373 U.S. 341 (1963), 150, Silver v. New York Stock Exchange

Docket Nº:No. 150
Citation:373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389
Party Name:Silver v. New York Stock Exchange
Case Date:May 20, 1963
Court:United States Supreme Court

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373 U.S. 341 (1963)

83 S.Ct. 1246, 10 L.Ed.2d 389



New York Stock Exchange

No. 150

United States Supreme Court

May 20, 1963

Argued February 25-26, 1963




Petitioners, two Texas over the counter broker-dealers in securities, who were not members of the New York Stock Exchange, arranged with members of the Exchange in New York City for direct-wire telephone connections which were essential to the conduct of their businesses. The members applied to the Exchange, as required by its rules promulgated under the Securities Exchange Act of 1934, for approval of the connections. Temporary approval was granted and the connections were established; but, without prior notice to petitioners, the applications were denied later, and the connections were discontinued, as required by rules of the Exchange. Allegedly as a result, one of the petitioners was forced out of business and the other's business was greatly diminished. Notwithstanding repeated requests, officials of the Exchange refused to grant petitioners a hearing or even to inform them of the reasons for denial of the applications. Petitioners sued the Exchange and its members in a Federal District Court for treble damages and injunctive relief, claiming that their collective refusal to continue the direct-wire connections violated the Sherman Act.

Held: The duty of self-regulation imposed upon the Exchange by the Securities Exchange Act of 1934 did not exempt it from the antitrust laws, nor justify it in denying petitioners the direct-wire connections without the notice and hearing which they requested. Therefore, the Exchange's action in this case violated §1 of the Sherman Act, and the Exchange is liable to petitioners under §§ 4 and 16 of the Clayton Act. Pp. 342-367.

(a) Absent any justification derived from the Securities Exchange Act of 1934 or otherwise, removal of the direct-wire connections by collective action of the Exchange and its members constituted a per se violation of §1 of the Sherman Act, since it was a group boycott depriving petitioners of a valuable business service which

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they needed in order to compete effectively as broker-dealers in the over the counter securities market. Pp. 347-349.

(b) In the light of the design of the Securities Exchange Act of 1934 to give the exchanges a major part in curbing abuses by self-regulation, the rules applied in the present case were germane to the performance of the duty implied by §§ 6 (b) and 6 (d) to have rules governing members' transactions and relationships with nonmembers. Pp. 349-357.

(c) The statutory scheme of the Securities Exchange Act of 1934 is not sufficiently pervasive to create a total exemption from the antitrust laws, but particular instances of exchange self-regulation which fall within the scope and purposes of the Act may be regarded as justified in answer to the assertion of an antitrust claim. Pp. 357-361.

(d) In denying petitioners the direct-wire connections without according them the notice and hearing which they requested, the Exchange exceeded the scope of its authority under the Securities Exchange Act of 1934 to engage in self-regulation. Therefore, it was not justified in doing what otherwise was an antitrust violation. Pp. 361-367.

302 F.2d 714, reversed.

GOLDBERG, J., lead opinion

MR. JUSTICE GOLDBERG delivered the opinion of the Court.

We deal here today with the question, of great importance to the public and the financial community, of whether and to what extent the federal antitrust laws apply to securities exchanges regulated by the Securities Exchange Act of 1934. More particularly, the question

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is whether the New York Stock Exchange is to be held liable to a nonmember broker-dealer under the antitrust laws, or regarded as impliedly immune therefrom when, pursuant to rules the Exchange has adopted under the Securities Exchange Act of 1934, it orders a number of its members to remove private direct telephone wire connections previously in operation between their offices and those of the nonmember without giving the nonmember notice, assigning him any reason for the action, or affording him an opportunity to be heard.


