Gordon v. New York Stock Exchange, Inc 8212 304

• Decision Date: 26 June 1975
• Docket Number: No. 74,74
• Citation: 45 L.Ed.2d 463,422 U.S. 659,95 S.Ct. 2598
• Parties: Richard A. GORDON et al., Petitioners, v. NEW YORK STOCK EXCHANGE, INC., et al. —304
• Court: U.S. Supreme Court

45 L.Ed.2d 463

95 S.Ct. 2598

422 U.S. 659

Richard A. GORDON et al., Petitioners,

v NEW YORK STOCK EXCHANGE, INC., et al.

No. 74—304.

Argued March 25 and 26, 1975.

Decided June 26, 1975.

Syllabus

Petitioner, individually and on behalf of an asserted class of small investors, filed suit against respondents—the New York Stock Exchange, the American Stock Exchange, and two member firms of the Exchanges—claiming that the system of fixed commission rates utilized by the Exchanges at that time for transactions of less than $500,000 violated §§ 1 and 2 of the Sherman Act. The District Court and the Court of Appeals both concluded that the fixed commission rates were immunized from antitrust attack because of the authority of the Securities and Exchange Commission (SEC) under § 19(b)(9) of the Securities Exchange Act of 1934 to approve or disapprove exchange commission rates and its exercise of that power. Held: The system of fixed commission rates, which is under the active supervision of the SEC, is beyond the reach of the antitrust laws. Pp. 663-691.

(a) The statutory provision authorizing regulation of rates, § 19(b)(9), the SEC's long regulatory practice in reviewing proposed rate changes and in making detailed studies of rates, culminating in the adoption of a rule requiring a transition to competitive rates, and continued congressional approval of the SEC's authority over rates, all show that Congress intended the Securities Exchange Act to leave the supervision of the fixing of reasonable rates to the SEC. Pp. 663-691.

(b) To interpose antitrust laws, which would bar fixed commission rates as per se violations of the Sherman Act, in the face of positive SEC action, would unduly interfere with the intended operation of the Securities Exchange Act. Hence, implied repeal of the antitrust laws is necessary to make that Act work as intended, since failure to imply repeal would render § 19(b)(9) nugatory. Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389; Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93 S.Ct. 573, 34 L.Ed.2d 525 distinguished. Pp. 682-691.

498 F.2d 1303, (2nd Cir.) affirmed.

I. Walton Bader, New York City, for petitioners.

Howard E. Shapiro, Washington, D.C., for the United States, as amicus curiae, by special leave of Court.

William Eldred Jackson, New York City, for respondents.

Lawrence E. Nerheim, Washington, D.C., for the Securities and Exchange Commission, as amicus curiae, by special leave of Court.

Mr. Justice BLACKMUN delivered the opinion of the Court.

This case presents the problem of reconciliation of the antitrust laws with a federal regulatory scheme in the particular context of the practice of the securities exchanges and their members of using fixed rates of commission. The United States District Court for the Southern District of New York and the United States Court of Appeals for the Second Circuit concluded that fixed commission rates were immunized from antitrust attack because of the Securities and Exchange Commission's authority to approve or disapprove exchange commission rates and its exercise of that power.

I

In early 1971 petitioner Richard A. Gordon, individually and on behalf of an asserted class of small investors, filed this suit against the New York Stock Exchange, Inc. (NYSE), the American Stock Exchange, Inc. (Amex), and two member firms of the Exchanges.¹ The complaint challenged a variety of exchange rules and practices and, in particular, claimed that the system of fixed commission rates, utilized by the Exchanges at that time for transactions less than $500,000, violated §§ 1 and 2 of the Sherman Act, 26 Stat. 209, as amended 15 U.S.C. §§ 1 and 2. Other challenges in the complaint focused on (1) the volume discount on trades of over 1,000 shares, and the presence of negotiated rather than fixed rates for transactions in excess of $500,000;² (2) the rules limiting the number of exchange memberships; and (3) the rules denying discounted commission rates to nonmembers using exchange facilities.³

