Amicus Curiae Brief — Gordon v. New York Stock Exchange, Inc.

Supreme Court brief1975

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Text

Question, presented _-_-___..--- sail sail cil tasn nok soci te

I IIIs 6iicanicoducmendenwecedenens

Interest of the United States SEER ITNT ee RY Gag pe |

A. The district court’s ecadon Bee ee ee

B. The court of appeals’ decision - --~----..-

Summary of PN ioc crap iow wewe neamee

Argument:

The Securities ican Act of 1934 does not

exempt from the Sherman Act the fixing of

commission rates by registered securities

exchanges, except to the extent that a

court determines that such exemption is

necessary to make the Securities Exchange

Be iis ibe oe cls. 10

A. The fixing of standard rates of com-

mission by securities exchanges is

illegal per se unless justified by the

requirements of the Securities Ex-

change Act as determined by the

antitrust courts............-.---.- 11

B. Under Ricci v. Chicago Mercantile Ex-

change, 409 U.S. 289, a full record

should have been developed for

fa a as da ae ce

application of the Silver test ___ _ -__ 17

LA eee Oh ne 17

mi ae ee Os. 5... 5s. 20

3. The need for afull record... 24

(1)

567-303—75——1

AA RR A aR nas Ad as rs ay deen ahr repaint

Argument—Continued . .

C. Neither the language and structure of ne a

the Act ‘nor its/legislative history ~

indicates that exclusive jurisdiction

| over exchange price-fixing is vested

— 3

: 1. The language and structure of

“2 The legislative history -__-_~ |

D. In the absence of cléar ‘legislative in- ~

-tent, the court of appeals had’no ~*

basis: front which ‘to irifer’ that the ’

SEC ‘has exclusive jurisdiction over

‘al

; ‘se a;

~~ oS Fe ee OF eS

‘ut

_ 1. No pervasive reazilatory scheme

> © 4°" “Sg 'gdbstituted for price com-

armen een en

~ 2. Noexemption by Section 19(b)

IES (GF or by registration of ex- |

ments imag ter 7 43

. Fixed commission rates as a

keystone of the marketing _

ina ee ent ean ino Selatan _

CE ————————————

se CITATIONS

Cases: Li A.J ¢ ise. Kost io!

Abbott’ Securities’ Dorp: Vv. a York Stock

Ezchange,; ‘1974-2 Trade’ Casés;' $75,324

(D:C.D:C)} decided October’ 30; 1974)".) 6

American Telephone & Pelegraph C6: 'v. Federal

Communitations Commission, 487°F 24 865--16-17

American Telephone and Telegraph’ Co.” v.

Fedetal' ‘Communications \Cibinnibdeson. 503

Page

Pod Big! CCl Seino waiswosien OLS 16, 38

Artzonia, Grocery’ v:' Atchison, "P'e (SIF. Ry.

| C8: 20'S. 970213. cw _euoet. io 39

Adebolitted Phess v. United States, 326 US.1__ ll

Baird’ v2 Franklin; 141 F: 2d° 238, certiorari }

dérlied: 323 WS. 737.080.) Shh . 27, 46

j Board of Trade of the City of Chicago Vv. United

States, 246 BREE. eT Sesh 27

Californta ¥. Federal Power’ Commission, 369

WB aS2 Lid boca AVE TT oe 14,

ws ‘ 16, 22, 50

Carnation ‘Co. ¥° Pacific Westbound Confer.

wanna” oe 213_--------- eS hh MG BA 12,

; ) 14, 17, 22, 37, 43, 55

| Chéoron Oil Co. v. Huson, 404 US.97_.22...° 55

ol ~~ | Denver & R.G.W.R: Co. 'v. United States, 387

~ US. 485_.5_' sn sab Sel MP ow ak ta te gtr er ak ted Nes eo aw as cso who 50

Federal Baseball Club v. National League, 259

A SE OE pee okie 48

Federal Maritime Commission v. ‘Svenska

Amerika Linien, 390 U.S. 238__-..____- 50:

- Fredrickson v. Merrill Lynch, Pierce, Fenner

& Smith, 1974-2 Trade Cases, $75,227

(N.D. Ill, decided September 9, 1974),

appeal pending A Fy 00 gore ity 15,.24

Georgic v. Pennsylvania R. Co., 324 US. 439. _ i a

earns occa eatin a MA HORE TESTE can ran aOR mImUE mE mE

Cases—Continued oni

Girouard v. United States, 328 U.S. 61_-_-_--- 47

Greater Boston Television Corp, v. Federal .

Communications Commission, 444 F. 2d 841. 46

Gulf States Utilities Co. v. Federal Power Com-

eaittliet: ABS TER, BOB in sccicsied<c cae 50

Hartford-Empire Co. v. United States, 323

TR ae 54

Harwell v. Growth Programs, Inc., 451 F. 2d

240, rehearing denied, 459 F. 2d 461,

certiorari denied sub nem. National Ass'n

of Securities Dealers, Inc. v. Harwell, 409

UD Bhai nivteinteinna 15, 24, 26, 34-35, 45

Independent Broker-Deal. T. Ass’n v. Securities -

& Exchange Commission, 442 F. 2d 132, !

certiorari denied, 404°U.S. 828__........-. 40

Independent Investor Protective League v. Se-

curwies and Exchange Commission, S.D.N.Y.,

No. 71-1924, dismissed without opinion,

nl lg ge sain Sanit

pe ae eee 41

International Ass’n of Machinists v. Street, 367

FE PRS cca nko hncReee A ckdidicennnn > 34

J. I. Case Co. v. Borak, 377 U.S. 426....---- 45

Kaplan v. Lehman Bros., 371 F. 2d 409,

certiorari denied, 389 U.S. 954___........- 24, 25

Keogh v. Chicago & N.W.Ry. Co., 260 US.

BI aids Selaieg hiss iss pa eds aes nents 12

Maple Flooring Mfrs. Ass’n v. United States |

SOR FIT GBs jedan pans Boe canes = mene 12

Maryland & Virginia Milk Producers v. United

ieten: MEATS. ABR. 8 50 onnk ssn scans. 22

Merrill Lynch, Pierce, Fenner & Smith v.

Sees Ge Be Ba picts nt kandiccs 13, 29

National Labor Relations Board v. Plasterers’

Velen. HARALD, SUB. cs inn cutee nen 47 i

a Otter Tail Power Co. v. United States, 410 U.S.

Ric ca scans vee thhecwenceak 14, 16, 37, 48, 50

A ee ei a penn tO

Cases—Continued

Pan American World Airways v. United States, page

ee NS oars cc ircnacumamack 16, 22, 37

Parker v. Brown, 317 U.S. 341_...---------- 48

PBW Stock Exchange, Inc. v. Securities and

Exchange Commission, 485 F. 2d 718, cer-

tiorari denied, 416 U.S. 969__..._-_------ 31, 49

Poller v. Columbia Broadcasting System, 368

Ricct v. Chicago Mercantile Exchange, 409

U.S. 289, affirming 447 F. 2d 713____-__--- 2, 9,

14, 15, 17, 24, 44, 55

Scheuer v. Rhodes, 416 U.S. 232_-_..._..--- 26

Silver v. New York Stock Exchange, 373 U.S.

Cihiskanns<sthakbahknheekcawna en ae & passim

Silver v. New York Stock Exchange, 196 F.

Supp. 209, reversed, 302 F. 2d 714, reversed,

ee i Son oon eee ckaew ese 18, 28

Simpson v. Union Oil Co., 396 U.S. 13___.--- 55

Sugar Institute v. United States, 297 U.S. 553_ 12

Thill Securities Corp. v. New York Stock Ex-

change, 433 F. 2d 264, certiorari denied,

401 U.S. 994, after remand, 469 F. 2d 14_- 8,

15, 16, 24, 25

United States v. Aluminum Co. of America,

re, Ba CEN i hnicickiinncumundane 54

United States v. Borden Co., 308 U.S. 188___-- - are. 8

22, 32, 43, 48, 55

United States v. E. I. duPont de Nemours & Co.,

BOS UG. Bee. o sccac ance gic siglacia wie ane sn 54

United States v. Joint Traffic Association, 171

Side A Uh oi ven on awe dhaes d= ee 12

United States v. Morgan, 313 U.S. 409_____-_- 46

United States v. Morgan, 118 F. Supp. 621- . - 34

United States v. National Ass’n of Real Estate

OG, Bee UD. Ween ooo cc tieel ccs 11, «ee

Cases—Continued

United States v. Pacific and Arctic By. and

¢ Nav. Co., 228 U.8. 87... .... ac S28. 13S es "14

United States v. Philadelphia National Bank,

| 874 U,S.-0le . 22 aud - sus 14, 16, 22, 43, 55

: United States v. Radio Corp. of America, 358

US. S04. c. stae i.e J als iedeei dae 14, 22

United States v. Socony-Vacuum Oil Co., 310

See PN oC NES Snow nneiwxndebh.Jtcd 34, 43

United States v. Terminal. R. Ass’n of St. Louis, |

T- UB. S08 ros hobs get) Rec 11, 24, 48

United States v. Trans-Missouri Freight Asso-

ciation, 166 US.290-)5 1: - eid cc 12,14

United States v. Trenton Potteries Co., 273 U.S.

Pos. iilececcre eee. PRE 11, 47

White Motor Co. v. United States, 372 U.S. 253. 26

Zuckerman v. Yount, 362 F. Supp. 858__--__ = 15

Statutes: .

Clayton Act, 38 Stat. 730, et seq.:

Section 4:15 U.S.C. 15.2_---.-.------. 72

Section 16,45 U.8.C, 26..3....-.-.2- 2. 72

Commodity Exchange Act, 42 Stat. 998, ee

amended, 7 U.S.C. 1, ef seg... ..-22-2-2-.-- 15, 21

Communications Act of 1934, Section 221 (a),

48 Stat. 1080, as amended, 47 U.S.C.

MAE adc piconnducsegecuamuse .d.l0 31 i

Robinson-Patman Act, - Stat. 1526, 15

Securities Exchange Act of 1934, 48 Stat. 881,

et seq., as amended, 15 U.S.C. 78a, ot 90g... 11, 57

Section 2; 15 U.8.C. 7Sb.....-...---- 3, 27, 57

Section 3(a)(1), 15 U.S.C. 78e(a)(1)_---- 11

Section 3(a)(3), 15 U.S.C. 78e(a)(3) chniae 5

Section.5, 15 U.8.C. 78e. 2... 2 bae- 27, 59

Section 6, 15 U.S.C. 78f_.-.----- 27, 41, 42, 59

Section 6(b), 15 U.S.C. 78f(b)__ 2, 12, 28, 41, 42

| Section 6(d), 15 U.S.C. 78f(d).. 2, 12, 28, 41, 42

| Booties 7, 16 U.S.C. Tae. . <2 5k. 29

Sth dE NSEC SN Re AT

vil

Statutes—Continued Page

ection & 15 U.6:C. 7ai... 3... 2. 29

Beetioe Oe 28 Tice. fal. oc. skeen 29

Section 10(a), 15 U.S.C. 78j(a) --------- 29

Section 10(b), 15 U.S.C. 78j(b)_-------- 29, 45

Becta 115 U.s.c. fom... .+<.------

Section 11(a), 15 U.S.C. 78k(a)_-------- 29

Section 11(b), 15 U.S.C. 78k(b) - - ------ 29

Section 12(f), 15 U.S.C. 78I(f)..-.------ 32

Section 15A,- 15 U.S.C. 780-3(a)-(n)

(the Maloney Act):__..------- 32-33, 45, 61

Section 15A(b), 15 U.S.C. 780-3(b) - 33

Section 15A(b)(8), 15: U.S.C. 780-

TONG. «sno epee ese >~e=- 33

Section 15A(g), 15 U.S.C. 780-3(g) -- 34

Section 15A(k), 15 U.S.C. 780-3(k) -- 34

Section 15A(n), 15 U.S.C. 780-3(n)_ —s_- 34,

35, 45

Section 19, 15 U.S.C. 78s_-__..------ 42, 43, 68

Section 19(a), 15 U.S.C. 78s(a)_------- 28, 45

Section 19(b), 15 U.S.C. 78s(b)------- passim

Section 19(b)(9), 15 U.S.C. 78s(b)(9)_-- passim

Section 19(d), 15 U.S.C. 78s(d)-------- 39

Section 21(a), 15 U.S.C. 78u(a)-_------- 40

Section 25(a), 15 U.S.C. 78y(a)-------- 31

Section 28, 15 U.S.C. 78bb-_--------- 8, 41, 70

Sectias Ga, 36 U.S.C. 7am... =... 45

Sherman Act, 26 Stat. 209, as amended, 15

Wee 0 ko cg cacbnnncyn ns 3

Baie 1 06 ORO: 5, 71

SNE OW CI BAe Macs codon nncecunce 5, 71

Congressional:

78 Cong. Rec. 8090-8091 _ _.....----------- 31

78 Cong. Rec. 8591-8592... ...........--..- 31

119 Cong. “Rec. $11368-S11387 (daily ed.,

PE BE, SOEs becnce bn nn cnn raeene es 44

VIII

Congressional—Continued 2S. ones

120 Cong. Rec. 88950-88958 (daily ed. May

fe Ee *. 45

H.R. 5050, 98d Cong., Ist Sess.....__..___-- 44, 52

H.R. 7852, 73d Cong., 2d Sess..__....____-- 30

H.R. 9323, 73d Cong., 2d Sess.___...__-..-- 30, 31

H. Rep. No. 93-1476, 93d Cong., 2d Sess. _ - _ _ - 44, 52

H. Rep. No. 1383, 73d Cong., 2d Sess. _____--_- 30

H. Rep. No. 1593, 62d Cong., 3d Sess. ___-___- 30, 48

Hearings before the House Committee on

Interstate and Foreign Commerce on H.R.

7852 and H.R. 8720, 73d Cong., 2d Sess. _ _ __ 30

Hearings before the Senate Committee on

Banking and Currency on 8S. Res. 84 (72d

Cong.) and S. Res. 56 and S. Res. 97 (73d

Cong.), 73d Cong., Ist and 2d Sess. _ _ _ _- 30, 31, 32

Letter from the President of the United

States to the Chairman of the Committee

on Banking and Currency with an Accom-

panying Report Relative to Stock Ex-

change Regulation, 73d Cong., 2d Sess.

COU I ok 29

Letter of Hon. Manuel F. Cohen, Chairman,

Securities and Exchange Commission, to

the Honorable A. Willis Robertson, Chair-

man, Committee on Banking and Currency,

U.S. Senate, July 30, 1965, 111 Cong. Rec.

RO ce a ce ens 36

Letter of SEC Chairman Casey to Chairman

Harrison A. Williams, Jr., Subcommittee

on Securities, Senate Committee on Bank- °

ing, Housing and Urban Affairs, December

3, 1971, Hearings before the Subcommittee

on Securities of the Senate Committee on

Banking, Housing and Urban Affairs on S.

3169, Stock Exchange Commission Rates,

DREAM, WI oe oo ccs 52

Congressional—Continued Pen

_ Letter of SEC Chairman Casey to the Presi-

dent of the Senate, December 28, 1971,

transmitting SEC Study of Unsafe and

Unsound Practices of Brokers and Dealers,

H. Doc. No. 92-231, 92d Cong., Ist Sess.___ 38

Letter of SEC Chairman Cook to Chairman

Harrison A. Williams, Jr., Subcommittee on

Securities,'Senate Committee on Banking,

Housing and Urban Affairs, April 10, 1973. - 52

Gr eee Ce, Oe OR 44, 52

So. Sone, wee cme, 1st eee. ke 44

So. 20en, son. Wee. Od SONB.. ee 30

i ee, eR i ee 30

S. Rep. No. 93-187, 93d Cong., Ist Sess_____- 44, 52

S. Rep. No. 93-865, 93d Cong., 2d Sess__--_- 45

S. Rep. No. 1739, 74th Cong., 2d Sess__-__--- 32

S. Rep. No. 792, 73d Cong., 2d Sess______-_-- 30, 32

Securities Industry Study, Report of the

Subcommittee on Commerce and Finance

of the House Committee on Interstate and

Foreign Commerce, 92d Cong., 2d Sess.