The facts material to resolution of this question are not in dispute. Harold J. Silver, who died during the pendency of this action, entered the securities business in Dallas, Texas, in 1955, by establishing the predecessor of petitioner Municipal Securities (Municipal) to deal primarily in municipal bonds. The business of Municipal having increased steadily, Silver, in June, 1958, established petitioner Municipal Securities, Inc. (Municipal, [83 S.Ct. 1250] Inc.), to trade in corporate over the counter securities. Both firms are registered broker-dealers and members of the National Association of Securities Dealers, Inc. (NASD); neither is a member of the respondent Exchange.

Instantaneous communication with firms in the mainstream of the securities business is of great significance to a broker-dealer not a member of the Exchange, and Silver took steps to see that this was established for his firms. Municipal obtained direct private telephone wire connections with the municipal bond departments of a number of securities firms (three of which were members of the Exchange) and banks, and Municipal, Inc., arranged for private wires to the corporate securities trading departments of 10 member firms of the Exchange, as well as to the trading desks of a number of nonmember firms.

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Pursuant to the requirements of the Exchange's rules, all but one of the member firms which had granted private wires to Municipal, Inc., applied to the Exchange for approval of the connections.1 During the summer of 1958, the Exchange granted "temporary approval" for these, as well as for a direct teletype connection to a member firm in New York City and for stock ticker service to be furnished to petitioners directly from the floor of the Exchange.

On February 12, 1959, without prior notice to Silver, his firms, or anyone connected with them, the Exchange's Department of Member Firms decided to disapprove the private wire and related applications. Notice was sent to the member firms involved, instructing them to discontinue the wires, a directive with which compliance was required by the Exchange's Constitution and rules. These firms, in turn, notified Silver that the private wires would have to be discontinued, and the Exchange advised him directly of the discontinuance of the stock ticker service. The wires and ticker were all removed by the beginning of March. By telephone calls, letters, and a personal trip to New York, Silver sought an explanation from the Exchange of the reason for its decision, but was repeatedly told it was the policy of the Exchange not to disclose the reasons for such action.2

Petitioners contend that their volume of business dropped substantially thereafter, and that their profits fell, due to a combination of forces all stemming from the

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removal of the private wires -- their consequent inability to obtain quotations quickly, the inconvenience to other traders in calling petitioners, and the stigma attaching to the disapproval. As a result of this change in fortunes, petitioners contend, Municipal, Inc., soon ceased functioning as an operating business organization, and Municipal has remained in business only on a greatly diminished scale.

The present litigation was commenced by Silver as proprietor of Municipal and by Municipal, Inc., against the Exchange in April, 1959, in the Southern District of New York.3 Three causes of action were asserted. The first, seeking an injunction and treble damages,4 alleged that the Exchange had, in violation of §§ 1 [83 S.Ct. 1251] and 2 of the Sherman Act, conspired with its member firms to deprive petitioners of their private wire connections and stock ticker service. The second alleged that the Exchange had tortiously induced its member firms to breach their contracts for wire connections with petitioners, and the third asserted that the Exchange's action constituted a tort of intentional and wrongful harm inflicted without reasonable cause.

Petitioners moved for summary judgment on the antitrust claim, and for an accompanying permanent injunction against the Exchange's coercion of its members into refusing to provide private wire connections and against the Exchange's refusal to reinstate the stock ticker service. The district judge, after considering 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

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laws applied to the Exchange, and that its directive and the ensuing compliance by its members constituted a collective refusal to continue the wires, and was a per se violation of § 1 of the Sherman Act. The judge so held on the basis that, although the Exchange had the power to regulate the conduct of its members in dealing with listed securities, its members' relations with nonmembers with regard to over the counter securities were not sufficiently germane to the fulfillment of its duties of self-regulation under the Securities Exchange Act to warrant its being excused from having to answer for restraints of trade such as occurred here by removal of the private wires. He left the issues of treble damages and costs to a later trial. With reference to the stock ticker service, the judge held that there were triable issues of fact as to whether the Exchange's action could be considered to have been the concerted action of its members, and as to whether, if the Exchange was to be regarded as having acted by itself, any...

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