422 U.S. 694 (1975), 73-1701, United States v. National Association of Securities Dealers, Inc.

Docket Nº:No. 73-1701
Citation:422 U.S. 694, 95 S.Ct. 2427, 45 L.Ed.2d 486
Party Name:United States v. National Association of Securities Dealers, Inc.
Case Date:June 26, 1975
Court:United States Supreme Court

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422 U.S. 694 (1975)

95 S.Ct. 2427, 45 L.Ed.2d 486

United States


National Association of Securities Dealers, Inc.

No. 73-1701

United States Supreme Court

June 26, 1975

Argued March 17, 1975




Section 22(d) of the Investment Company Act of 1940 provides that

no dealer shall sell [mutual fund shares] to any person except a dealer, a principal underwriter, or the issuer, except at a current public offering price described in the prospectus.

Section 22(f) authorizes mutual funds to impose restrictions on the negotiability and transferability of shares, provided they conform with the fund's registration statement and do not contravene any rules and regulations that the Securities and Exchange Commission (SEC) may prescribe in the interests of the holders of all of the outstanding securities. Section 2(a)(6) defines a "broker" as a person engaged in the business of effecting transactions in securities for the account of others, and § 2(a)(11) defines a "dealer" as a person regularly engaged in the business of buying and selling securities for his own account. The Maloney Act of 1938 (§ 15A of the Securities Exchange Act of 1934) supplements the SEC's regulation [95 S.Ct. 2431] of over-the-counter markets by providing a system of cooperative self-regulation through voluntary associations of brokers and dealers. The Government brought this action against appellee National Association of Securities Dealers (NASD), certain mutual funds, mutual fund underwriters, and broker-dealers, alleging that appellees, in violation of § 1 of the Sherman Act, combined and agreed to restrict the sale and fix the resale prices of mutual fund shares in secondary market transactions between dealers, from an investor to a dealer, and between investors through brokered transactions, and sought to enjoin such agreements. Count I of the complaint charged a horizontal combination and conspiracy among NASD's members to prevent the growth of a secondary dealer market in the purchase and sale of mutual fund shares, the Government contending that such count was not to be read as a direct attack on NASD rules, but on NASD's interpretations and appellees' extension of the rules so as to include a secondary market. Counts II-VIII alleged various vertical restrictions on secondary

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market activities. The District Court dismissed the complaint on the grounds that §§ 22(d) and (f), when read in conjunction with the Maloney Act, afforded antitrust immunity from all of the challenged practices. It further determined that, apart from this statutory immunity, the pervasive regulatory scheme established by these statutes conferred an implied immunity from antitrust sanction. The court concluded that the § 22(d) price maintenance mandate for sales by "dealers" applied to transactions in which a broker-dealer acts as statutory "broker", rather than a statutory "dealer," and thus that § 22(d) governs transactions in which the broker-dealer acts as an agent for an investor as well as those in which he acts as a principal selling shares for his own account.


1. Neither the language nor legislative history of § 22(d) justifies extending the section's price maintenance mandate beyond its literal terms to encompass transactions by broker-dealers acting as statutory "brokers." Pp. 711-720.

(a) To construe § 22(d) to cover all broker-dealer transactions would displace the antitrust laws by implication and also would impinge on the SEC's more flexible authority under § 22(f). Implied antitrust immunity can be justified only by a convincing showing of clear repugnancy between the antitrust laws and the regulatory system, and here no such showing has been made. Pp. 719-720.

(b) Such an expansion of § 22(d)'s coverage would serve neither this Court's responsibility to reconcile the antitrust and regulatory statutes where feasible nor the Court's obligation to interpret the Investment Company Act in a manner most conducive to the effectuation of its goals. P. 720.

2. The vertical restrictions sought to be enjoined in Counts II-VIII are among the kinds of agreements authorized by § 22(f), and hence such restrictions are immune from liability under the Sherman Act. Pp. 720-730.

(a) The restrictions on transferability and negotiability contemplated by § 22(f) include restrictions on the distribution system for mutual fund shares as well as limitations on the face of the shares themselves. To interpret the section as covering only the latter would disserve the broad remedial function of the section, which, as a complement to § 22(d)'s protection against disruptive price competition caused by dealers' "bootleg market" trading of mutual fund shares, authorizes the funds and the SEC to deal more flexibly with other detrimental trading practices

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by imposing SEC-approved restrictions on transferability and negotiability. Pp. 722-725.