(bocwanitins Feist)... 44-51

Securities Industry Stucy, Report of the

Subcommittee .on Securities of the Senate

Committee on Banking, Housing and Urban

Affairs, 92d Cong., 2d Sess. (Committee

| PEE reba ae, = eee $ 41

Securities Industry Study, Report of the

Subcommittee on Securities of the Senate

Committee on Banking, Housing and Urban

Affairs, 93d Cong., Ist Sess. (Committee

yg | Ba RT SESE RG tepnieccee eS gl na one 43-51

“Special Study of the Securities Markets,”

H. Doc. No. 95, 88th Cong., Ist Sess____-__- 39, 46

Congressional—Continued

Testimony of Commissioner Loomis, Hearings | page’

before the Subcommittee on Commence and

Finance of the House Committee on Inter- \

state and Foreign Commerce, on H.R. 5050 x

and H.R. 340, Securities Exchange Act

Amendments of 1973, 93d Cong., Ist Sess.,

Miscellaneous:

-_ Baxter, NYSE Fixed Commission Rates: A

Private Cartel Goes Public, 22 Stan. L. Rev.

G16 CIT) ee Bie 37, 53

17 CPR 900.1768 16

90 Wed: Ree 8471... 2 16

II Loss, Securities Regulation (2d ed. 1961)... 34, 48

III Loss, Securities Regulation (2d ed. 1961) _- 45

Note, Informal Bargaining Process: An

Analysis of the SEC’s Regulation of the New i

York Stock Exchange, 80 Yale L.J. 811 i

(1971) ____- re a peo i GA lenge 39 ;

In the Matter of the Rules of the New York i

Stock Exchange, 10 8.E.C. 270__....------ 49, 50

Securities Exchange Act Release No. 5889 :

1 Bibs iS RR AS AAS ae 39

Securities Exchange Act Release No. 9007 i

ern AUG. occ eee cn 40 i

Securities Exchange Act. Release No. 9950

COINS Be, BO) ait nc o whniede oes eeceels 49

Securities Exchange Act Release No. 10206

fe Ee sane ais aang «ise et one ra a 40

Securities Exchange Act Release No. 10383

(Suen AE; Rete) sou cores c. 40

Securities Exchange Act Release No. 10670

CE oi de ce ecadccdastecknes 40

Securities Exchange Act Release No. 11073

ORR es Bn a vos ese clic wenn 41

, cerice

Miscellaneous—Continued

Securities Release Act Release No. 11203 pape

Clomeary DE, 1070)... one cca 39, 40, 50, 52

Securities Exchange Commission, First Annual

MIS Coos os shi eens nwiuweu 42

Securities and Exchange Commission, State-

ment on the Future Structure of the |

Securities Market (February 2, 1972) _____- 40

Tracy and McChesney, The Securities Ex-

change Act of 1934, 32 Mich. L. Rev. 1025

eee

In the Supreme Court of the Bnited States

Octoser TERM, 1974

No. 74-304

Ricuarp A. GORDON, ETC., PETITIONER

Vv.

New York Stock EXcHANGE, INC., ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

OPINIONS BELOW

The opinion of the court of appeals. (Pet. App.

apr. is reported at 498 F.2d 1303. The opinion

of thé district court (Pet. App. 21-34) is reported

at 366 F. Supp. 1261.

JURISDICTION

The judgment of the court of appeals was entered

on June 28, 1974. The petition for a writ of certiorari

was filed on September 19, 1974, and was granted on

November 18, 1974. The jurisdiction of this Court

rests on 28 U.S.C. 1254(1). Silver v. New York Stock

(1)

Exchange, 373 U.S. 341; Ricci v. Chicago Mercantile

Exchange, 409 U.S. 289.

eM fat H ay Ue Oe MULAN Ah le

Act of 1934 imposes a, duty. of, self-regulation upon

registered securities exchanges by requiring them to

adopt rules to enforce just and equitable principles

of trade, to insure fair dealing and to protect in-

vestors. ‘Section.19(b), of the. Act empowers.the Secu-

rities and Exchange Commission to require changes

in such rules where necessary or appropriate for the

protection’ of investors; to assute fair dealing in’secu-

rities transactions, or to insure fair administration

of the:exchange.: Section 19(b)(9) .ineludes, among

the matters subject to this power, ‘‘the fixing of rea-

- sonable rates of pammiwsesgnid interest, wpa and other

The eieation the United States ‘will pean is

whether these provisions, on their face, repeal by

implication the otherwise applicable antitrust laws;

or whether such repeal exists only insofar as a court

finds that particular instances of price fixing are

necessary, but no more restrictive than necessary, to

make the scheme of the Securities Exchange Act

work.

STATUTES INVOLVED

The pertinent provisions of the Sherman Act, the

Clayton Act, and the Securities Exchange Act of

_ 1934, are set forth in the appendix infra, pp. 57-72.

INTEREST a THE UNITED ein prod

. ‘The United States, through the. “Attorney General

ond the Department of Justice, has primary responsi-

bility for enforcing the Sherman Act, 15 U.S.C. 1, et

’ geq., which expresses the nation’s fundamental eco-

nomic policy in favor of. free competition. This case

raises. an important question eoncerning the. applica-

tion of that Act to collective price fixing by members

| of the nation’s securities exchanges. These exchanges

are the. principal marketplaces for investors in the

private enterprise system, Upon their functioning as ,

efficient, liquid markets depends, in significant part,

_ the ability of private enterprise to raise capital. This

vital function led Congress 'in 1934 to declare that

securities exchanges ‘‘are affected with a national pub-

lic interest.’’ Section 2, Securities Exchange Act of ,

1934, as amended, 48 Stat. 881, 15 U.S.C. 78b.,

Studies of the securities industry in the last decade

have raised ‘serious questions whether the exchanges’

practice of setting fixed commission rates by agree-

ment among members who execute transactions, for

investors and non-member brokers, should be tolerated

as an exception to the policy of competition enforced

in all other sectors of the economy. It has been con- |

_ tended in antitrust courts, proceedings before the

: Securities and Exchange Commission (“SEC”), and

in testimony before Congress, that fixed commission

rates subsidize inefficiency, fragment market trading, |

‘promote evasion of the price fixing scheme by large in-

stitutional investors and others with economic lever-

age, impose substantial and unnecessary costs on the

investing public, and thereby discourage investment

in securities traded on the exchanges. to the detriment

of the effectiveness and liquidity of those markets. If

the Sherman Act does not apply to such market

plates, located as they are at the heart of our system

of private capitalism, it can-only be, because Congress

has consciously made such a decision. We do not find

in the language, structure or history of the 1934 Act,

or in the assumptions of the court of appeals concern-

ing the wisdom of fixed commission rates, any basis

for concluding that the 1934 Act, on its face, rendered

the antitrust laws inapplicable to. exchange price-

‘fixing. ©

This Court’s decision in this case will have a sig-

. nifieant impact upon the application of the antitrust

laws to the securities industry, and on the method

for determining their application to other regulated

industries as well. The United States, therefore, is

vitally concerned with the way this Court decides the

issue. ;

STATEMENT

Petitioner Gordon filed a complaint in the United

States District Court for ‘the Southern District of

New York in January 1971, on behalf of himself, the

Independent Investors Protective League, and an al-

leged class of ‘‘small investors” who purchase stocks

listed on the New York Stock Exchange and the

American Stock Exchange in amounts. of less than

$500,000 per purchase. (App. A-8).’ Both exchanges

+“ App.” refers_to_the Appendix filed ‘by petitioner.

were named as defendants. Merrill Lynch, Pierce,

Fenner & Smith, Inc. and Bache & Co. were also

named as defendants, both individually and as rep-

resentatives of an alleged class. composed of members

of the New. York and American Stock Exchanges.

The complaint alleged that the respondents are vio-

lating Sections 1 and 2 of the Sherman Act, 15.U.S.C.

1, 2, and: the Robinson-Patman Act, 15 U.S.C. 13; and

prayed for treble damages and injunctive relief.

A. THE DISTRICT COURT'S DECISION

The district court grartted the respondents’ motion

_for summary judgment on December 3, 1973, without

determining whether the plaintiff or defendant classes

are properly constituted (Pet. App. 34). That court

construed the complaint as alleging ‘‘claims regarding

the Exchanges’ practiec of limiting the number of

memberships, and denying the use of their facilities to

nonmembers unless they pay the same rate of com-

mission charged the general public’? (Pet. App. 23),

that the respondents violated the Robinson-Patman

Act by adoyting discriminatory commission rates

(Pet. App. 24), and that: they violated the Sherman

Act by fixing. commission rates (Pet, App. 25).

The district court conclude’? that petitioner lacks

standing to challenge the memberships limitation he-

cause he is not an injured person, that the fee prefer-

ence for exchange members is authorized by Section

3(a)(3) of the Securities Exchange Act, 15 U.S.C.

78¢(a) (3), and that the Robinson-Patman Act is not

applicable to discrimination in the pricing of broker-

567-203--75——_2

age services: (Pet. App. 23-24). The court of appeals

characterized ‘these claims as “frivolous’’. (Pet. App,

. 38) and they were not discussed in the petition for

a writ of certiorari.’. Accordingly, the proceeding in

this Court ‘involves only the dismissal of the complaint

insofar:as it alleges that the, respondents have violated

the-Sherman Act by. fixing the. commission rates for

stock transactions on’ the exchanges, seeks to recover

- damages ‘for such rate-fixing, and:seeks to enjoin the

respondents from fixing such commission rates in the

future. fain ita aha Bi

The respondents. did not deny that both exchanges

have adopted rules establishing minimum commission |

rates for steck transactions on the exchanges. The ;

district court held that it “lacks jurisdiction to enter- j

tain an antitrust attack on the commission structure

of the Exchanges” because Section 19(b)(9) of the 4

Securities Exchange Act “expressly directs the SEC

to supervise the ‘fixing of reasonable rates of com-

mission’ * * *’’ (Pet. App. 26). i

B. THE COURT OF APPEALS’ DECISION

The Court of Appeals for the Second Circuit af-

firmed the dismissal of petitioner’s price-fixing claim.

It noted that this Court had examined the application

_of the antitrust laws to securities exchanges in Silver

v. New York Stock Exchange, 373 U.S. 341, and had |

declared that repeal of the antitrust laws ‘‘is to be

regarded as implied only if necessary to make the

Securities Exchange Act work, and even then only

to the minimum extent necessary.” Jd. at 357 (Pet.

? The petition does not set forth the “Questions Presented”.

Therefore, the questions must be inferred from its text.

Pease EE |

nme

7 .

App. 39). The court said, however, that this case

“<*.* * is toto caelo different from Silver * * *” (Pet.

App. 39).-It noted that Section 19(b)(9) expressly

vests oversight of the fixing of. rates of commission

in the SEC; that Congress considered SEC-supervised

exchange self-regulation to be .an essential element

in the scheme, of the 1934 Act; and that the Act

“explicitly provides for ‘the fixing of reasonable rates

of. commission,’ ’’ despite this Court’s holding seven

years earlier in Unsted States v. Trenton Potteries

Ca., 273 U.S. 392, that price fixing is a per.se violation

of the Sherman Act (Pet. App, 42-43). The court de-

clared that “[i]f the discussion in Silver of a core

of exchange self-regulation necessary to make the

1934 Act work, and thus immune from application of

the antitrust laws, is to be given any meaningful

application, we are of the view that it must have

reference to the practices enumerated in §19(b), and,

in this instance to the fixing of reasonable rates of

commission’’ (Pet. App. 41). The court thus con-

cluded that Section 19(b) vested exclusive jurisdic-

tion over exchange rate fixing in the SEC.

It also stated that its conclusion was supported by

sound policy. It expressed fear that the courts and

the SEC might subject exchanges to “repetitive or

conflicting standards,” a hazard which it found to be

confirmed by the “wide-reaching and systematic

character of recent SEC action regarding rate regu-

lation’’ (Pet. App. 44). In its view, although no

record had been developed in the district court, there

was “little question but that, the commission rate

structure is the keystone of the economic viability of

the brokerage industry, and a matter of vital import-

er trnmererninnseemieiniieniniineinnnt ig ge

ance to individual investors as well” (Pet. App. 44).

Tt considered the SEC alone expert enough to reduce

“the barriers to investor trading, while at the same

time assuring a return sufficient to preserve brokerage

capacity * * *” (¢bid.). For, the court found, “[s]uch

questions as the effect of fixed commission rates on

trading volume and broker solvency, or the effect of

eompetition on and the necessity for exchange mem-

bership, are not of the sort which courts can answer

as well as the SEC” (Pet. App. 49).

- The court expressly disagreed (Pet. App. 49-50)

with Thtll Securities Corp. v. New York Stock Ex-

change, 483 F. 2d 264 (CjA. 7), certiorari denied, 401

U.S. 994, which had reversed dismissal of a similar

complaint and remanded it for a full trial under the

criteria of the Silver decision.

SUMMARY OF ARGUMENT

Apart from any immunity provided by the Securi-

ties Exchange Act of 1934, the collective fixing: of

commission rates for brokerage services by members

of the nation’s securities exchanges is a per se viola-

tion of the Sherman Act. The 1934 Act contains no ex-

press exemption from the antitrust laws; its provi-

sions are in additian to other remedies at law or in

equity. 15 U.S.C. 78bb. Silver v. New York Stock Ex-

change, 373 U.S. 341, 357, held that repeal of the anti-

trust laws is “implied only if necessary to make the -

Securities Exchange Act: work, and even then only to

the minimum extent necessary.’’ This decision re-

flected the long line of authorities holding that regu-

lation of aspects of an industry does not, of itself,

oust antitrust jurisdiction.

— srr

pianos

ilver case the Securities and Exchange Com-

In the SEC) did not have specific authority to re-

mission (Oractices involved, although the Court as-

view the ¢ it could have required the exchanges to

sumed thas establishing fair procedures for dealing

adopt rule practices. In Ricci v. Chicago Mercantile

with those 409 U.S. 289, 302, n. 13, this Court ruled

Exchange,gulatory conduct, arguably within the su-

that self-nuthority of the Commodity Exchange Com-

pervisory ider a statute closely similar to the Secu-

mission Whange Act, was not for this reason immune

rities Exckherman Act. Rather, it held, the ultimate

from the ity for deciding whether the defense of

responsibilnder the regulatory act has been estab-

necessity Listed in the antitrust courts. The record in

lished 18 Vnade on defendants’ motion for summary

“— case, is inadequate for determining this issue.

SES -uage, structure and history of the 1934 Act

Ficchace 5 DUTPOSe to place primary responsibility for

ation through internal rules on the ex-

self 1,

end ges, «iPiect to a reserved oversight by the SEC

‘ii S econ 19(b). The Act thus does not create a

pervasive regulatory scheme which substitutes public

e regulation for competition, and the SEC

utility typ’ -

has never claimed power to exercise such regulation.

On the contrary, the availability of antitrust remedies

supplements the regulatory scheme; competition

makes more detailed regulation unnecessary. There is

no danger of duplicative or inconsistent requirements

arising from antitrust jurisdiction; the SEC itself has

directed abolition of fixed commission rates.

_ ARGUMENT

THE SECURITIES EXCHANGE ACT OF 1934 DOES NOT EXEMPT

' FROM THE SHERMAN ACT THE FIXING OF COMMISSION

RATES BY REGISTERED SECURITI°S EXCHANGES, EXCEPT

TO THE EXTENT THAT A COURT DETERMINES THAT SUCH

EXEMPTION IS NECESSARY TO MAKE THE ‘SECURITIES

EXCHANGE ACT WORK

The position of the United States is that exchange

rules embodying agreements fixing commission rates

for brokerage services by members of securities ex-

changes are subject to scrutiny by antitrust courts

under the Sherman Act, even though the SEC may

also examine such rules under Section 19(b) of the

Securities Exchange Act of 1934, Such rules are price-

fixing agreements, and are exemptéd from the anti-

trust laws by the 1934 Act, only if, and to the

minimum degree, necessary to make that Act work.

The 1934 Act thus may create a defense analogous to

the defense that an otherwise prohibited restraint is

lawful because ancillary, and essential, to a legitimate

joint venture. If the agreement fixing minimum com-

mission rates is not necessary to effectuate the aims

and purposes of the 1934 Act, the Sherman Act

prohibits it.

