# Amicus Curiae Brief — Gordon v. New York Stock Exchange, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0448%3A09 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1975 - **Citation:** 422 U.S. 659 ## 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 ee ‘ut R _ 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 3 IV 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 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~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 | x 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 xI 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) 2 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. 3 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. / i) 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 “): “Section 19(b) does not authorize the NYSE to do anything; it -authorizes-the-SEC to alter or 38 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 39 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 48 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, 41 442 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 42 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- 43 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 44 (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 45 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. 46 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 47 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). 48 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 49 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. 50 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. 51 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- 52 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.). 54 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. 55 ae 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. 56 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. CC 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 > \ 58 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 ‘ i 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 60 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. (c) Nothing in this title shall be construed 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. 61 (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 62 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 ————————— 63 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 65 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; an (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- \ 66 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 67 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 68 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 69 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 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 a. 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- 72 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0448%3A09. Public record. Not legal advice.