its regulatory responsibilities. In
view of these overriding considerations, and others
presented in the many comments on the proposal, we urge
the Commission to abandon a proposal which could
irreparably damage the securities markets of this country.
The Subcommittee on Commission Structure, as part of
its review of public commission rates, will consider possible
alternative methods for dealing with the problems
described in the Commission's Release.
We would like to reiterate our willingness to cooperate
with the Commission and other self-regulatory
organizations in the resoiution of the difficult and complex
questions involved in the commission rate area.
Sincerely,
s/ Ralph S. Saul
Enclosure
A-98
LETTER FROM MANUEL F. COHEN
DATED MAY 28, 1968
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Office of the Chairman
May 28, 1968
Mr. Ralph S. Saul, President
American Stock Exchange
86 Trinity Place
New York, N.Y. 10006
Dear Mr. Saul:
Enclosed is a copy of a letter sent today to Mr. Robert
W. Haack, President of the New York Stock Exchange.
The Commission has not directed a similar letter to your
Exchange because of possible differences in the situation
prevailing. However, the Commission requests that you
give immediate attention to appropriate modifications of
your commission rate structure, including any necessary
interim steps.
Sincerely,
s/Manuel F. Cohen
Chairman
Enclosure
A-99
~
LETTER FROM MANUEL F. COHEN
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Office of the Chairman
Mr. Robert W. Haack
President
New York Stock Exchange
Eleven Wall Street
New York. N.Y. 10005
Dear Mr. Haack:
As you are aware, the commission rate structure of
national securities exchanges has been the subject of ex-
iensive and continuing study by the Commission. It has
become apparent in the course of that study that the
present minimum rate structure has led to the development
of practices designed to avoid the purported restrictions
against the negotiation and the reduction of commission
rates. We believe it is now generally recognized that
changes in the present commission rate structure are
required to benefit the investing public.
The Commission will hold public hearings under Section
21(a) of the Securities Exchange Act of 1934 commencing
July 1, 1968, on the question of the commission rate
structure of national securities exchanges. A copy of the
order for public hearings is enclosed. One subject of those
hearings will be whether, in view of present practices, a
minimum exchange commission rate structure is necessary,
and if so to what extent, in order to achieve the objectives of
the Securities Exchange Act of 1934.
The Commission hereby makes written request pursuant
to Section 19(b) of the Securities Exchange Act that your
Exchange effect on its own behalf changes, to become
A-100
effective on or before September 15, 1968, in its rules,
policies and practices in respect of its commission rate by
modifying Article XV, Section 2(a)(1) and appropriate
other sections of the exchange constitution and rules either
(a) in accordance-with the revised minimum commission
rates as set forth in Attachment A, or alternatively, (b) by
eliminating. with respect to orders in excess of $50,000,
requirements for minimum rates of commission. You
should also implement appropriate reductions in the
current intra-member rate for non-executing firms or
eliminate requirements for minimum _ intra-member
charges to such non-executing firms.
We wish to emphasize that this request is intended as an
interim step and that the Commission has reached no
definitive conclusion on whether the particular rates
described in Exhibit A would reflect the optimum form of
rate structure for your exchange or that any schedule of
specified rates would provide a complete answer to the
problems raised in Release No. 8239 and the comments
thereon. Additional measures with respect to other mat-
ters, including give-ups are under continuing consideration
and will be examined in the course of the hearing com-
mencing July 1, 1968.
The request that your exchange take the foregoing steps
is made in the context of the Commission's responsibilities
to consider the national policies embodied both in the
securities laws and in the antitrust laws. It is based upon
the deficiencies in the present exchange rate structure
which fails to provide appropriate discounts but permits
give-ups direct by institutional managers, with consequent
departures from the purported minimum rate structure on
an arbitrary and discriminatory basis.
Sincerely,
s/ Manuel F. Cohen
Enclosures Chairman
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ATTACHMENT A
Commissions to Non-Members on Stocks, Rights and
Warrants
On stocks selling at 31.00 per share and above the
commission on cach order shall be not less than the rates
hereinafter specified:
(i) On each unit of trading up to and including
four units of trading the commission shall be:
2% of first $400 of money involved plus
1% on next $2,000 of money involved plus
1/2% on money involved above $2,400 plus
$2.00
(ii) On all units of trading above four units the
commission shall be 1/2% of money involved plus
$2.00 per unit of trading.
(iti) On odd lots (less than a unit of trading)
same rates as that under (i) above, less $1.00.
(iv) Notwithstanding the foregoing:
a) when the amount involved in a transaction is
less than $100, the commission shall be as
mutually agreed;
b) the minimum commission charge ni any event
shall not be less than $6 per order.