Section 19(b) of the Securities Exchange Act gives

the SEC supervisory authority over ‘‘the fixing of

reasonable rates of commission” by securities ex-

changes, but not authority to decide whether the fix-

ing of rates itself is exempt from the antitrust laws.

The latter determination, which depends upon

whether such rate fixing is necessary to make the

1934 Act work, must be made by an antitrust court.

- This record is not adequate to permit a decision

whether the latter determination requires invocation

of the SEC’s primary jurisdiction. Our submission is

simply that the SEC does not have exclusive jurisdic-

tion over that determination.

A. THE FIXING OF STANDARD RATES OF COMMISSION BY SECURITIES

EXCHANGES IS ILLEGAL PER SE UNLESS JUSTIFIED BY THE RE-

QUIREMENTS OF THE SECURITIES EXCHANGE ACT A8 DETERMINED

BY THE ANTITRUST COURTS

A securities exchange is a voluntary, private organi-

zation of individuals who deal in securities; it pro-

vides a market place or facilities for bringing to-

gether the purchasers and sellers of securities (15

U.S.C. 78e(a) (1) ). The collective activities of exchange

members affecting competition are subject to the anti-

trust laws, except to the extent Congress has other-

wise provided. Silver v. New York Stock Exchanye,

373 U.S. 341, 348, n. 5; Associated Press v. United

States, 326 U.S. 1; United States v. Terminal R.

Ass’n of St. Louis, 224 U.S. 383. Apart from any im-

munity provided by the Securities Exchange Act of

1934, 15 U.S.C. 78a, et seq., the collective fixing of

commission rates for brokerage services is a per se

violation of the Sherman Act. United States v. Na-

tional Ass’n of Real Estate Boards, 339, U.S. 485, 488-

489; United States v. Socony-Vacuum Oil Co., 310

U.S. 150, 212-228; United States v. Trenton Potteries

Co., 273 U.S. 392.

Even in highly regulated industries, rate-fixing com-

binations not specifically authorized by law are per

se violations; this is true even though the rates them-

selves have been approved, as reasonable, by a regu-

latory agency. Georgia v. Pennsylvania R. Co., 324

U.S.°439, 457-459; Keogh v. Chicago & N.W. Ry. Co.,

260 U.S. 156, 161-162; United States v. Trans-Mis-

sourt Freight Association, 166 U.S. 290; United States

v. Joint’ Traffic Association, 171 U.S. 505. And even

where the law provides that rate-fixing agreements ap-

proved by an agency are exempt from the antitrust

laws, when such agreements are implemented without

such approval, they violate those laws. Carnation Co.

v. Pacific Westbound Conference, 383 U.S. 213.

The Securities Exchange Act of 1934 (“the 1934

Act”) contains no express provision empowering the

_SEC to grant immunity from the antitrust laws for

rate-fixing combinations. It provides in Section 6(b)

and (d) (15 U.S.C. 78f(b), (d)) for a system of

self-regulation by exchanges, to beexercised through

the private initiative of their members, subject to

certain regulatory powers vested in the SEC. Any

group of competing sellers, of course, may combine

for the advancement of mutual interests so long as

their activities are not in restraint of trade.’ When

such competitors are by statute required to engage

in self-regulation, the requirement may result in col-

lective actions which would otherwise violate the Sher-

man Act. In the absence of express immunity, how-

ever, “[o]nly a clear repugnancy between the old

law and the new results in the former giving way

and then only pro tanto to the extent of the repug-

nancy,’’ Georgia v. Pennsylvania R. Co., supra, 324

U.S. at 457.

In Stlver v. New York Stock Exchange, supra, 373

U.S. at 357, this Court held that the system of self-

*Compare Maple Flooring Mfrs. Ass’n v. United States

268 U.S. 563, with Sugar Institute v. United States, 297 U.S.

553.

EEE

regulation prescribed by the 1934 Act, and the national

policy of competition expressed in the antitrust laws,

_were to be analyzed in a way ‘‘which reconciles the

operation of both statutory schemes with one an-

other rather than holding one completely ousted.”

Accord, Merrill Lynch, Pierce, Fenner & Smith v.

Ware, 414 U.S. 117, 127. Noting that the Securities

Exchange Act contains no express exemption from the

antitrust or other laws, and that any repeal of the

antitrust laws would therefore depend on implica-

tion from the regulatory scheme, the Court ruled

(373 U.S. at 357) :

Repeal is to be regarded as implied only if

necessary to make the Securities Exchange Act

work, and even then only to the minimum ex-

tent necessary. This is the guiding principle to

reconciliation of the two statutory schemes.

The court of appeals held this ‘‘guiding principle”’

inapplicable because Section 19(b)(9) of the Securi-

ties Exchange Act gives the SEC jurisdiction to

modify exchange rules relating to the fixing of com-

missions. In its view, this jurisdiction is neither

concurrent nor primary; it is exclusive, and thus com-

pletely ousts the antitrust laws with respect to any

of the matters enumerated in Section 19(b). |

The issue before this Court is not whether rate fix-

ing by the nation’s private securities exchanges is

essential, under Stlver, to the scheme of the Securities

Exchange Act. It is how courts are to decide whether

the antitrust laws have been repealed insofar as they

would otherwise apply to commission rates collectively

established in the rules of securities exchanges.

The analysis by the courts below departs from a

long line of this Court’s decisions holding that repeal

of the antitrust laws by implication from a regulatory

scheme is strongly disfavored, and refusing to find

such a repeal necessary.

Stlver held that the duty of self-regulation imposed

on exchanges by the Securities Exchange Act did not,

of itself, exempt such activities from the antitrust

laws. It recognized, however, that self-regulatory ac-

tivities within the general purview of the Act’s re-

quirements may give rise to an exemption from the

antitrust laws. Even though ‘‘the statutory scheme

of that Act is not sufficiently pervasive to create a

total exemption from the antitrust laws, * * * it is

also true that particular instances of exchange self-

’ regulation which fall within the scope and purposes

\of the Securities Exchange Act may be regarded

as justified in answer to the assertion of an antitrust

claim.’’ 373 U.S. at 360-361. Arguably, even claims

involving eonduct which otherwise is a per se viola-

tion of the Sherman Act. may be justified under this

standard. -

Yt. was unnecessary i the Co Silver to con-

sider the effect. of SEC review of the specific prac-

*See e.g., Otter Tail Power Co. v. United States, 410 U.S.

366, 372-375; Ricci -v. Chicago Mercantile Exchange, 409 U.S.

289, 202, n. 13; Carnation Co. v. Pacific Westbound Confer-

ence, 383 U.S. 213, 217-218; United States v. Philadelphia Na-

tional Bank, 374 U.S. 321, 350-351; Silver v. New York Stock

Exchange, supra, 373 U.S. at 857-358; California v. Federal

Power Commission, 369 U.S. 482, 489; United States v. Radio ~

Corp. of America, 358 U.S. 334; United States v. Borden Co.,

308 U.S. 188, 198; United States v. Pacific and Artic Ry. and

Nav. Co., 228 U.S. 87, 105, 107; United States v. Joint Traffic

Association, 171 U.S. 505; United States v. Trans-Missouri

Freight Association, 166 US. 290, 314-815; Georgia v. Pennsyj-

vania R. Co., 324 U.S. 489, 456-547.

tiees there involved because the statute did not pro-

vide for it. Subsequently, however, in Ricci v. Chicago

Mercantile Exchange, 409 U.S. 289, the Court reached

that issue. Ricci involved a system of self-regulation,

closely similar to the scheme for the securities indus-

try, imposed on commodity exchanges by the Com-

modity Exchange Act, 7 U.S.C. 1, et seg. This Court

ruled that self-regulatory conduct, arguably within the

supervisory authority of the. Commodity Exchange

Commission, was not, for this reason, immune from

the Sherman Act (409 U.S. at 302, n. 13), and that

the test of Silver requires a full examination by the

antitrust court, of the defense of necessity under the

regulatory act. See, also, Thill Securities Corp. v. New

York Stock Exchange, 433 F. 2d 264 (C.A. 7 ), certio-

rari denied, 401 U.S. 994, appeal dismissed after re-

mand, 469 F. 2d 14; Harwell v. Growth Programs,

Inc., 451 F. 2d 240 (C.A. 5), rehearing denied, 459 F.

2d 461, certiorari denied sub nom. National Ass’n of

Securities ‘Dealers, Inc. v. Harwell, 409 U.S. 876;

Zuckerman v. Yount, 362 F. Supp. 858 (N.D. IIl.);

Fredrickson v. Merrill Lynch, Pierce, Fenner &

. Smith, 1974-2 Trade Cases, 175,227 (N.D. Ill, decided

September 9, 1974), appeal pending, C.A. 7; but ef.

Abbott Securities Corp. v. New York Stock Exchange,

1974-2 Trade Cases, 1 75,324 (D.C.D.C., decided Octo-

ber 30, 1974). For the purposes of this examination it

may be appropriate or even necessary that particular

issues be referred to the refulatory agencies under the

primary jurisdiction doctrine (see Ricci, supra), or

the agency may participate in the court proceeding as

—an-amicus or intervenor. But resolution of the manner

of agency participation is for the trial court in the

“

first instance. See Thill Securities Corp. v. New York

- Stock Exchange, supra. ‘¥

Only if the Securities Exchange Act contained a

pervasive scheme of regulation, reflecting a deliberate

legislative decision to substitute detailed governmental

supervision for private initiative and free competi-

tion, could it be concluded that the regulatory powers

reserved to the SEC under the Act completely oust

the antitrust laws. Compare Pan American World

Airways v. United States, 371 U.S. 296, with United

States v. Philadelphia National Bank, supra, 374 U.S.

at 351-352; California v. Federal Power Commission,

supra, and Otter Tail Power Co. v. United States,

supra. As we show, infra, pp. 26-35, the 1934 Ex-

change Act does not establish such a scheme. Far

from imposing publie utility type regulation on the

exchanges, the Act was designed to assure that securi- .

ties exchanges operate under a regime of free enter-

prise, subject only to a duty of self-regulation to

protect investors, and the enumerated powers of the

SEC to eliminate practices. contrary to the public

interest. :

Indeed, the Act does not provide for SEC approval

of exchange rate-fixing rules at all.‘ Such rules may be

promulgated entirely at the exchange’s private dis-

cretion. Cf. American Telephone & Telegraph Co. v.

Federal Communications Commission, 487 F. 2d 865

‘Although the 1934 Act does not provide for advance ap-

proval by SEC of exchange rules, SEC can, and has since 1964,

required that it be notified in advance of proposed changes in

such rules, so that it may scrutinize them. 29 Fed. Reg. #471, i7

C.F.R. 240.17a-8. Cf. American Telephone and Telegraph

Co. v. Federal Communications Commission, 503 F. 2d 612

(C.A. 2).

| 17

(C.A. 2). In such circumstances, a general repeal of

the antitrust laws, leaving exclusive jurisdiction over ©

- price-fixing in the regulatory agency, cannot be in-

ferred. Carnation Co. v. Pacific Westbound Confer-

ence, supra. The full examination contemplated by

Silver is required. f

_ The record in this case, made on defendants’ motion

for summary judgment, is inadequate for this purpose.

purpose.

B. UNDER RICCI V. CHICAGO MERCANTILE EXCHANGB, 409 U.S. 289,

A PULL RECORD SHOULD HAVE BEEN er FOR APPLICATION

OF THE SILVER TEST.

Insofar as the court of appeals purported to dis-

tinguish Silver on' the ground that the conduct chal-

lenged there was not subject to SEC oversight, it

erred. The Ricci case makes clear that the Silver test

applies even where self-regulatory conduct is within

the scope of regulatory jurisdiction, that' the antitrust !

court has the responsibility for applying that test, and

that a full evidentiary record is needed.

1. The Silver case

Stlver was an antitrust suit against the New York

Stock Exchange (NYSE) by a non-member and his

broker-dealer firms. He alleged that he had been in- |

jured by an illegal boycott, a per se Sherman Act vio-

lation, because his wire communications with exchange

members had been terminated without notice or hear-

ing. The members had terminated Silver at the direc-

tion of the NYSE, which acted under exchange rules

adopted pursuant to the self-regulatory provisions’ of

the Act. The district court ruled that the NYSE’s

statutory duty of self-regulation did not extend to

members’ velntions: with | non-merhbers inigeprane de over-

the-counter’ securities.’

‘THe Second Circuit: reverséd: (302 F. 2d 714). After

reviewing ‘the strifctureof the» Act; the court con-

cluded that it gave the’ SEC! and the NYSE. dis-

ciplinary powers over exchange members ' with re-

vard'to over-the-coutiter securities; that the Exchange |

was ‘required ‘td exercise these ' powers as part'of its

_ duty of self-regulation; and that application of! ‘the »

Sherman , Act to particular decisions under this duty

would defeat the statutory . policy. of self-regulation.

The court of appeals explained that “{ijf securities

exchanges, were, in constant danger of subjecting them-

selves..to, liability under the anti-trust laws for any

misapplication, of their disciplinary, powers, they

would understandably, be reluctant to. fulfill their

. obligations. under the, Securities Exchange ‘Act.” Id.

_at,.720-721.. The, Second. Cireuit’s decision in the in-

stant. case closely parallels that: reasoning,

This Court reversed, 373 U.S. 341. It noted that

the Securities Exchange Act “does not give the Com-

mission jurisdiction to review particular instances of

enforcenient of exchange rules.” Id. at 357. This made

_ it. unnecessary. ‘to consider whether the primary juris-

_ \diction doctrine was applicable. Moreover, the Court

‘continued, “the Commission’s lack of jurisdiction over

, particular applications of exchange rules means that

the question of antitrust exemption does rot involve

any problem of conflict. or coextensiveness of coverage

with the agency’s regulatory power.” Jd. at 358. Had |

* Silver’ v. New York Stock Exchange, 196 F. Supp. 209 |

eareitag

! !

such jurisdiction existed, the Court noted, “a different

ease would arise * * *.” Id. at 358, n. 12.

_ Analyzing the case to determine whether the duty

of self-regulation imposed by the Act was incom-

slg with the antitrust laws, the Court’ concluded

that “[t]he entire public policy of self-regulation,

beginning with the idea that the Exchange may set up

barriers to membership, contemplates that the Ex-

change will engage, in, restraints of trade which mizht

well be unreasonable absent sanction by the Securities

Exchange Act.’’ Id. at 360. It rejected the district

court’s conclusion that the Act did not vover exchange

members’ relations with over-the-counter traders. 373

US. at 355-356. More significantly, however, the Court

rejected the Second Circuit’s holding that the Ex-

change’s general duty. of self-regulation, and the risk —

that antitrust liability might chill its performance,

compelled’ the conclusion that the Act had repealed

the antitrust laws.

Applying the test of necessity set forth above,

pp. 12-13, supra, the Court concluded that no justifiea-

tion existed for termination of vital wire connections

without notice or opportunity for hearing. No policy

contained in the Securities Exchange Act was served

by such conduct; on the contrary, it was inconsistent

with the purpose of the self-regulatory scheme to

protect investors and promote fair dealing.

The Court specifically assumed that the SEC, pur-

suant to its powers under Section 19(b), could adopt

a-general rule providing for notice and hearing. It

recognized that the exchange rule involved was, to

that extent, within the reserved supervisory jurisdic-

tion of the SEC. 373 U.S. at 364, n. 16.° It noted,

moreover, that such a rule would have to provide for

notice and hearing to be compatible with the anti-

trust laws. bid. Nevertheless; absent Commission

adoption of such a rule of fair procedure, and given

the Court’s finding that such procedure is compatible

‘with both antitrust and securities regulation prin-

ciples, it concluded that under the necessity test the

’ ecurities Exchange Act did not oust the antitrust laws

as applied to the conduct involved, and that an anti-

trust court could announce the rule.

&. The Ricci case

The Court in Stlver had reserved any question con-

cerning primary or concurrent jurisdiction by the

antitrust courts and the regulatory agencies, because

the SEC did not have authority to review specific in-

stances of enforcement of exchange rules. In Riccé v.