(b) To contend, as the Government does, that the SEC's exercise of regulatory authority has been insufficient to give rise to an implied immunity for agreements conforming with § 22(f) misconceives the statute's intended operation. By its terms, § 22(f) authorizes properly disclosed restrictions unless they are inconsistent with SEC rules or regulations, and thus authorizes funds to impose transferability or negotiability restrictions subject to SEC disapproval. Pp. 726-728.

(c) The SEC's authority would be compromised if the agreements challenged in Counts II-VIII were deemed actionable under the Sherman Act. There can be no reconciliation of the SEC's authority under § 22(f) to permit these and similar restrictive agreements with the Sherman Act's declaration that they are illegal per se. In this instance, the antitrust laws must give way if the regulatory scheme established by the Investment Company Act is to work. Pp. 729-730.

3. The activities charged in Count I are neither required by § 22(d) nor authorized under § 22(f), and therefore cannot find antitrust shelter therein. The SEC's exercise of regulatory authority under the Maloney and Investment Company Acts is sufficiently pervasive, however, to confer implied immunity from antitrust liability for such activities. Pp. 730-735.

374 F.Supp. 95, affirmed.

POWELL, J., wrote the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and REHNQUIST, JJ., joined. WHITE, J., filed a dissenting opinion, in which DOUGLAS, BRENNAN, and MARSHALL, JJ., joined, post, p. 735.

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POWELL, J., lead opinion

Opinion of the Court by MR JUSTICE POWELL, announced by MR. JUSTICE BLACKMUN.

This appeal requires the Court to determine the extent to which the regulatory authority conferred upon the Securities and Exchange Commission by the Maloney Act, 52 Stat. 1070, as amended, 15 U.S.C. § 78o-3, and the Investment Company Act of 1940, 54 Stat. 789, as amended, 15 U.S.C. § 80a-1 et seq., displaces the strong antitrust policy embodied in § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1. At issue is whether certain sales and distribution practices employed in marketing securities of open-end management companies, popularly referred to as "mutual funds," are immune from antitrust liability. We conclude that they are, and accordingly affirm the judgment of the District Court.


An "investment company" invests in the securities of other corporations and issues securities of its own.1

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Shares in an investment company thus represent proportionate interests in its investment portfolio, and their value fluctuates in relation to the changes in the value of the securities it owns. The most common form of investment company, the "open end" company or mutual fund, is required by law to redeem its securities on demand at a price approximating their proportionate share of the fund's net asset value at the time of [95 S.Ct. 2433] redemption.2 In order to avoid liquidation through redemption, mutual funds continuously issue and sell new shares. These features -- continuous and unlimited distribution and compulsory redemption -- are, as the Court recently recognized, "unique characteristic[s]" of this form of investment. United States v. Cartwright, 411 U.S. 546, 547 (1973).

The initial distribution of mutual fund shares is conducted by a principal underwriter, often an affiliate of

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the fund, and by broker-dealers3 who contract with that underwriter to sell the securities to the public. The sales price commonly consists of two components, a sum calculated from the net asset value of the fund at the time of purchase and a "load," a sales charge representing a fixed percentage of the net asset value. The load is divided between the principal underwriter and the broker-dealers, compensating them for their sales efforts.4

The distribution-redemption system constitutes the primary market in mutual fund shares, the operation of which is not questioned in this litigation. The parties agree that § 22(d) of the Investment Company Act requires broker-dealers to maintain a uniform price in sales in this primary market to all purchasers except the fund, its underwriters, and other dealers. And in view of this express requirement, no question exists that antitrust immunity must be afforded these sales. This case

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focuses, rather, on the potential secondary market in mutual fund shares. Although a significant secondary market existed prior to enactment of the Investment Company Act, little presently remains. The United States agrees that the Act was designed to restrict most of secondary market trading, but nonetheless contends that certain industry practices have extended the statutory limitation beyond its proper boundaries. The complaint in this action alleges that the defendants, appellees herein, combined and agreed to restrict the sale and fix the resale prices of mutual fund shares in...

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