In respect of stocks selling at $1.00 and above, an order
shall be deemed to include all round lot or odd lot pur-
chases or sales for one account, of a single security,
executed on one business day, provided, however, that
where an order for five or more units of trading is executed
on one business day, all round lot purchases or sales of that
security for that account executed in the next nine business
days shall be deemed part of that order.
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LETTER FROM RALPH S. SAUL DTD. 6/26/68
The Honorable Manuel F. Cohen
Chairman
Securities and Exchange Commission
SOO North Capitol Street, N.W.
Washington, D.C. 20549
Dear Chairman Cohen:
This letter is in response to your May 28, 1968 letter in
which you ask that the American Stock Exchange give
immediate attention to appropriate modifications of its
commission rate structure, including any necessary interim
steps. You also dircvied the Exchange's attention to an
enclosed copy of your letter to Mr. Robert W. Haack,
President of the New York Stock Exchange. In the
Commission's letter to Mr. Haack, it was stated that the
present minimum rate structure has led to the development
of practices designed to avoid the purported restrictions
against the negotiation and the reduction of commission
rates. In addition, the letter requested the New York Stock
Exchange to make specified changes in its commission
rates. Moreover, the letter stated that the Commission will
hold public hearings on the commission rate structure of
national securities exchanges.
Your letter and the proposals contained in your letter to
Mr. Haack have been presented to the Board of Governors
of the Exchange. You noted in your letter to Mr. Haack
that the minimum commission rate structure does not
provide appropriate discounts but permits give-ups
directed by institutional managers.
The Exchange recognizes that as a result of the ex-
ceptionally rapid growth of institutional investors during
the past decade and the very substantial influence which
such investors exert on the members of the Exchange
community with whom they deal, certain practices have
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developed which place a severe strain on the commission
rate structure as conceived and embodied in the Exchange
Constitution. Of particular concern is the type of customer-
directed give-up which you describe in your letter to Mr.
Haack.
The Exchange has also been carefully reviewing its
commission rate structure for some time. In addition, the
Exchange has analyzed the Commission’s proposed Rule
10b-10 and the responses to this proposal. This extensive
review along with recent investigations conducted by the
Exchange staff and current information developed con-
cerning give-up practices have prompted the Board of
Governors to conclude that such customer-directed give-
ups may erode the minimum commission rate structure
and are not consistent with such structure. Accordingly,
the Board has agreed in principle to eliminate such
customer-directed give-ups as are noted above.
The Board of Governors of this Exchange has also
agreed in principle that a modification of the present
minimum commission rate structure to provide volume
discounts is appropriate based on all available information
and recognizing the uniqueness of this marketplace.
The Exchange's staff has been directed by its Board to
work with the Commission to achieve meaningful and
prompt implementation of the Board of Governors’
position with respect to discounts and give-ups. The Ex-
change also plans to submit its legal and economic evidence
supporting the setting of minimum commissions which,
over the years, has made possible a viable, efficient and
regulated auction market.
Sincerely,
s/ Ralph S. Saul
RSS:rd
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AMERICAN STOCK EXCHANGE
SUBCOMMITTEE ON COMMISSION STRUCTURE
Memorandum
September 20, 1968
TQ: Members and Member Organizations
From: Subcommittee on Commission Structure
Subject: Interim Commission Schedule
Last April the Subcommittee on Commission Structure,
appointed by the Board of Governors to study all aspects of
the Exchange's commission rates, sent the membership a
memorandum reporting on work already accomplished and
suggesting a revised schedule of intra-member rates. The
memorandum did not cover commission rates charged
public customers. It requested comments and offered an
opportunity for appearances before the Subcommittee. A
number of comments were received and several members
appeared.
On May 28, 1968, the Securities and Exchange Com-
mission notified the exchanges that it would hold public
hearings commencing July 1 with respect to commission
rates. The Commission directed the New York Stock
Exchange either to adopt a rate schedule proposed by the
Commission or eliminate minimum commission rates on
orders in excess of $50,000, and to reduce floor brokerage
rates. It emphasized that the present rate structure did not
provide appropriate discounts while permitting give-ups
directed by institutional managers.
At the same time, the Commission requested that the
American Stock Exchange give immediate attention to
modifications of its rate structure, including any necessary
interim measures.
In view of these developments, the Subcommittee
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determined to defer any decision with regard to in-
tramember rates.
On June 28, the President of the Exchange notified the
membership that after considering information developed
regarding give-up practices, the Board agreed in principle
to modify the commission rate structure to provide for a
volume discount and to eliminate customer-directed give-
ups.
On Augusi 8, the New York Stock Exchange proposed
its own interim schedule of non-member rates providing for
volume discounts, an interim schedule of reduced intra-
member commission rates and a constitutional amendment
prohibiting customer-directed give-ups. Subsequently the
Commission ordered the New York Stock Ex
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