Chicago Mercantile Exchange, supra, the Court con-

sidered this “different” case. The plaimtiff in that case

alleged a conspiraey under the Sherman Act to ex-

*“It may be assumed that the Securities and Exchange Com-

mission would have had the power, under § 19(b) of the Ex-

change Act, 15 U.S.C. §78s(b), pp. 352-858, 357 & note 7,

supra, to direct the Exchange to adopt a general rule providing

a hearing and attendent procedures to nonmembers. However,

any rule that might be adopted by the Commission would, te

be consonant with the antitrust laws, have to provide as a

minimum the precedural safeguards which those laws make

imperative in cases like this. Absent Commission adoption of a

rule requiring fair procedure, and in light of both the utility of

such a rule as an antitrust matter and its compatibility with

securities-regulation principles (see p. 361, supra), no incompati-

bility with the Commission’s power inheres in announcement by

an entitrust court of the rule. Compare Colorado Anti-Dis-

crimination Comm'n v. Continental Air Lines, Inc., 372 U.S.

714, 723-724.”

clude him from membership on the Chicago Merean-

tile Exchange, a designated contract market under the

Commodity Exchange Act, 42 Stat. 998, as amended

7 U.S.C. 1, et seg. The district court dismissed the

complaint. The court of appeals reversed the dis-

missal, but concluded that the challenged conduct was

within.the regulatory jurisdiction of the Secretary of

Agriculture or the Commodity Exchange Commission

under the Commodity Exchange Act. It therefore

remanded the case with instructions that proceedings

be stayed pending a submission of the matter to these

authorities. 447 F. 2d 713 (C.A. Fs

The Commodity Exchange Act is closely similar

to the Securities Exchange Act.’ This Court reviewed

the claims involved in the light of the Silver case.

Since. the complaint alleged that the challenged con-

duct: violated the regulatory statute as well as the

Sherman Act, the Court held that administrative

authority over the dispute between the plaintiff and

the exchange was sufficient to justify staying the case

until the administrative officials could act on the Com-

modity Exchange Act issues.

The Court rejected any suggestion that the Com-

_ "It requires that all commodity futures be traded on con-

tract markets as designated by the Secretary. Like securities

exchanges, these markets are under a duty of self-regulation

and are required to file their by-laws, rules and regulations

with the Secretary. He may disapprove them, much as the.

SEC can object to or require changes in exchange rules.

Failure to enforce rules for violation of provisions of the Act

may result in CEA orders revoking the market’s designation

as a contract market or requiring it to cease and desist. By

regulation, interested persons may request CEA to institute

proceedings, the Commission may act on its own motion, or

interested persons may apply for intervention. 409 U.S. at

291-297.

567-303—75——3

modity Exchange Act was ‘‘the exclusive instrument

for the governance of the Exchange and its mem-

bers,” noting that the purpose and structure of the

Act and past cases foreclosed that conclusion (409

U.S. at 302, n. 13).* This Court expressly held: “Nor

do we find that Congress intended the Act to confer

general antitrust immunity on the Exchange and

its members with respect to that area of conduct

within the adjudicative or rule- ing’ authority of

the Commission or the Secretary.” ° Ibid.

The Court noted four factors in support of this

conclusion: the Act contained no categorical exemp-

tion of this kind, or indeed, any express exemption;

the area of administrative authority was not particu-

larly focused on competitive considerations; no ex-

press provision of the Act directed administrative of-

ficials to consider the policies of the antitrust laws;

and there was no other indication that Congress in-

tended the adjudicative authority conferred to be a

complete substitution for judicial enforcement of the

antitrust laws. Ibid. These factors apply here.

The Court also emphasized that reference to the

administrative authorities of questions under the

Commodity Exchange Act was justified because it

would aid the antitrust court in resolving the im-

munity question. Thus the holding of Ricci is that

8 The Court cited Carnation Co. v. Pacific Westbound Confer-

ence, supra; United States v. Philadelphia National Bank, supra;

Silver v. New York Stock Exchange, supra; Pan American World

Airways v. United States, 371 U.S. 296; United States v. Borden

Co., su

° Citing United States v. Philadelphia National Bank, supra,

374 U.S. at 350-354; California v. Federal Power Comeniasion,

supra; Maryland & Virginia Milk Producers v. United States,

362 U.S. 458; United States v. es of America, 358 U.S.

334, 339-852. ;

nee

: 23

the antitrust

mine the effecourts retain the final authority to deter-

laws: ‘‘[T]hét of a regulatory statute on the antitrust

be before the? question of immunity, as such, will not

tained, the ir agency; but if Ricci’s complaint is sus-

it is rejectedmmunity issue will dissolve, whereas if

ranted by a \ and the conduct of the Exchange war-

in a much bwalid membership rule, the court will be

antitrust actietter position to determine whether the

Re-emphasizion should go forward.” 409 U.S. at 306.

‘‘[w]e make ng this point, the Court stated that

thority to de‘no claim that the Commission has au-

such or that cide either the question of immunity as

dence over an any rule of the Exchange takes prece-

nize that Cititrust policies. Rather, we simply recog-

agency that ‘onpress has established a specialized

ship rule of would determine either that a member-

it. has been fhe Exchange has been violated or that

aplargpseme ee Kither judgment would require

ap ee °1 of facts and the interpretation and

soe uae the Act and the Exchange rules. And .

trust court in. : ;

Be a ination will be of great help to the anti-

U.S. at 307, ° 2! Tiving at the ussential accommodation

The four ¢2utitrust and regulatory regime.” 409

-alaepe dealing justices also agreed with the

did not depri* the Commodity Exchange Commission’s

to make the :&? enforcement of the Exchange’s rules

principles an¥e the courts of power and responsibility

powers that taccommodation ‘‘between usual antitrust

exercise.” 409d the self-regulatory and exclusionary

he exchanges were obviously intended to

I US. at 314.

ten

8. The need fur a full record.

Silver, Ricci, and the cases on which they are

founded, thus make clear that the question of implied

repeal of the antitrust laws under any provisions of the

Securities Exchange Act, including Section 19(b), is

for the antitrust courts, and that in answering this

question they may recognize such a repeal only to the

minimum extent necessary to achieve the purposes and

aims of the 1934 Act. This cannot be determined in the

abstract, or on a summary record. Other courts faced

with almost identical questions have, therefore, insisted

that full records be developed. Thill Securities Corp.

v. New York Stock Exchange, supra, 433 F. 2d at 273

(C.A. 7); Harwell v. Growth Programs, Inc., supra,

451 F. 2d at 247 (C.A. 5); Fredrickson v. Merrill

Lynch, Pierce, Fenner and Smith, 1974-2 Trade Cases,

{ 75,227 (N.D. IIl., decided September 9, 1974)

A full record is necessary because the Silver test

is an aspect of the rule of reason. Silver v. New York

Stock Exchange, supra, 373 U.S. at 360; United States

v. Terminal R. Ass’n of St. Louis, 224 U.S. 383,

394-395; Board of Trade of the City of Chicago

v. United States, 246 U.S. 231, 238. Thus, it is not

enough simply to challenge exchange rules estab-.

lishing fixed commission rates as illegal per se

under the antitrust laws. The defendants must be per-

mitted to show, if they can, that the practice comes

within the duty of self-regulation imposed by the

Securities Exchange Act and that it meets the Silver

test. Kaplan v. Lehman Bros., 371 F. 2d 409 (C.A. 7),

certiorari denied, 389 U.S. 954.

This is shown by the subsequent interpretation of

Kaplan v. Lehman Bros., supra, by the court which

795

decided it, in Thill Securities Corp. v. New York

Stock Exchange, supra. The district court in Thill

had granted summary judgment against a complaint

challenging a NYSE rule prohibiting the sharing of

commissions between members and non-member brok-

ers. It held, like the courts in this case, that the

subject of commission rates was the exclusive re-

sponsibility of the SEC under Section 19(b). See

Thill, supra, 433 F. 2d at 267-268.

The court of appeals reversed and remanded for a

full trial, noting that “‘[b]efore the investing public

of the United States may be deprived of the benefit

of competition through the vehicle of Exchange rules,

it must be established that the Exchange’s exemption

from the antitrust laws is necessary to discharge

its responsibilities under the Securities Exchange

Act * * *. In short, its exemption must be based on a

showing of true necessity.’ 433 F. 2d at 269. It found

“in the teachings of Silver, no ‘intimation’ that the

mere possibility of SEC review wraps the conduct of

the Exchange in an impregnable shield of antitrust

immunity.” Ibid.

Discussing Kaplan, supra, it noted that the plain-

tiff in that case, by arguing for a strict per se rule,

had directly contradicted the rule of reason test of

Silver. Id. at 270. It remanded for a full trial, which

has now been completed and is awaiting decision.”

* Following remand to the district court by the court of ap-

peals, 433 F.2d at 275, the United States intervened as a party

_ plaintiff alleging that the Exchange’s anti-rebate rules unrea-

sonably restrict access to the Exchange by non-members. The

Securities and Exchange Commission also intervened. After a

full trial, which lasted nearly three months, the evidence was

closed on February 28, 1973, post-trial briefs and proposed

The Fifth Circuit adopted the same approach in Har-

well v. Growth Programs, Inc., supra, .

Here, in contrast, no adequate record has been made.

Defendants moved for summary judgment on the

basis of their claim that the SEC has exclusive juris-

diction over exchange price fixing. In support they

offered only materials showing (1) that the SEC had

reviewed their constitution and rules, which included

standard commission rates, at the time the exchanges

were originally registered in 1934; and (2) that in

1959, and at various times since 1968, the SEC has

considered aspects of exchange rate fixing. This show-

ing falls far short of the factual requirement neces-

sary for application of the Silver test. Summary dis-

missal of an antitrust case involving such complex

issues is particularly inappropriate. Cf. Poller v.

Columbia Broadcasting System, 368 U.S, 464, 473;

White Motor Co. v. United States, 372 U.S. 253, 259,

261; Scheuer v. Rhodes, 416 U.S. 232, 250.

C. NEITHER THE LANGUAGE AND STRUCTURE OF THE ACT NOR ITS

LEGISLATIVE HISTORY INDICATES THAT EXCLUSIVE JURISDICTION

OVER EXCHANGE PRICE-FIXING IS VESTED IN THE SEC

1. The language und structure of the Act

The Securities Exchange Act was designed to pre-

serve the private initiative and responsibility which

exchanges enjoyed prior to its enactment; to require

findings were filed; after final oral argument, the case was sub-

mitted July 30, 1973 and is presently sub judice.

In a subsequent opinion dismissing an appeal by the NYSE

from the district court's order denying the Exchange's motion

for referral of the issues to the SEC, the Seventh Circuit reaffirmed

its ruling. 469 F.2d 14, 15, n. 3. The court also held that primary

jurisdiction questions could be resolved on_appeal from the final

judgment. /bid.

vigorous self-regulation by the exchanges to insure

investor protection—to which the Act refers thirty-

five times”—and to provide for oversight by the

SEC, to the extent specified in various sections. The

Act contains no provision for issuance of certificates

_of convénience and necessity to exchange members;

no requirement that uniform brokerage tariffs be

filed with SEC; no rule of rate-making to assure mem-

bers a return on their investment; and no requir-

ment that members obtain SEC permission to cease

doing business. The Act does not empower the SEC

to enforce the antitrust laws through administrative

proceedings, or to grant any antitrust immunity to

exchanges. Nor does it require that the SEC approve

exchange rules before they may be implemented by

exchanges.

Section 2 declares that securities transactions on

exchanges and over-the-counter markets are affected

with a national public interest which makes regula-

tion and control necessary. It emphasizes the Con-

gressional concern With protection of investors from -

the evils of manipulation and control of prices on

exchanges and markets; excessive speculation; and

the abuse and excessive use of credit.

Section 6 provides for the registration of exchanges

with the SEC, and Section 5 prohibits securities trans-

actions on unregistered exchanges. Section 6 provides, -

inter alia, for registration if it appears to the SEC

that the exchange is so organized as to be able to

comply with the Act and the rules thereunder, and

that its own rules “are just and adequate to insure

_ ™ Baird v. Franklin, 141 F.2d 238, 244 n. 4 (CA. 2), certiorari

denied, 323 U.S. 737.

‘

Ps 28

fair dealing and to protect investors.’’ Section 6(b)

recognizes that an exchange’s rules must provide sanc-

tions against members for conduct inconsistent with

just and equitable principles of trade; and Section

6(d) allows registration only if the exchange’s orga-

nization assures compliance with the Act and rules

thereunder, and if the exchange’s rules ‘‘are just and

adequate to insure fair dealing and to protect inves-

tors.” Thus Section 6(b) and (d) implies an affirma-

tive obligation of exchanges to conduct the process

of self-regulation in the public interest, and to en-

force the rules they file with the SEC.

Section 19(a) of the Act empowers the SEC to

suspend or withdraw the registration of an exchange

for violation of the Act or SEC rules, or for failure

to enforce its own rules. Section 19(b) permits the

_Commission itself to make changes in the rules of an

exchange, dealing with enumerated subjects including,

in Section 19(b) (9), “the fixing of reasonable rates of

commission * * *.” No procedure is provided in Sec-

tion 19(b) or elsewhere in the Act by which private

parties may challenge exchange rules either at the

time of filing or thereafter.” Nor does the Act provide

that the SEC must approve rules before they may be

implemented, or suspend them pending investigation.

However, if an exchange refuses to make changes

in its rules requested by the SEC, the agency may

alter or amend them with respect to specified subjects.

To do this, it must determine, after notice and oppor-

tunity for hearing, that “such changes are necessary

or appropriate for the protection of inxestors or to

2 See Silver v. New York Stock Ewchange, supra, 196 F.

Supp. at 219-221.

insure fair dealing in securities traded in upon such

exchange or to insure fair administration of such ex-

change * * *.” Section 19(b).

Section 10(a) and (b) contains provisions giving

the SEC powers of direct rule making with respect to

short sales, stop-loss orders and manipulative or de-

ceptive devices. Section 11(a) and (b) grants similar

powers with respect to floor trading, off-floux trading

by members, and operations of specialists and odd-lot

dealers. Thus, the statute distinguishes between the

SEC’s reserved powers of oversight over exchange

self-regulation, and its power directly to impose re-

quirements on the exchanges with respect to the par-

ticular matters enumerated in Sections 10 and 11."

2. The legislative history

The legislative history confirms the primary role

given to private initiative in performance of the duty

of self regulation, and the reserved role of the SEC’s

oversight thereof. See Merrill Lynch, Pierce, Fenner &

Smith v. Ware, supra, 414 U.S. at 128, n. 9. This ap-

proach had been emphasized in a report by the Roper

Committee to President Roosevelt on regulation of

exchanges. *

Thereafter, legislation to establish a system of

** The Act also provides in Sections 7 and 8 for direct con-

trol of margin credit by the Board of Governors of the Fed-

eral Reserve System. The purpose of this direct regulatory

authority is to prevent excessive use of credit. 15 U.S.C. 78g.

**The Committee was chaired by then Secretary of Com-

merce Roper. Letter from the President of the United States

to the Chairman of the Committee on Banking and Currency

with an Accompanying Report Relative to Stock Exchange

Regulation, 73d Cong., 2d Sess. (Committee Print).

regulation was introduced in Congress as H.R. 7852,

\\ 13d Cong., and 8. 2693, 73d Cong. Strong industry

opposition developed, however, and after extensive

hearings’ the legislation was revised and reintro-

duced, S. 3420, 73d Cong., was reported tothe Senate

in 8. Rep. No. 792, 73d Cong., 2d Sess.; and H.R.

9323 was reported to the House in H. Rep. No. 1383,

73d Cong., 2d Sess. Both reports emphasized that ex-

changes would be required to exercise a wide measure

of economic responsibility and initiative, while the

regulatory agency was to stand in resefve, ready to act

only if the exchanges failed\adequately to protect in-

vestors. H. Rep. No. 1383, sw p. 15; 8. Rep. No.

792, supra, at p. 13.

The only reference to fixed commission rates of any

significance occurred during testimony in the Senate

hearings by Samuel Untermeyer. He had been counsel

to the “Pujo’’ Committee which had investigated stock

exchange operations for the.House of Representatives

in 1912 and 1913." The bill under consideration (S.