Respondents moved for summary judgment on the ground that the challenged actions were subject to the overriding supervision of the Securities and Exchange Commission (SEC) under § 19(b) of the Securities Exchange Act of 1934, 48 Stat. 898, as amended, 15 U.S.C. § 78s(b), and, therefore, were not subject to the strictures of the antitrust laws. The District Court granted respondents' motion as to all claims. 366 F.Supp. 1261 (1973). Dismissing the exchange membership limitation and the Robinson-Patman Act conten- tions as without merit,⁴ the court focused on the relationship between the fixed commission rates and the Sherman Act mandates. It utilized the framework for analysis of antitrust immunity in the regulated securities area that was established a decade ago in Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). Since § 19(b)(9) of the Exchange Act authorized the SEC to supervise the Exchanges 'in respect of such matters as . . . the fixing of reasonable rates of commission,' the court held applicable the antitrust immunity reserved in Silver for those cases where 'review of exchange self-regulation (is) provided through a vehicle other than the antitrust laws.' 373 U.S., at 360, 83 S.Ct. at 1258. It further noted that the practice of fixed commission rates had continued without substantial challenge after the enactment of the 1934 Act, and that the SEC had been engaged in detailed study of the rate structure for a decade, culminating in the requirement for abolition of fixed rates as of May 1, 1975.

On appeal, the Second Circuit affirmed. 498 F.2d 1303 (1974). Characterizing petitioner's other challenges as frivolous, the appellate court devoted its opinion to the problem of antitrust immunity. It, too, used Silver as a basis for its analysis. Because the SEC, by § 19(b)(9), was given specific review power over the fixing of commission rates, because of the language, legislative history, and policy of the Exchange Act, and because of the SEC's actual exercise of its supervisory power, the Court of Appeals determined that this case differed from Silver, and that antitrust immunity was proper.

By his petition for certiorari, petitioner sought review only of the determination that fixed commission rates are beyond the reach of the antitrust laws. Because of the vital importance of the question, and at the urging of all the parties, we granted certiorari. 419 U.S. 1018, 95 S.Ct. 491, 42 L.Ed.2d 291 (1974).

II

Resolution of the issue of antitrust immunity for fixed commission rates may be made adequately only upon a thorough investigation of the practice in the light of statutory restrictions and decided cases. We begin with a brief review of the history of commission rates in the securities industry.

Commission rates for transactions on the stock exchanges have been set by agreement since the establishment of the first exchange in this country. The New York Stock Exchange was formed with the Buttonwood Tree Agreement of 1792, and from the beginning minimum fees were set and observed by the members. That Agreement itself stated:

"We the Subscribers, Brokers for the Purchase and Sale of Public Stock, do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever, any kind of Public Stock at a less rate than one-quarter per cent. Commission on the Specie value, and that we will give a preference to each other in our Negotiations." F. Eames, The New York Stock Exchange 14 (1968 ed).

See generally, R. Doed, The Monopoly Power of the New York Stock Exchange, reprinted in Hearings on S. 3169 before the Subcommittee on Securities of the Sen- ate Committee on Banking, Housing and Urban Affairs, 92d Cong., 2d Sess., 405, 412—427 (1972). Successive constitutions of the NYSE have carried forward this basic provision. Similarly, when Amex emerged in 1908—1910, a pattern of fixed commission rates was adopted there.

These fixed rate policies were not unnoticed by responsible congressional bodies. For example, the House Committee on Banking and Currency, in a general review of the stock exchanges undertaken in 1913, reported that the fixed commission rate rules were 'rigidly enforced' in order 'to prevent competition amongst the members.' H.R.Rep. No. 1593, 62d Cong., 3d Sess., 39 (1913).⁵ The report, known as the Pujo Report, did not recommend any change in this policy, for the Committee believed

'The present rates to be reasonable, except as to stocks, say, of $25 or less in value, and that the exchange should be protected in this respect by the law under which it shall be incorporated against a kind of competition between members that would lower the service and threaten the responsibility of members. A very low or competitive commission rate would also promote speculation and destroy the value of membership.' Id., at 115—116.

Despite the monopoly power of the few exchanges, exhibited not only in the area of commission rates but in a wide variety of other aspects, the exchanges remained essentially self-regulating and without significant supervision until the adoption of the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. At the lengthy hearings before adoption of that Act, some attention was given to the fixed commission rate practice and to its anticompetitive features. See Hearings on S.Res. 84 (72d Cong.) and S.Res. 56 and 97 (73d Cong.) before the Senate Committee on Banking and Currency, 73d Cong., 1st and 2d Sess., pts. 13, 15, and 16, pp. 6075, 6080, 6868, and 7705 (1934) (hereafter Senate Hearings). See also Hearings on S.Res. 84 before the Senate Committee on Banking and Currency, 72d Cong., 1st Sess., pt. 1, p. 85 (1932); Hearings on H.R. 7852 and H.R. 8720 before the House Committee on Interstate and Foreign Commerce, 73d Cong., 2d Sess., 320—321, 423 (1934).

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