Silver v. New York Stock Exchange

Decision Date16 June 1961
Citation196 F. Supp. 209
PartiesHarold J. SILVER, d/b/a Municipal Securities Company, and Municipal Securities Company, Inc., Plaintiffs, v. NEW YORK STOCK EXCHANGE, Defendant.
CourtU.S. District Court — Southern District of New York

Dickstein, Shapiro & Galligan, New York City, Goldberg, Fonville, Gump & Strauss, Dallas, Tex., for plaintiffs; David I. Shapiro, Washington, D. C., of counsel.

Milbank, Tweed, Hope & Hadley, New York City, for defendant; A. Donald MacKinnon, Samuel L. Rosenberry, Edward J. Reilly, Jr., New York City, of counsel.

FREDERICK van PELT BRYAN, District Judge.

Municipal Securities Company is a sole proprietorship owned by plaintiff Harold Silver, engaged in the securities business, almost entirely in municipal bond transactions. Plaintiff, Municipal Securities Company, Inc., is a corporation organized under the laws of the State of Texas, also engaged in the securities business, principally in the over-the-counter securities market.

Defendant, New York Stock Exchange is a New York unincorporated association with an authorized membership of 1375. The Exchange provides facilities for its members and their firms to trade in corporate securities listed by it. While the actual trading takes place on the floor of the Exchange in New York, its members do business on a nationwide scale. It is the largest and most important of the national stock exchanges. The Exchange has its principal offices and trading facilities at 11 Wall Street in the City of New York.

This suit arises out of the actions of the Exchange in directing a number of its member firms to discontinue private wire and telemeter connections with the plaintiffs and in refusing to continue to furnish plaintiff Municipal, Inc. with its continuous stock ticker quotation service.

The complaint states three separate claims. The first is laid under Sections 4 and 16 of the Clayton Act, 15 U.S.C.A. §§ 15 and 26, and alleges in substance a conspiracy between the defendant Exchange and various of its member firms, named as co-conspirators but not as parties, to deprive the plaintiffs of their private wire and telemeter connections with such member firms and of the stock ticker service, all to plaintiffs' substantial competitive disadvantage and in violation of the Sherman Act, 15 U.S.C.A. § 1 et seq.

The second and third claims sound in tort and allege that the Exchange tortiously induced its members to breach contracts for wire connections with plaintiffs and caused plaintiffs intentional and wrongful harm without reasonable cause.

We are concerned here only with the first claim under the anti-trust laws. Plaintiffs have moved for partial summary judgment on the first claim under Rule 56(a) and (c), F.R.Civ.P., 28 U.S. C.A., and for such further relief as may be appropriate. Plaintiff Municipal has also moved for preliminary injunctive relief under Section 16 of the Clayton Act.

The motions are before me on voluminous affidavits submitted by both sides and a volume of supplementary material.

Jurisdiction over the first claim is based on 15 U.S.C.A. § 15.

On May 19, 1961 I filed a memorandum stating without opinion my holdings on these motions. This is my opinion.

Facts.

There is no genuine dispute as to the following facts.

In 1955 plaintiff Harold Silver commenced business as a broker/dealer in securities in Dallas, Texas. The business consisted almost entirely of transactions in municipal bonds. It was conducted under the name of Municipal Securities Company (Municipal). Municipal also had branch offices in Lubbock, San Antonio, Longview and Amarillo, Texas.

In 1958 Silver organized Municipal Securities Company, Inc. (Municipal, Inc.) to engage in transactions in corporate securities. Its principal business was in the over-the-counter securities market.

By February 1959 Municipal had sixteen employees and in 1958 had done a gross volume of transactions of $54,607,000. Municipal, Inc. had seven employees and for the seven months prior to February 1959 its volume of trading in over-the-counter securities was $6,850,000.

Both plaintiffs were licensed as securities dealers under the laws of Texas. They were also registered with the Securities and Exchange Commission as broker/dealers and both are members in good standing of the National Association of Security Dealers. They are not members of the New York Stock Exchange.

The 1,375 authorized memberships in the New York Stock Exchange (the Exchange) are held by individuals. There are also a large number of member firms, member corporations and allied members.

Member firms are partnerships transacting business as brokers or dealers in securities, at least one of whose general partners is a member of the Exchange. Member corporations are corporations engaged in the securities business which have one or more directors who are members of the Exchange. The Exchange also has an allied membership consisting of general partners in member firms or owners of voting stock in member corporations.

The Exchange lists select corporate securities which include those of many of the country's largest and most important corporations. It provides a quality market for its members to execute orders for the purchase and sale of securities so listed for their own accounts and for the accounts of customers. The Exchange also lists a few select municipal bonds.

The market price for a listed security is established by auction on the floor of the Exchange. Market prices are in a constant state of flux, many of them rapidly changing from moment to moment. The market is extremely sensitive to variations in price, even slight fluctuations causing spurts of buying and selling.