2693), provided that “the Commission may fix or

prescribe the method of fixing uniform rates of com-

mission.’’? Mr. Untermeyer urged that the word “uni-

form’”’ be stricken because “that would permit the

Commission to fix rates * * *.” Mr. Untermeyer fav-

ored prescription of rates by governmental authority

because he believed that ‘‘the exchanges charge all

**See Hearings before the Senate Committee on Banking

and Currency on S. Res. 84 (72d Cong.) and S. Res. 56 and S.

Res. 97 (73d Cong.), 73d Cong., ist and 2d Sess. (hereinafter

cited as “Senate Hearings”); Hearings before the House Com-

mittee on Interstate and Foreign Commerce on H.R. 7852 and

HILR. 8720, 73d Cong., 2d Sess. (hereinafter cited as “House

Hearings”).

1° See H. Rep. No. 1593, 62d Cong., 3d Sess.

that the traffic will bear and that is a burden on

commerce.’”’? Senate Hearings, p. 7705. Without ex-

planation, the House substituted for “uniform” the

word “reasonable,” and it was ultimately included in

Section 19(b) (9) as passed.

The Senate rejected proposals to strike from the bill

the various subjects enumerated in Section 19(b). 78

Cong. Rec. 8591-8592. In the House, the principal cou-

cern with this provision was over the procedure for ju-

dicial review of Commission action; some legislators

feared that without a procedure for review the Com-

mission might fix commission rates at confiscatory lev-

els. Others feared that review could be used to delay

and defeat the Commission’s exercise of power under

Section 19(b). 78 Cong. Rec. 8090-8091. In the end, the

bill provided in Section .25(a) for court of appeals

review of Commission grders but not Commission

rules. See PBW Stock Exchange, Inc. v. Securities

and Exchange Commission, 485 F.2d 718 (C.A. 3),

certiorari denied, 416 U.S. 969.

Congress finally enacted, with various modifications,

the’ revised House proposal, H.R. 9323. As we have

seen, it empowered the SEC to rule on the fixing of rates

should it determine that this was necessary or appro-

priate for investor protection, fair dealing or fair ex-

change administration. But the legislative history is

barren of any evidence that Congress intended a gen-

eral repeal of the antitrust laws with respect to the

matters enumerated in Section 19(b).”

17The 73d Congress adopted the Communications Act of

1934 cu June 19, 1934. 48 Stat. 1064. It provided in Section

221(a) express antitrust immunity for telephone company mer-

gers approved by the Federal Communications Commission.

47 U.S.C. 221(a). If that Congress had intended a similar im-

As to these it opted for a system of exchange self-

regulation under SEC supervision. This method of

supervision, it believed, would allow the exchanges

sufficient freedom to perform their vital function as.

capital markets, while providing sufficient govern-

ment oversight to assure protection of investors.”

With respect to the other evils which had led to the

statute—manipulation and control of securities prices,

excessive speculation and the abuse of margin credit—

the Act provided for direct regulation. See p. 29,

supra. See 8. Rep. No. 792, supra, at p. 5.

Not long after, when the 74th’ Congress amended

the Act in 1936 by adding Section 12(f), authorizing

exchanges to deal in unlisted securities (49 Stat.

1375, as amended, 15 U.S.C. 781(f)), the Senate

report emphasized that the purpose of the amend-

ment was to “‘create a fair field of competition among

exchanges and between exchanges as a group and the

over-the-counter markets and to allow each type of

market to develop in accordance with its natural

genius and consistently with the public interest.” S.

Rep. No. 1739, 74th Cong., 2d Sess., p. 3. Thus the

almost contemporaneous legislative construction as-

sumed that competition was highly significant in the |

securities industry, despite SEC regulation. ‘a

This legislative view was further confirmedin

1938, when the 75th Congress adopted the Maloney

. Act, Section 15A of the Securities Exchange Act, 52

munity to arise under the Securities Exchange Act it was con-

sidering about the same time, “Congress doubtless would have

said so.” United States v. Borden Co., supra, 308 U.S. at 201. .

%* See testimony of Thomas G. Corcoran, one of the drafts-

men of the original bills. Senate Hearings, supra, part 15, 6566.

Stat. 1070 as amended, 15 U.S.C. 780-3(a)-(n). This

statute provides for regulation of over-the-counter

markets by requiring registration with the SEC of

brokers and dealers, and of associations of securities

dealers whose organization and rules meet the Act’s

vequirements. 15 U.S.C. 780-3(b).

Like exchanges, the associations must regulate

themselves by rules, and discipline members who

failed to adhere to them. Such rules must be “designed

to prevent fraudulent and manipulative acts and

practices, to promote just and equitable principles of

trade, to provide safeguards against unreasonable

profits or unreasonable rates of commissions or other

charges, and, in general, to protect investors and the

public interest, and to remove impediments to and

perfect the mechanism of a free and open market.”

15 U.S.€. 780-3(b) (8). However, the Act specifically

bars rules “designed to permit unfair discrimmation

between customers or issuers, or brokers or dealers,

to fix minimam profits, to impose any schedule of

priees, or to impose any schedule or fix minimum

rates of commissions, allowances, discounts, or other

charges.” Ibid.

In the Matoney Act, Congress thus expressly made

adherence to antitrust principles barring price fixing

and diserimination an express condition for registra-

tion of broker-dealer associations. The absence of sim-

ilar language from the provisions for registration of

exchanges does not indicate an imtent to repcal the

antitrust laws with respect to them; rather, the

Maloney Act, unlike the exchange seetion, imposes

on the SEC an express duty to take the enumerated

antitrust prineiples into account in reviewing associa-

567-308—75——4

’ 34

tions’ rules. The absence of such a requirement from

the Exchange Act indicates that the antitrust laws

are not repealed. See p. 22, supra. The SEC :is also

specifically empowered to review disciplinary actions

by associations against their members—the element

missing from Si/ver—and to abrogate rules to assure

fair dealing, fair representation of its members in its

administration to protect investors, or to effectuate the

purpose of the Act; and to altet or supplement the

rules with respect to -numerated matters reiating to

qualifications for membership, the method for chang-

ing Association rules, the method of choosing officers

and directors, and affiliation between registered se-

curities associations. 15 U.S.C. 780-3 (g), (k).

Finally, Section 15A(n) provides that “[i]f any pro-

vision of this Section is in conflict with any provision

of any law of the United States in force on June 25,

1938, the provision of this section shall prevail.” 15

U.S.C. 780-3(n). This language, however, does not

define a specific exemption from the antitrust laws.

II Loss, Securities Regulation, 1369 (2d ed. 1961).°

The only decision authoritatively to construe this pro-

vision concluded that it is a legislative statement of

the Silver test for determining when the Sccurities Ex- ~

change Act prevails over the antitrust laws: “[T]he

Maloney Act ‘prevails’ over any other laws of the

United States only to the extent that they conflict. To

determine if they conflict, the Maloney Act should be

construed to reach only those things necessary to car-

ry out the purposes of the Act.’ Harweil v. Growth

But cf. United States v. Socony-Vacuum Oil Co., 310 U.S.

150, 227, n. 60; International Asé’n of Machinists v. Street, 367

U.S. 740, 809, n. 16 (Frankfurter, J. dissenting) ; United States

v. Morgan, 118 F. Supp. 621, 693 (S.D. N.Y.).

Programs, Inc., 451 F. 2d 240, 247 (C.A. 5), rehearing

denied, 459 F. 2d 461 (C.A. 5).

Thus in the Maloney Act, Congress expressly incor-

porated certain antitrust principles and made it the

duty of the SEC to enforce them as applied to asso-

ciations of over-the-counter dealers ; and as the Fifth

Circuit correctly held in Harwell, it legislatively an-

ticipated the Silver test. The 1938 amendment there-

fore supports the views expressed in Silver that the

securities industry is not exempted from the antitrust

laws except to the limited extent that the Securities

Exchange Act directly conflicts with those laws, even

as to matters within SEC’s oversight. '

D. IN THE ABSENCE OF CLEAR LEGISLATIVE INTENT, THE COURT OF

APPEALS HAD NO BASIS FROM WHICH TO INFER THAT THE SEC

HAS EXCLUSIVE JURISDICTION OVER PRICE FIXING

1. No pervasive regulatory scheme is substituted for price

competition

The language, structure and history of the Act, as

set forth above, show that Congress did not intend to

‘substitute a comprehensive, public utility-like system

of government regulation for the regime of competi-

tion fundamental to private enterprise in other sec-

tors of the economy. The SEC has concisely recognized

this in advice to Congress: |

It was not the purpose of the Exchange Act,

unlike certain other regulatory statutes, to

limit or restrict competition in the securities.

industry. The purpose of the Exchange Act

In light of the Silver decision, the Senate recently passed

legislation which would have repealed Section 15A(n), supra,

on the ground that that section was unnecessary. See n. 25,

infra.

rather was to protect investors by prohibiting

fraudulent, deceptive, or manipulative practices,

providing additienal disclosure with respect to

securities and regulating the operation of the

markets in the interest of making them fair,

honest, and orderly. The commission conse-

quently does not engage m economic regulation

im ‘the sense of awarding exclusive franchises

or licenses, fixing or regulating prices or re-

stricting entry into the field upon economic

grounds, such as ‘public convenience, interest

or necessity.” Anyone may enter the securities

business unless disqualified either by past mis-

conduct or by lack of training or experience.

New exchanges may be established if they are

so organized as to be able to comply with the

standards of the act and the prices of securi-

ties are determined by competitive forces. ‘Sim-

ilarly, broker-dealers may either compete, or

may liquidate, merge or consolidate without

authorization from the Commission.”

Because the scheme of regulation is thus limited,

and ‘because members:of the exchanges enjoy the same

private initiative as other commercial enterprises,

they are subject to the national poktcy of competition.

As the Court has observed: “‘We ‘have Jong recog-

amzed ‘that the antitrust laws represent a fundamental

natienal economic policy and ‘have therefore -condluded

that we cannot lightly assume that the enactment

of a special regulatory scheme for particular aspects

of an industry was intended to reniler the more gen-

Letter of Hon. Manuel F. Cohen, Chairman, Securities

and (Exdhange Commission, ‘to the Honorable A. ‘Willis Robert-

son, Chairman, ‘Committee .on Banking and ‘Gurrency, ‘U:8.

Senate, July 80, 1965, reported :at Dbl Cong. Rec. 19021.

eee

eral provisions of the antitrust laws wholly inapplica-

ble to that industry.” Carnation Co. v. Pacific West-

bound Conference, supra, 383 U.S. at 218. The absence

of a pervasive scheme of regulation to take the place

of.a regime of free-competition distinguishes this case

from Pan American World Atrways v. United States,

3741 U.S. 296. Congress rejected such a scheme “in favor

of voluntary commercial relationships. When these

relationships.are governed in the first instance by busi-

ness judgment and not regulatory coercion, courts amust

be hesitant to conclude that Congress intended to over-

ride the fundamental national policies embodied in the

antitrust laws.” Otter Tail Power Co. v. United States,

410 U.S. 366,374.

2. No exemption by Section 19(b) (9) or by registration of

exchanges

(a) The express inclusion of price fixing rules

among matters subject to SEC oversight under Section

19(b) (9) does not manifest a legislative purpose to

place such conduct exdlusively within SEC’s jurisdic-

tion. The statutory language itself does not require a

fixed commission system. It says only that the SEC |

may require changes in rules respecting “the fixing of

reasonable rates of commission.” An exchange or SEC

mule abolishing fixed commissions and creating a regime

of price competition would be as much within the scope

of oversight under Section 19('b) (9) as rules establish-

ing or continuing them.”

22 As ene commentator has observed .(Baxter, NYSE Fized

Commission Rates: A Private Cartel Goes Public, 22 Stan. L.

Rev. 675, 690 (1970)>): “Section 19(b) does not authorize the

NYSE to do anything; it -authorizes-the-SEC to alter or

Moreover, the SEC’s powers under Section 19(b)

are limited. The Act does not provide that it must

approve such. rules before they become effective. Nor

does it provide that they may be suspended pending

investigation. The SEC has advised Congress that it

“has no power to prevent the adoption of a particular

rule by an exchange, nor to abrogate it once it has

been adopted. [Cf. American Telephone and Telegraph

Co. v. Federal Communications Commission, 503 F.

2d 612 (C.A.*) (FCC may not require advance ap-

proval for filing of carrier-made tariffs).] It does have

the power to require alterations in exchange rules [to

the extent enumerated in Section 19(b)] but only * * *

after following cumbersome procedures.” Letter of

SEC Chairman Casey to the President of the Senate,

December 28, 1971, transmitting SEC Study of Un-

safe and Unsound Practices of Brokers and Dealers,

H. Doe. No. 92-231, 92d Cong., Ist Sess., pp. 6, 41-42.

‘EExchange-made commission rates, therefate are

analogous to carrier-made rail rates which have been

allowed to become effective by the Interstate Com-

merce Commission. As to such rates, in contrast to

supplement Exchange rules ‘in respect of’ 12 enumerated sub-

ject-matter areas of great diversity ‘and similar matters.’ Sec-

tion 19(b) (9), dealing with one of those enumerated areas, does

not even advert to the possibility that the NYSE might fix

minimum commission rates, which the SEC might then want to

alter or supplement; rather, the type of rule that the Act

mentions in describing the Commission’s jurisdiction concerns

‘the fixing of reasonable rates of commission.’ A wide variety

of rules answering that description can be imagined—for ex-

ample, a rule prohibiting agreements among member firms with

regard to commissions—that would not violate the antitrust

a: a

> / “4

ICC-prescribed rates, the carriers cannot claim gov-

ernmental sanction if they are subsequently chal-

lenged. Arizona Grocery V. Atchison, T. & S.F. Ry. Co.,

984 U.S. 370. And the agency’s supervisory responsi-

bilities do not foreclose antitrust liability for rate-

making agreements concerning such rates, if not im*

munized by statute. Georgia V. Pennsylvania R. Co.,

supra.

With respect to the SEC’s dealings with the ex-

changes concerning their rates between 1934 and the

present,” the agency has denied that it has engaged

'The SEC took almost no action concerning exchange

rates until after Silver was decided. It has never made any

formal determination that the system was necessary to make

the ActAvork. Rather, it has recently adopted Rule 19b-3, pro-

hibiting fixed commission rates. Securities Bxcphnee Act Release

No. 11208 (Januzry 23, 1975).

It seems to have questioned an aspect of the New York

Stock Exchange’s fixed commission rate system for the first

time in 1959. See Note, /nformal Bargaining Process: An

Analysis of the SEC's Regulation of the New York Stock

Exchange, 80 Yale L. J. 811 (1971); this resulted in certain

voluntary modifications by the Exchange in its proposed rate

structure (Securities Exchange Act Release No. 5889 (1959)

(App. A-247)). Then in 1961, Congress directed the SEC by an

amendment to Section 19 of the Act (Section 19(d), 75 Stat.

465, 15 U.S.C. 78s(d)) to investigate the adequacy for the pro-

tection of investors of the rules of securities exchanges and secu-

rities associations. This resulted in @ comprehensive “Special

Study of Securities Markets” (hereinafter, “Special Study”),

H. Doc. No. 95, 88th Cong., 1st Sess.). The study reported that

the rigid fixed rate system adopted by the exchanges had re-

sulted in elaborate efforts by non-members, particularly large in-

stitutional investors with economic leverage, to reduce their

brokerage costs by requiring exchange members to “give up”

commissions as compensation to other brokers, or to engage in

certain reciprocal transactions. The study also disclosed that

although commission rates were increased five times between

itt reviewable ‘““agency action’” at all, muclt less given

formal “approval’’ of the rulesi Independent Broker-

Deal. T. Ass’n v. Securities & Exchange Commission,

1984 and 1959, the SEC never undertook a full scale exami-

nation of the system, the rate structure or their justification.

The Exchanges. had not offered,.and the SEC had not. required

regular, systematic and consistent proof of need, nor were

there uniform criteria for such essential factors as income,

“methods for allocating costs to various kinds of business or

other standards. Special Study, Part 2, pp. 328-334,. 347.

In 1968, for the first time, the Commission ‘conducted a pro-

ceeding inquiring into whether a minimum exchange rate strac-

ture is necessary to the operation of the securities: industry. It

was, however, an investigatory hearing under section 21(a) of

the Act, 15 U.S.C. 78u(a), seeking only to elicit general imfor-

mation, not a proceeding under Section 19. In 1972, the Commie-

sion announced its commitment to the creation of a nationwide

central market system for listed securities, and specifically noted

that fixed: minimum brokerage commissions were a significant

barrier to achievement of this result, Statement. om the Future

__ Structure of the Securities Market (February 2, 1972). By

this time, the Commission had attempted to induce the ex-

changes. to: eliminate fixed commission rates for orders in

excess of $50,000 (Securities Exchange Act Release No. 900¥,

October 22, 1970) (App, A-348). In the face of exchange

opposition, however, it acquiesced in rule changes which pre-

served fixed commissions below $500,000. Competitive rates

for orders ix excess. of $300,000 finally were implemented: by

the Exchange April 1972.

On. June 6, 1973, the Commission announced another public

investigatory hearing under Seetion 21(m) specifically addressed

to fixed commission rates (Securities Exchange Act Release

10206, June 6, 1973. On September 11, 1973, it announced ite im

tention to terminate fixed rates after April 30, 1975, if the ex-

changes did not voluntarily do so. Security Exchange Act Release

No. 10383. In respense to Commission urgings, the New York

Steck Exehangp initiated a program of limited price competi-

tien for orders under 2,000 (Securities Exchange Act Re-

lease No. 10670, March 7, 1974). Finally, on September 19,

1974, acting under Section T9(b), the Commission

exchanges to eliminate fixed commission rates, Im light of a

generally negative response from the exchanges, on October 24,

res,

442 F. 2d 182, 137 (C.A.D.C.), certiorari denied, 404

U.S. 828. Thus in Independent Investor Protective

League v. Securities and Exchange Commission, S.D.

N.Y., No. 71-1924, dismissed without opinion, Novem-

ber 15, 1971, the agency characterized its letter ad-

vising the New York Stock Exchange of its views on

proposed rate changes as merely a “non-objection.”’ ™

(b) The registration of the exchanges with the SEC

pursuant to Section 6 of the Act does not constitute a

basis for inferring that exchange rules submitted to

the SEC with the registration statement are exempt

from the antitrust laws. Registration may be granted

under Section 6(b) and (d) if the exchanges’ rules are

just and adequate to insure fair dealing and to pro-

tect investors, and are consistent with just and equi-

1974, the SEC announced proceedings on a proposed rule 19b-3

prohibiting the fixing of rates of commission by stock ex-

changes effective May 1, 1975. Securities Exchange Act Release

No. 11078, October 24, 1974. This rule was adopted January 23,

1975. Securities Exchange Act Release No. 11,203, supra.

* The Preliminary Report to the Senate Securities Industry

Study, for the period ending February 4, 1972, page 58, sum-

marized SEC’s argument as follows (Report of the Subcom-

mittee on Securities of the Senate Committee on Banking, Hous-

ing, and Urban Affairs, 92d Cong., 2d Sess. 58 (Committee

Print) ): .

“The SEC argued that it had conducied no ‘proceeding’,

that its letter to the NYSE did not ‘approve’ the new rates,

that it was ‘at most in the nature of an interlocutory non-ob-

jection,’ which ‘does not differ materially from the thousands

of interpretive and comment letters the Commission sends each

year to registrants of securities, broker-dealers, investment ad-

visors, investment companies and public investors seeking guid-

ance,’ and that ‘the Exchange may adopt a [sic] decline to adopt

all or any part of its rule proposals at any time, whether or not

modified in response to the comments set forth in the Commis-

sion’s letter.’ ” ;

567-303—75—_5

table principles of trade. 15 U.S.C. 78f(b) and (d).

Section 6, however, does not require the SEC to con-

sider competitive factors, much less provide that the

act of registration exempts exchanges from the anti-

trust laws. On the contrary, the Act provides in Sec-

tion 28 that ‘“‘[t]he rights and remedies provided by

this chapter shall be in addition to any and all other

rights and remedies that may exist at law or in equity

***” 15 U.S.C. 78 .

The exchanges were granted registrations in Sep-

tember 1934, in brief conclusory orders, which

reserved the SEC’s right to revoke registration or

take such other action under Section 19 or other ©

appropriate provisions, as it deems necessary (App.

A-37, A-238). See First Annual Report of the Securi-

ties Exchange Commission (1935), p. 11. Although

each exchange’s rules were carefully scrutinized by the

SEC’s staff, there was no public participation in the

registration process, nor was registration accompanied

by any articulation of the reasons why the Commis-

sion found the rules of the exchanges to conform

to the Act. We do not contend that the statute re-

quires either consideration of competitive factors,

public proceedings or formal opinions before the SEC

can register an exchange. Rather, the absence of such

requirements is a strong indication that Congress did

not intend registration to cut the public off from

rights otherwise assured by the antitrust laws. Silver

v. New York Stock Exchange; supra.

In these circumstances, no claim of immunity from

the antitrust laws can arise on the basis of a claimed

conflict with the agency’s past exercise of its regu-

latory responsibilities under Sections 6 and 19. This

is made clear by Carnation Co. v. Pacific Westbound

Conference, supra. The Court there held that shipping

conference rate agreements implemented before receiv-

ing approval from the Federal Maritime Commission,

which by statute would have immunized them from

the antitrust laws, were subject to treble damage lia-

bility. Inaction or acquiescence by the regulatory

agency likewise forms no basis for immunity. United

States v. Borden Co., supra, 308 U.S. at 198-200, 201;

United States v. Socony-Vacuum Oil Co., 310 U.S.

150, 225-227. Here the reasons for non-immunity are

even stronger, for nothing in the Act provides for

agency approval of price fixing rules, or immunity if it

is granted. Of. United States v. Philadelphia National

Bank, supra, 374 U.S. at 350-352.

8. Antitrust jurisdiction complements regulation

The court of appeals erroneously concluded that

there is an irreconcilable conflict between judicial and

administrative responsibility. The conclusions of the

Special Study (supra, n. 23) and the threat of anti-

trust liability which followed, have stimulated SEC

exchange officials and Congress to examine the neces-

sity for fixed commission rates.” As the House Study

25 Congress recently has been actively concerned with this

subject. A Senate unit conducted extensive hearings and pre-

pared its own securities industry study. Securities Industry

Study, Report of the Subcommittee on Securities of the Senate

Committee on Banking, Housing and Urban Affairs, 93d Cony.,

Ist Sess. (Committee Print) (hereinafter, “Senate Study”).

The Subcommittee concluded that non-competitive rates should

be eliminated (Senate Study, pp. 43-63). It also observed

that the existence of SEC review authority over particular

(see n. 25, supra) observed at p. 163: “‘[i]n the ab-

sence of vigorous regulation in this area over the years

by the SEC, private antitrust actions, or the threat

thereof, have been the only effective ress for in-

hibiting or challenging exchange excesses.”

aspects of exchange self-regulation did not immunize anti-

competitive conduct from the antitrust laws; rather, the Silver

test applied (Senate Study, p. 227).

A similar investigation was undertaken by a unit of the .

House. Securities Industry Study, Report of the Subcommittee

on Commerce and Finance of the House Committee on Inter-

state and Foreign Commerce, 92d Cong., 2d Sess. (Subcommittee

Print) (hereinafter, “House Study”). It also concluded that the

- fixed commission rates are not in the public interest (House

Study, p. XIV, pp. 131-146) and that the Silver test should be

applied to fixed commission rates (House Study, Pp. 160-167).

Out of these. investigations and their eB get hearings

emerged three bills: H.R. 5050, 93d Cong., S. 470, 98d Cong.

and S. 2519, 98d Cong. |

As reported, H.R. 5050 provided for the elimination of all

fixed commission rates on securities exchanges by May 1, 1975,

except that the SEC could, upon hearing and appropriate fnd-

ings, continue or reinstitute fixed rates until October 1, 1976.

H. Rep. No. 93-1476, pp. 9, 46-48, 66-67. This bill, reported

late in the second session of the 93d Congress (November 19,

1974), did not reach the floor of the House for debate.

_ The Senate passed S. 470, which would have prohibited the

denial of membership on the exchanges to financial institutions,

as long as. fixed commission rates continued to exist. The Sen-

ate Report on the bill, S. Rep. No. 93-187, 93d Cong., 1st Sess.,

p. 3, stated that there were difficulties with any attempt to set

a precise date for eliminating any fixed rates, so thet “it, was

decided to leave the speed and the manner in which fixed rates

are phased out to the securities industry, the SEC, and ‘the

courts.” The Senate rejected an amendment which would have

empowered the SEC in its discretion to continue fixed mini-

mum rates for transactions under $100,000. The bill passed

the Senate 85 to 3. 119 Cong. Rec. S11368-S11387 (daily ed.,

June 18, 1973).

Subsequently the Senate also passed 8. 2519, supra, which is

The availability of judicial remedies under the anti-

trust laws under the Siver test, supplements rather

than conflicts with the’SEC’s responsibilities. Those

remedies operate much like private enforcement of

SEC proxy rules under Section 14(a) of the Act, 15

U.S.C. 78n(4). This remedy “provides a necessary

supplement to Commission action. As in antitrust

treble damage litigation, the possibility of civil dam-

_ages or injunctive relief serves as a most effecuve

weapon in ihe ‘enforcement of the proxy require-

ments.” J. I. Case Co. v. Borak, 377 U.S. 426, 432.

Similarly, even though the SEC has powers of direct

regulation under Section 10(b), dealing with manipu-

lative or deceptive practices (see discussion, supra,

p. 29), the courts have jurisdiction to enforce private

claims for violation of this Section or SEC’s rules there-

under. See III Loss, Securities Regulation, p. 1428

(2d ed. 1961). '

‘By the same reasoning, even though the SEC has

powers under Section 19(a) to discipline exchanges

which fail to discipline members under their internal

designed to implement a central market system. 120 Cong. Rec.

$8950-S8958 (daily ed., May 28, 1974). The bill would have

modified Section 15A of the Securities Exchange Act (the

Maloney Act), which establishes a system of self-regulation

for securities dealers operating in the over-the-counter market.

Section 15A(n) declares that the Maloney Act prevails over

any provision of other laws with which it may conflict. The

Senate voted to repeal this as unnecessary, because it concluded

that under existing law the antitrust courts retain “jurisdiction

to make the ultimate accommodation between antitrust prin-

ciples and the powers and actions of the self-regulatory orga-

nizations.” S. Rep. No. 93-865, 93d Cong., 2d Sess., p. 11. The

report cites Silver, Ricci, and the Fifth Circuit’s decision in Har-

well y. Growth Programs, supra.

rules for protection of investors, and willful violations

of the Act or SEC rules by an exchange may result in

a $500,000 fine (Section 32, 15 U.S.C. 78ff), private par-

ties have a right of action as well. Baird v. Franklin,

supra. This remedy is not foreclosed because the Act

specifies other remedies. Similarly, the Silver test,

which emphasizes reconciliation of the judicial and

administrative regimes to the maximum extent pos-

sible, implies the principle “* * * that agencies

and courts together constitute a ‘partnership’ in fur-

therance of the public interest and are ‘collaborative

instrumentalities of justice.’” Greater Boston Tele-

vision Corp. v. Federal Communications Commission,

444 F. 2d 841, 851-852 (C.A. D.C.) ; United States v.

Morgan, 313 U.S. 409, 422.

The 1963 Special Study (n. 23, supra) recog-

nized that in the absence of effective competition,

much more extensive and detailed regulation by the

government would be necessary. The antitrust laws,

by protecting competition in the securities industry,

thus provide an essential complement to existing reg-

ulation.”

%* Special Study, Part 2, p. 957:

“The extent of needed regulation of markets in the public

interest surely depends, at least in part, on the effectiveness of

competition among markets—not merely competition for the

handling of transactions in multiple traded securities but com-

petition to become the primary market for particular secu-

rities—in maintaining high standards of performance. Indeed,

in the absence of effective competition among markets in both

senses, the sheer size and power of any one or two markets

might enlarge the scope and degree of needed governmental in-

tervention to the point where the adequacy of present regula-

tory concepts would be open to question. Considerations of this

4. Legislative awareness of exchange price fixing

The court of appeals’ emphasis upon the fact that

the Act was adopted seven years after Trenton Pot-

tertes is also’ misplaced. As we have seen, Congress

was aware from Mr. Untermeyer’s testimony that ex-

change members have continuously set the rates of

commission to be charged their customers by agree-

ment. But there is no evidence that Congress’ atten-

tion was ever meaningfully called to any link between

Trenton Potteries and exchange price fixing.

Absent such evidence no inference of a legislative

intention to declare Trenton Potteries inapplicable

may be drawn. ‘‘It is at best treacherous to find in

congressional silence alone the adoption of a control-

ling rule of law” (Gtrouard v. United States, 328

U.S. 61, 69), much less a policy change as grave as

repeal of the antitrust laws. See also National Labor

Relations Board v. Plasterers’ Union, 404 U.S. 116,

129-130. It was not clear even as late as 1934 that the

Sherman Act could be applied to exchange practices.

Argument was then still current as to whether ex-

change transactions were within the reach of the Fed-

eral Commerce Power.” Only two decades earlier, in

1913, the Pujo Committee had reported that exchange

price fixing had only local effect and thus was appar-

kind appear to have entered into the Commission’s expres-

sions of policy on unl'sted trading privileges in 1936 and mul-

tiple trading in 1940. (See pt. E.) Although the context may

have changed somewhat, these considerations have at least

equal pertinence today.”

2? See Tracy and MacChesney, The Securities Exchange Act

of 1934, 32 Mich. L. Rev. 1025, 1037, n.* (1934).

ently beyond the power of Congress. H. Rep. No. 1593,

62d Cong., 3d Sess., pp. 114-116. Cf. Federal Baseball

Club v. National League, 259 U.S. 200. Not until 1950,

when this Court held in United States v. National

Ass’n of Real Estate Boards, 339 U.S. 485; that rate

fixing by an association of real estate dealers was a

per se violation of the Sherman Act, ;was the validity

of exchange price fixing under the antitrust laws first

questioned.”

5. Inconsistent results ~

The court of appeals’ fear that application of the

Silver test is likely to subject exchanges to repeti-

tive and conflicting standards misconceives this

court’s reasoning in that case. The intent and the

effect of Silver is to provide a mechanism for -recon-

ciliation of the two statutes’ schemes. If the SEC

were to order the exchanges to adhere to a fixed

commission rate system of some ind, no antitrust

liability could arise. United States v. Borden Co.,

supra, 308 U.S. at 201; Parker v. Brown, 317 U.S.

But the SEC has never made such an order. More-

over, it is always possible to include in antitrust de-

crees language which provides for the contingency

that it will do so. Otter Tail Power Co. v. United

States, supra, 410 U.S. at 375; United States v. Termi-

nal R. Ass’n of St. Louis, supra, 224 U.S. at 412.

The likelihood that the SEC will adopt such an

order seems remote. Until October 1974 it had con-

°° See II Loss, Securities Regulation, p. 1179, n. 29 (2d ed.

1961). .

—_—_—_—_— mater

ducted only two proceedings under Section 19(b)*

and: it has never indicated in any formal action

that fixed commissions are necessary to the scheme

of the Act. It has instead moved steadily in the direc-

tion of considering administrative abolition of the

fixed commission rate system (see n. 23, supra),

culminating in its announcement January 23, 1975, of

. Rule 19b-3, prohibiting fixed rates to the public as of

May 1, 1975, and to members and associated members

(floor brokerage) as of May 1, 1976."

Moreover, the Silver test is applicable to action of

the Commission as well as of the courts. Most of the

exchange rules subject to Section 19(b) do not affect

2° The first was Jn the Matter of the Rules of the New York

Stock Exchange, 10 S.E.C. 270. In that case, the Commission

abrogated a New York Stock Exchange rule designed to sup-

press trading on regional exchanges. It held that the fostering

of competition among exchanges was one of the purposes of the

Securities Exchange Act. The second involved institutional

membership in exchanges. On January 16, 1973, the Commis-

sion adopted Rule 19b-2, which ordered every exchange to

limit membership to those whose “principal purpose” is the

conduct of a “public securities business.” Securities Exchange

Act Release No. 9950, January 16, 1973. Adoption of the Rule

followed several requests, both informal and formal, by the SEC

to the exchanges to restrict “institutional membership” and re-

sistance by certain of the exchanges, particularly the Phila-

delphia-Baltimore-Washington Exchange, to these requests. The

Rule was challenged by the PBW Exchange in the Third Circuit,

but the petition was dismissed on jurisdictional grounds. See

PBW Stock Exchange, Inc. v. Securities and Exchange Commis-

sion, supra. Judicial challenge to the Rule is currently continuing

in the District Court. PBW Stock Exchange, Inc. v,, Securities

and Exchange Commission, Civ. Act. No. 74-1198 (E. D. Pa.).