The prices of securities listed by the Exchange and traded in on its floor are supplied by continuous stock quotation service which goes by ticker to member firms, to many non-member broker/dealers and to various other places where such quotations are of interest. The ticker provides up to the minute quotations of the prices at which listed securities are being currently traded on the floor of the Exchange. The service is carried over the facilities of the Western Union Telegraph Company and is for purposes of information only.

A large number of securities are not listed either on the New York Stock Exchange or on the other national exchanges. These securities are dealt in on the so-called over-the-counter market and are known as over-the-counter securities. The market price for over-the-counter securities is established by traders at their desks in the numerous firms dealing in securities throughout the country. Such traders are in constant communication with their counterparts in other firms seeking buyers or sellers in particular securities at the best price available. There is no central trading place for over-the-counter securities. The market in them is established by the offers to buy and sell which are communicated between traders. Thus the supply and demand of the over-the-counter market establishes the going bid and asked prices for any particular security at any particular moment of the trading day.

Extensive communication networks facilitate trading in securities. The principal medium which firms engaged in the securities business use to communicate with one another is the private wire connection. This is a direct telephone wire over which traders may instantly communicate with one another to exchange information and transact business. A trader in one firm can establish contact with a trader in another simply by flipping a switch.

Depending on the number of wire connections a firm may have, a single trader in over-the-counter securities can, by using different switches on a board before him, make offers to buy or sell and obtain offers from a variety of other firms within a matter of seconds. These are direct circuits and no dialing or waiting is necessary. Thus traders have the ease and speed of immediate and direct communication. Similar communication is also carried on by direct telemeter or teletype and, in addition, some business is transacted by the more usual means of business communication.

While many dealers in over-the-counter securities are not members of the Exchange many of the member firms and corporations, including those involved here, do an extensive business in over-the-counter securities and in unlisted municipal bonds. Private wire connections between over-the-counter securities dealers, who are not members of the Exchange, and member firms, facilitate transactions between them in unlisted securities and municipals, and also provide facilities by which customers of non-member firms who desire to purchase or sell listed securities can have their orders transmitted to member firms for rapid execution.

In September 1956 direct private wires were installed between the offices of Municipal and the municipal bond departments in the Dallas offices of Merrill Lynch, Pierce, Fenner & Beane, and Rauscher, Pierce & Company, who were members of the New York Stock Exchange. In May 1958 a direct private wire was installed between Municipal and Dallas Union Securities Company, which at a later date became a member of the Exchange.

The cost of these wire connections with Rauscher, Pierce and Dallas Union was charged to Municipal by Southwestern Bell Telephone Company at $5 and $6 per month respectively.

In June 1958 Municipal, Inc. applied to the Exchange for the approval of private wire connections with the Dallas offices of the following member firms of the Exchange: Rauscher, Pierce & Company; Dallas, Rupe & Son; Eppler, Guerin & Turner; Merrill Lynch, Pierce, Fenner & Smith; Sanders & Co.; Harris Upham & Co.; Goodbody & Co.; E. F. Hutton & Co.; Schneider, Bernet & Hickman. Each of these firms, except Merrill Lynch, Pierce, Fenner & Smith, also requested permission from the Exchange to install such private wire connections. Between June and August of 1958 the Exchange granted temporary approval for the...

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6 cases
  • Vandervelde v. Put and Call Brokers and Dealers Ass'n
    • United States
    • U.S. District Court — Southern District of New York
    • 14 d5 Abril d5 1972
    ...of his business. The very nature of the business in which he was engaged makes this abundantly plain." Silver v. New York Stock Exchange, 196 F.Supp. 209, 223 (S.D.N.Y. 1961), rev'd on other grounds, 302 F.2d 714 (2d Cir. 1962), rev'd on other grounds, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2......
  • Silver v. New York Stock Exchange
    • United States
    • U.S. Supreme Court
    • 20 d1 Maio d1 1963
    ...the respective affidavits of the parties, granted summary judgment and a permanent injunction as to the private wire connections, 196 F.Supp. 209, holding that the antitrust laws applied to the Exchange, and that its directive and the ensuing compliance by its members constituted a collecti......
  • Silver v. New York Stock Exchange
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 6 d5 Abril d5 1962
    ...defendant's action constituted a concerted refusal to deal which was per se unlawful, and gave plaintiff a permanent injunction. 196 F.Supp. 209 (S.D.N.Y. 1961). This is the order from which the present appeal is taken. We reverse on the ground that the defendant acted in pursuance of power......
  • Cowen v. New York Stock Exchange
    • United States
    • U.S. District Court — Northern District of New York
    • 12 d2 Julho d2 1966
    ...two or more persons in refusing to deal with another violates Section 1 of the Sherman Act. (See cases cited in Silver v. New York Stock Exchange, D.C., 196 F.Supp. 209 at 222). The difficulty here is that there is neither allegation nor evidence that the Exchange has in any way refused to ......
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