8° Securities Exchange Act Release No. 11203, January’23, 1975.

competition at all. But competition must be consid-

ered by the Commission in weighing the impact on the

investing public of exchange rules which do affect

competition, because preservation of the competitive

free enterprise system is a fundamental national pol-

icy. Thus, in barring fixed rates, the SEC said that its

“conclusions are consistent with the American tradi-

tion vf reliance upon free competition to determine

prices and allocate resources, as reflected by the public

policy embodied in the antitrust laws.”" See also

In the Matter of the Rules of the New York Stock

Exchange, 10 S.E.C. 270.

This Court has noted that the antitrust laws are the

appropriate starting place for determination of the

public interest, and that ‘‘once an antitrust violation

is established, this alone will normally constitute sub-

stantial evidence that the agreement is ‘contrary to the

public interest,’ unless other evidence in the record

fairly detracts from the weight of this factor.” Fed-

eral Maritime Commission v. Svenska Amerika Linien,

390 U-:S.7238, 245-246. Accord Gulf States Utilities

Co. v. Federal Power Commission, 411 U.S. 747; Den-

ver & R. G. W. R. Co. v. United States, 387 U.S. 485;

Otter Tail Power Co. v. United States, supra; Cali-

fornia v. Federal Power Commission, supra.

Since the purpose of the Securities Exchange Act

is to protect investors, not to insulate members of ex-

changes and dealers in over-the-counter markets from

competition, the SEC must apply the Stlver test in the

*1 Securities Exchange Act Release No. 11203, supra, at p. 24.

same manner as a court. Exchange rules which have a

significantly adverse effect on competition—as for ex-

ample fixed commission rates or rules denying access

to the exchange—are seriously anticompetitive. Where

this is so, it must be presumed that the-rule operates

to the detriment of the investing public and can there-

fore be deemed by the SEC to be ‘‘necessary or ap-

propriate” under Section 19(b) only to the extent such

a restriction on competition is necessary to the opera-

tion of the Act and no more restrictive than necessary.

The SEC and the courts are thus required to apply es-

sentially the same standard to self-regulatory activi-

ties which"re seriously anticompetitive, and SEC’s

recent prohibition of fixed rates reflects this approach.

6. Fixed commission rates as a keystone of the marketing

system

The court of appeals also appears to have assumed

that the fixed commission rate system was essential to

the functioning of securities markets, since it charac-

terized the rate structure as ‘‘the keystone of the eco-

nomic viability of the brokerage industry” (Pet. App.

44). This statement, made without the kind of evi-

dentiary record required by Silver (see discussion,

supra, pp. 17-26), is unsupported.

It is a view rejected by the SEC itself, since the

Commission has ordered the prompt abolition of fixed

commission rates; and by the legislative bodies which

have considered the question. The Senate has adopted

legislation which would abrogate fixed rates unless

exchanges granted membership to institutional inves-

tors (S. 470, 93d Cong.; see S. Rep. No. 93-187, supra,

at p. 3), and the House Committee on Interstate and

Foreign Commerce also reported legislation which

would require »bclition of a system it characterizes as

unreasonable «4.R. 5050, 93d Cong.; see H. Rep. No.

93-1476, supra, at pp. 46-48). Similar conclusions were

reached by the House and Senate Studies of the se-

curities industry (supra, n. 25).

Moreover, none of the economic factors which would

characterize a regulated monopoly pricing system is

reflected in the scheme of the Act. Exchange members

have no statutory duty to serve all members of the

public without discrimination; and the nature of the

service offered, operating costs, firm size, and com-

parative efficiencies between firms vary widely. Be-

cause cost data for various kinds of services charac-

teristic of public utility rate making are not available,

the SEC has never attempted to apply traditional rate

of return criteria to exchange rates.” See Securities

Exchange Act Release No. 11,203, supra, pp. 9-10,

28-30. .

Instead, it has advised Congress that no general rate

32 See, e.g., letter of SEC Chairman Casey to Chairman Har-

rison A. Williams, Jr., Subcommittee on Securities, Senate

Committee on Banking, Housing.and Urban Affairs, Decem-

ber 3, 1971, Hearings before the Subcommittee on Securities

of the Senate Committee on Banking, Housing and Urban Af-

fairs, on S. 3169, Stock Exchange Commission Rates, 92d

Cong., 2d Sess., pp. 30-32; and letter of SEC Chairman Cook

to Chairman Harrison A. Williams, Jr., Subcommittee on Se-

curities, Senate Committee on Banking, Housing and Urban

Affairs, April 10, 1973.

structure can be devised.“ The only sense in which

fixed commission rates have been a “keystone”’ is that

they have been in effect since the New York Stock Ex-.

change was established under a buttonwood tree in

1792. This hardly indicates that Congress intended to

_ authorize them in the Securities Exchange Act, and

as we have seen, nothing in the history of that Act

reflects a purpose by Congress to endorse this profit-

able, but hardly necessary practice.”

The court of appeals concluded that because the

fixed commission rate structure is so ancient, the con-

sequence of introducing competitive rates would be

the failure of a number of inefficient brokerage firms

(Pet. App. 47). It noted that SEC studies show ‘‘that

the exchanges have operated for a long time under

cartelized commission rates, which exceed those which

would have been charged by firms of efficient scale”

and suggested that ‘‘[mJeasured withdrawal could

avoid the loss of * * * investor funds by allowing fail-

ing brokers to ‘exit by orderly merger or liquidation

rather than by bankruptcy.’” Ibid. This observation,

we submit, confirms the wisdom of applying the Silver

test.

** Testimony of Commissioner Loomis, Hearings before the

Subcommittee on Commerce and Finance of the House Com-

mittee on Interstate and Foreign Commerce, on H.R. 5050 and

_ H.R. 340, Securities Exchange Act Amendments of 1973, 93d

Cong., 1st Sess., Part 2, p. 482.

* See Baxter, supra, 22 Stan. L. Rev. at p. 676. Prof. Baxter

observes that in 1792 “the ink was hardly dry on Adam Smith's

seminal treatise advocating the social desirability of free and

competitive markets * * *” (chid.).

If, as the SEC now has indicated, fixed commission

rates are inconsistent with the Securities Exchange,

Act, then the only ground for permitting them to con-

tinue for even a brief time is because a transition pe-

riod of some kind is necessary for investor protection.

Under the Silver test, such a transition period might

be justified on a proper record. The fashioning of

equitable relief to allow such a transition, if fixed com-

mission rates are found to violate the antitrust laws,

would be consistent with both traditional doctrines of

antitrust relief and equitable principles. This Court

has long recognized the powers of a court of ecuity to

fashion relief in a flexible manner taking »ractical

considerations relating to the public interest into ac-

count. Cf. United States v. E. I. duPont de Nemours

& Co., 366 U.S. 316; see also Hartford-Empire Co. v.

United States, 323 U.S. 386; and United States v.

Aluminum Co. of America, 91 F. Supp. 333, 419

(S.D. N.Y.).

Since private antitrust remedies include damages,

as well as equitable relief, there remains a question

of retroactive damage liability. Whether such liabil-

ity should be imposed in view of the long history of

reliance by the exchangés on the absence of any chal-

lenge to their price fixing practices from 1792 to the

decade of the 60’s is a question which would have to

be considered if this or other cases, after application

of the Stlver test, should result in a determination of

liability and reach the issue of damages. Given the

. long history of fixed commission rates, the absence of

any challenge to them by anyone until after the 1963

Special Study (n. 23, supra) and the relative recent-

ness of Silver, there may he equities justifying pro-

spective application of any decision holding commis-

sion rate fixing illegal under the antitrust laws, except

as to the particular plaintiffs involved. Cf. Simpson

vy. Union Oil Co., 396 U.S. 13, 14; Chevron Oil Co. v.

Huson, 404 U.S. 97, 105-109. But these must be con-

sidered on a full record after Silver has been applied.

7. “Chilling” exchange self-regulation

The SEC has argued (SEC Memorandum as Ami-

cus Curiae, p. 8) that application of the Stlver test

will chill the willingness of the exchanges to engage in

self-regulatory activity, and affect the manner in

which it exercises its supervisory authority. Silver,

however, rejected the Second Circuit’s “chilling” anal-

ysis in that case, and its reiteration here is simply a

reversion to a rejected standard. Moreover, insofar as

the SEC claims exclusive jurisdiction, it would be

claiming an unprecedented power to grant exemption

from the antitrust laws without any statutory indica-

tion that the Congress intended to delegate tu it the

power to immunize.”

To construe the Securities Exchange Act so that the

antitrust laws were applicabie only where the Com-

mission affirmatively disapproves exchange rules

would stand on its head this Court’s decision in Car-

nation Co. v. Pacific Westbound Conference, supra.

Carnation applies a fortiori here, where the SEC is

35 See United States v. Borden Co., supra; United States v.

Philadelphia. National Bank, supra, 374 U.S. at 350-355.

not authorized to approve rate fixing agreements

prior to implementation, much less to immunize them.

Moreover, such a construction would overrule Ricct’s

authoritative interpretation of Silver and undermine

the salutary principle of Silver itself.

For the reasons stated, the judgment of the court

of appeals should be reversed.

Respectfully submitted.

Rosert H. Bork,

Solicitor General.

THomas E. Kavuper,

Assistant Attorney General.

Howarp E. SHapiro,

Attorney.

January 1975.

APPENDIX

The pertinent provisions of the Securities Exchange

Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. 78a,

et seq., are as follows:

NECESSITY FOR REGULATION AS PROVIDED IN THIS

TITLE

Section 2. For the reasons hereinafter enu-

merated, transactions in securities as commonly

conducted upon securities exchange and over-

the-counter markets are affected with a national

publie interest which makes it necessary to pro-

vide for regulation and control of such transac-

tions and of practices and matters related

| thereto, including transactions by officers, di-

| rectors, and principal security holders, to re-

quire appropriate reports, and to impose re-

quirements necessary to make such regulation

and eontrol reasonably complete and effective,

in order to protect interstate commerce, the na-

tional credit, the Federal taxing power, to pro-

tect and make more effective the national bank-

ing system and Federal Reserve System, and

to insure the maintenance of fair and honest

markets in such transactions:

(1) Such transactions (a) are carried on in

large volume by the public generally and in

| large part originate outside the States in which

{ the exchanges and over-the-counter markets are

located and/or are effected by means of the

mails and instrumentalities of interstate com-

merce; (b) constitute an important part of the

eurrent of interstate commerce; (c) involve in

the securities of issuers engaged in

interstate commerce; (d) involve the use of

———_——--—-.- ~ °

(57)

567-303—75 6 >

credit, directly affect the financing of trade, in-

dustry, and portation in interstate com-

merce, and di y. affect and influence the

volume of interstate commerce; and affect the

national credit.

(2) The prices established and offered in

such transactions are generaliy disseminated

and quoted througout the United States and for-

eign countries and constitute a basis for deter-

mining and establishing the igen at which se- |

curities are : ht and sold, the amount of

certain taxes owing to the United States and

to the several States by owners, buyers, and

sellers of securities, and the value of collateral

for bank loans.

(3) Frequently the prices of securities on

such exchanges and markets are susceptible to

manipulation and control, and the: dissemina-

tion of such prices gives rise ‘to excessive specu-

lation, resulting in sudden and unréasonable

fluctuations in the prices of securities which

(a) cause alternately unreasonable a.

and unreasonable contraction of the volume of

credit available for trade, transportation, and

industry in interstate commerce, (b) hinder the

proper appraisal of the value of securities and

thus prevent a fair calculation of taxes owing

to the United States and to the several States

_ by owners, buyers, and sellers of securities, and

(ec) prevent the fair valuation of collateral for

bank loans and/or obstruct the effective opera-

tion of the national banking system and Fed-

eral Reserve System. '

(4) National emergencies, which : produce

widespread unemployment and the dislocation

of trade, transportation, and industry, and

which burden interstate commerce ‘and ad-

versely affect the general welfare, are precipi- |

tated, intensified, and prolonged by manipula-

tion and sudden and unreasonable fluctuations

of security prices and by excessive speculation

on such exchanges and markets, ahd to meet

‘

such emergencies the Federal Government is

put to such great expense as to burden the na-

tional credit.

* * + * *

TRANSACTIONS ON UNREGISTERED EXCHANGES

Section 5. It shall be unlawful for any bro-

ker, dealer, or exchange, directly or indirectly,

to make use of the mails or any means or in-

strumentality of interstate commerce for the

purpose of using any facility of an exchange

within or subject to the jurisdiction of the

United States to effect any transaction in a se-

curity, or to report any such transaction, unless

such exchange (1) is registered as a national

securities exchange under section 6 of this title,

or (2) is exempted from such registration upon

' application by the exchange because, in the

opinion of the Commission, by reason of the

limited volume of transactions effected on such

exchange, it is not practicable and not neces-

sary or appropriate in the public interest or for

the protection of investors to require such

registration.

REGISTRATION OF NATIONAL SECURITIES

- EXCHANGES

Section 6. (a) Any exchange may be regis-

tered with the Commission as a national secu-

rities exchange under the terms and conditions

hereinafter provided in this section, by filing a

registration statement in such form as the Com-

mission may prescribe, containing the agree-

ments, setting forth the information, and

accompanied by the documents, below specified :

(1) An agreement (which shall not be con-

strued as a waiver of any constitutional right

or any right to contest the validity of any rule

or regulation) to comply, and to enforce so far

as is within its powers Age eg: by its mem-

bers, with the provisions of this title, and any

amendment thereto and any rule or regulation

made or to be made thereunder; -

(2) Such data as to its organization, rules of

rocedure, and membership, and such other in-

ormation as the Commission may by rules and

regulations require as being necessary or ap-

propriate in the public interest or for the pro-

tection of investors;

(3) Copies of its constitution, articles of in-

corporation with all amendments thereto, and

of its existing bylaws or rules or instruments

corresponding thereto, whatever the name,

which are hereinafter collectively referred to as

the “rules of the exchange’’; and

(4) An agreement to furnish to the Com-

mission copies of any amendments to the rules

of the exchange forthwith upon their adoption.

(b) No registration shall be ted or re-

main . Pe a = eee the exchange

include provision for the n, suspension,

or diserplining of a member for eonduet or pro-

ceeding inconsistent with just and equitable

principles of trade, and declare that the willful

violation of any provisions of this title or any

rule or regulation thereunder shall be consid-

ered conduct or proceeding inconsistent with

just and equitable principles of trade.

to prevent any exchange from adopting and en-

forcing any rule not inconsistent with this title

and the rules and tions thereunder and

= applicable laws of the State in which it is

(4) It it appears fo the Tou that the

exchange: ap or registration is so orga-

nized as to s able to comply with the pro-

visions of this title and the rules and regula-

tions thereunder and that the rules of the

exchange are just and adequate to insure fair

dealing and to protect investors, the Commis-

sion shall cause such exchange to be registered

as a national securities exchange.

(e) Within thirty days after the filing of the

application, the Commission shall enter an order

either granting or, after appropriate notice and

opportunity for hearing, denying registration

as a national securities exchange, unless the ex-

change applying for registration shall withdraw

its application or consent to the Commission’s

deferring action on its application for a stated

longer period after the date of filing. The filing

with the Commission of an application for reg-

istration by an exchange shall be deemed to

have taken place upon the receipt thereof.

Amendments to an application may be made

upon such terms as the Commission may

prescribe.

(f) An exchange may, upon appropriate ap-

plication in accordance with the rules and regu-

lations of the Commission, and upon such terms

as the Commission may deem necessary for

the protection of investors, withdraw its

registration. |

* * * * *

OVER-THE-COUNTER MARKETS

* * * * *

_ Sec. 15A [As added in 1938 by the Maloney

Act, 52 Stat. 1070 (15 U.S.C. 780-3)]. (a)

Any association of brokers or dealers may be

registered with the Commission as a national

securities association pursuant to subsection

(b), or as an affiliated securities association

pursuant to subsection (d), under the terms

and conditions hereinafter provided in this

section, by filing with the Commission a regis-

tration statement in such form as the Com-

mission may prescribe, setting forth the

information, and accompanied by the docu-

ments, below, specified :

(1) Such data as to its organization, member-

ship, and rules of procedure, and such other

information as the Commission may by rules

and regulations require as necessary or appro-

priate in the public interest or for the protec-

tion of investors; and

(2) Copies of its constitution charter, or

articles of incorporation or association, with all

amendments thereto, and of its existing bylaws,

and of any rules or instruments corresponding

to the foregoing, whatever the name, herein-

after in this title collectively referred to as the

“rules of the association.”’

Such registration shall not be construed as a

waiver by such association or any member

thereof of any constitutional right or of any

right to contest the validity of any rule or regu-

lation of the Commission under this title.

(b) An applicant association shall not be reg-

istered as a national securities association un-

less it appears to the Commission that—

(1) by reason of the number of its members,

the scope of their transactions, and the geo-

graphical distribution of its members such asso-

ciation will be able to comply with the provi-

sions of this title and the rules and regulations

thereunder and to carry out the purposes of

this section ;

(2) such association is so organized and is of

such a character as to be able to comply with

the provisions of this title and the rules and

regulations thereunder, and to carry out the

purposes of this section ;

(3) the rules of the association provide that

any broker or dealer who makes use of the

mails or of any means or instrumentality of in-

terstate commerce to effect any transaction in,

or to induce the purchase or sale of, any se-

curity otherwise than on a national securities

exchange, may become a member of such asso-

ciation, except such as are excluded pursuant

to paragraph (4) of this subsection: Provided,

That the rules of the association may restrict

membership in such association on such speci-

fied geographical basis, or on such specified

—————————

basis relating to the type of business done by

its members, or on such other specified and ap-

propriate basis, as appears to the Commission

to be necessary or appropriate in the public

interest or for the protection of investors and

to carry out the purpose of this section;

(4) the rules of the association provide that,

except with the approval or at the direction of

the Commission in cases in which the Commis-

sion finds it appropriate in the public interest

so to approve or direct, no broker or dealer

shall be admitted to or continued in member-

ship in such association, if (1) such broker or

dealer, whether prior or subsequent to becom-

ing such, or (2) any partner, officer, director,

or branch manager of such broker or dealer

(or any person occupying a similar status or

performing simi!sr functions), or any person

directly or indirectly controlling or controlled

by such broker or dealer, whether prior or

subsequent to becoming such, (A) has been

and is suspended or expelled from a registered

securities association (whether national or af-

filiated) or from a national securities ex-

change, for violation of any rule of such as-

sociation or exchange which prohibits any act

or transaction constituting conduct inconsist-

ent with just and equitable principles of trade,

or requires any act the omission of which con-

stitutes conduct inconsistent with just and equi-

table principles of trade, or (B) is subject to

an order of the Commission denying or re-

voking his registration pursuant to section 15

of this title, or expelling or suspending him

from membership in a registered securities

association or a national securities exchange,

or (C) by his conduct while employed by, act-

ing for, or directly or indirectly controlling or

controlled by, a broker or dealer, was a cause

of any suspension, expulsion, or order of the

character described in clause (A) or (B)

64 :

which is in effect with respect to such broker

or dealer ;

(5) the rules of the association assure a fair

representation of its members in the adoption

of any rule of the association or amendment

thereto, the selection of its officers and di-

rectors, and in all other phases.of the admin-

istration of its affairs; ,

(6) the rules of the association provide for

the equitable allocation of dues among its

members, to defray reasonable expenses of

administration ;

(7). the rules of the association are designed

to prevent fraudulent and manipulative acts and

practices, to promote just and equitable prin-

ciples of trade, to provide safeguards against

unreasonable profits or unreasonable rates of

commissions or other charges, and, in general,

to. protect investors and the public interest,

and to remove impediments to and perfect the

mechanism of a free and open market; and are

not designed to permit unfair discrimination

between customers or issuers, or brokers or

dealers, to fix minimum profits, to impose any

schedule of prices, or to impose any schedule

. or fixed: minimum rates of commissions, allow-

: ances, discounts, or other charges;

(8) the rules of the association provide that

. its members shall be appropriately disciplined,

by expulsion, suspension, fine, censure, or any

— fitting penalty, for any violation of its

rules ;

(9) the rules of the association provide a

fair and orderly procedure with respect to

the disciplining of members and the denial

of membership to any broker or dealer seek-

ing membership therein. In any proceeding

to determine whether any member shall be

- disciplined, such rules shall require that spe-

cific charges be brought; that such member

shall be notified of, and be given an opportunity

to defend against, such charges; that a record

shall be kept; and that the determination shall

include (A) a statement setting forth any act

or practice in which such member may be found

to have engaged, or which such member may be

found to have omitted, (B) a statement setting

forth the specific rule or rules of the association

of which any such act or practice, or omission

to act, is deemed to be in violation, (C) a state-

ment whether the acts or practices prohibited

by such rule or rules, or the omission of any act

required thereby, are deemed to constitute con-

duct inconsistent with just and equitable prin-

ciples of trade, and (D) a statement setting

forth the penalty imposed. In any proceeding

to determine whether a broker or dealer shall

be denied membership, such rules shall provide

that the broker or dealer shall be notified of,

and be given an opportunity to be heard upon,

the specific grounds for denial which are under

consideration; that a record shall be kept; and

that the determination shall set forth the spe-

nr grounds upon which the denial is based;

(10) the requirements of subsection (c), in-

sofar as these may be applicable, are satisfied.

* * * * *

(e) Upon the filing of an application for

registration pursuant to subsection (b) or sub-

section (d), the Commission shall by order

grant such registration if the requirements of

this section are satisfied. If, after appropriate

notice and opportunity for hearing, it appears

to the Commission that any requirement of

this section is not satisfied, the Commission

shall by order deny such registration. If any

association granted registration as an affiliated

securities association pursuant to subsection

(d) shall fail to be admitted promptly there-

after to affiliation with a registered national

securities association, the Commission shall re-

voke the registration of such affiliated securi-

ties association.

* * * * *

(j) Every registered securities association

shall file with the Commission in accordance

with such rules and regulations as the Commis-

sion may prescribe as necessary or appropriate

in the public interest or for the protection of

investors, copies of anv changes in or additions

to the rules of tiie association) and such other

information and documents as the Commission

may require to keep current or to supplement

the registration statement and documents filed

pursuant to subsection (a). Any change in or

addition to the rules of a registered securities

association shall take effect upon the thirtieth

day after the filing of a copy thereof with the

Commission, or upon such earlier date as the

Commission may determine, unless the Commis-

sion shall enter an order disapproving such

change or addition; asid the Commission shall

enter such an order, unless such change or addi-

tion appears to the Commission to be consistent

with the requirements of subsection (b) and

subsection (d).

(k)(1) The Commission is authorized by

order to abrogate any rule of a registered secu-

rities association, if after appropriate notice

and opportunity for hearing, it appears to the

Commission that such abrogation is necessary

or appropriate to assure fair dealing by the

members of such association, to assure a fair

representation of its members in the adminis-

tration of its affairs or otherwise to protect in-

vestors or effectuate the purposes of this title.

(2) The Commission may in writing request

any registered securities association to adopt

any specified alteration of or supplement to its

rules with respect to any of the matters herein-

after enumerated. If such association fails to

adopt such alteration or supplement within a

reasonable time, the Commission is authorized

by order to alter or supplement the rules of

such association in the manner theretofore re-

quested if, after appropriate notice and oppor-

tunity for hearing, it appears to the Commis-

sion that such alteration or supplement is nec-

essary or appropriate in the public interest or

for the protection of investors or to effectuate

the purposes of this section, with respect to:

(1) The basis for, and procedure in connection

with, the denial of membership or the disciplin-

ing of members; (2) the method for adoption

of any change in or addition to the rules of the

association; (3) the method of choosing officers

and directors; and (4) affiliation between regis-

tered securities associations.

(1) The Commission is authorized, if such ac-

tion appears to it to be necessary or appro-

priate in the public interest or for the protec-

tion of investors or to carry out the purposes of

this section—

(1) after appropriate notice and oppor-

(tunity for hearing by order to suspend for

a period not exceeding twelve months or to

revoke the registration of a registered securities

association, if the Commission finds that such

association has violated any provision of this

title or any rule or regulation thereunder, or

has failed to enforce compliance with its own

rules, or has engaged in any other activity tend-

ing to defeat the purposes of this section;

(2) after appropriate notice and opportunity

for hearing, by order to suspend for a period

not exceeding twelve nionths or to expel from a

registered securities association any member

thereof who the Commission finds (A) has vio-

lated any provision of this title or any rule or

regulation thereunder, or has effected any trans-

action for any other person who, he had reason

to believe, was violating with respect to such

transaction any provision of this title or any

rule or regulation thereunder, or (B) has will-

fully violated any provision of the Securities

Act of 1933, as amended, or of any rule or regu-

lation thereunder, or has effected any trans-

action for any other person who, he had reason

to believe, was willfully violating with respect

to such transaction any provision of such Act or

rule or regulation;

(3) after appropriate notice and opportu-

nity for hearing, by order to remove from office

any officer or director of a registered securi-

ties association who, the Commission finds, has

willfully failed to enforce the rules of the asso-

ciation, or has willfully abused his authority.

(m) Nothing in this section shall be construed

to apply with respect to any transaction by a

broker or dealer in any exempted security.

(n) If any provision of this section is in con-

flict with any provision of any law of the

United States in force on the date this section

takes effect, the provision of this section shall

prevail.

POWERS WITH RESPECT TO EXCHANGES AND

: SECURITIES

Section 19. (a) The Commission is author-

ized, if in its opinion such action is necessary

or appropriate for the protection of investors—

(1) After appropriate notice and opportunity

for hearing, by order to suspend for a period

not exceeding twelve months or to withdraw the

registration of a national securities exchange

if the Commission finds that such exchange has

violated any provision of this title or of the

rules and regulations thereunder or has failed

to enforce, so far as is within its power, com-

pliance therewith by a member or by an issuer

of a security registered thereon.

(2) After appropriate notice and opportunity

for hearing, by order to deny, to suspend the

effective date of, to suspend for a period not

exceeding twelve months, or to withdraw, the

registration of a security if the Cémmission

finds that the issuer of such security has failed

to comply with any provision of this title or the

rules and regulations thereunder.

(3) After appropriate notice and opportunity

for hearing, by order to suspend for a period

not exceeding twelve months or to expel from a

national securities er any member or of-

ficer thereof whom the Commission finds has

violated any provision of this title or the rules

and regulations thereunder, or has effected any

transaction for any other person who, he has

reason to believe, is violating in respect of such

transaction any provision of this title or the

rules and regulations thereunder.

(4) And if in its opinion the public interest

so requires, cieeannell y to suspend trading in

any registered security on any national securi-

ties exchange for a period not exceeding ten

days, or with the approval of the President,

summarily to suspend all trading on any na-

tional securities exchange for a period not ex-

cones ninety days.

(b) The Commission is further authorized, if

after making appropriate request in writing to

a national securities rer fe that such ex-

change effect on its own be specified changes

in its rules and practices, and r appropriate

notice and opportunity for hearing, the Com-

mission determines that such exchange has not

made the changes so requested, and that such

changes are necessary or appropriate for the

protection of investors or to insure fair dealing

in securities traded in upon such exchange or

to insure fair administration of such exchange,

by rules or regulations or by order to alter or

supplement the rules of such exchange (insofar

as necessary or <p> eae to effect such

—: in respect of such matters as (1) safe-

guards in respect of the financial responsibility

of members and adequate provision against the

70 «|

evasion of financial responsibility through the

use of corporate forms or special partnerships ;

(2) the limitation or prohibition of the regis-

tration or trading in any security within a spec-

ified period after the issuance or primary dis-

tribution thereof; (3) the listing or striking

from listing of any security; (4) hours of trad-

ing; (5) the manner, method, and place of so-

liciting business; (6) fictitious or numbered

accounts; (7) the time and method of making.

settlements, payments, and deliveries and of

closing accounts; (8) the reporting of transac-

tions on the exchange and upon tickers main-

tained by or with the consent of the exchange,

including the method of reporting short sales,

stopped sales, sales of securities of issuers in

default, bankruptcy or receivership, and sales

involving other special circumstances;. (9) the

fixing of reasonable rates of commission, inter-

est, listing, and other charges; (10) minimum

units of trading; (11) odd-lot purchases and

sales; (12) minimum deposits on margin ac-

counts; and (13) similar matters.

(ec) The Commission is authorized and di-

rected to make a study and investigation of the

rules of national securities exchanges with re-

spect to the classification of members, the meth-

ods of election of officers and committees to

insure a fair representation of the membership,

and the suspension, expulsion, and disciplining

of members of such exchanges. The Commis-

sion shall report to the Congress on or before

January 3, 1935, the results of its investigation,

together with its recommendations.

* * *

* *

EFFECT ON EXISTING LAW

Section 28. (a) The rights and remedies

provided by this title shall be in addition to

any and all other rights and remedies that may

t law or in equity; but no person. per-

mitted to maintain a suit for damages tinder

the provisidns of this title shall recover, through

satisfaction of judgment i in one or more actions,

a total amount in excess of his actual damages

on account of the act complained of. Nothing

in this title shall affect the jurisdiction of the

securities commission (or any agency or officer

performing like functions) of any State over

any security or any person insofar as it does

‘not conflict with the provisions of this title or

the rules and regulations thereunder.

(b) Nothing in this title shall be construed

to modify existing law (1) with regard to the

binding effect on any member of any exchange

of any action taken by the authorities of such

exchange to settle disputes between its mem-

bers, or (2) with regard to the binding effect

of such action on any person who, has agreed

to be bound thereby, or (3) with regard to the

binding effect on sny such member of any dis-

ciplinary action taken bv the authorities of the

exchange as a result of violation of any rule

of the exchange, insofar as the action taken is,

not inconsistent with the provisions of this title

or the rules and regulations thereunder.

The pertinent provisions of the Sherman Act, 26

Stat. 209, as amended, 15 U.S.C. 1, et. seq. are as

follows: ©

Sec. 1. Every contract, combination in the

form of trust or otherwise, or conspiracy, in

restraint of trade'or commerce among the sev- -

eral States, or with foreign nations, is hereby

declared to be illegal: * * * Every person who

shall make any such contract or engage in any

_ such combination or conspiracy, shall be deemed

guilty of a misdemeanor, and, on conviction

thereof, shall be punished by fine not éxceeding

fifty thousand dollars, or by imprisonment not

exceeding one year, or by both said punish-

ments, in the discretion of the court.

Sec. 2. Every person who shall monopolize,

or attempt to monopolize, or combine or con-

spire with any other person or persons, to

monopolize any part of the trade or commerce

among the several States, or with foreign na- '

tions, shall be deemed guilty of a misdemeanor,

and, on conviction thereof, shall be punished by

_ ‘fine not exceeding fifty thousand dollars, or .

by imprisonment not exceeding one year, or by

poor said punishments, in the discretion of the

co ;

The pertinent provisions of the Clayton Act, 38

Stat. 731, 737, 15 U.S.C. 15, 26, are as follows:

Szc. 4. That any person who shall be injured

in his business or property by reason of any-

thing forbidden in the antitrust laws may sue

therefor in any district court of the United

States in the district in which the defendant |

resides or is found or has an agent, without

respect to the amount in controversy, and shall

recover threefold the. damages by him sus-

tained, and the cost of suit, including a rea-

2 yi = png RO

any persor corporation, .

or association shall be entitled to sue for and

t proper bond

an injunction improvi y granted

showing that the of irreparable loss or

damage is immediate, a preliminary injunction

may issue: * * * ‘ :

U.S. GOVERNMENT PRINTING OFFICE: 1978

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.