Gordon v. New York Stock Exchange, Inc., 1045

Decision Date28 June 1974
Docket NumberDocket 74-1043.,No. 1045,1045
Citation498 F.2d 1303
PartiesRichard A. GORDON, Individually and as President of Independent Investors Protective League, an unincorporated association, and in behalf of the membership thereof and in behalf of all persons similarly circumstanced, Plaintiff-Appellant, v. NEW YORK STOCK EXCHANGE, INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Second Circuit

I. Walton Bader, New York City (Bader & Bader, New York City, on the brief), for plaintiff-appellant.

William E. Jackson, New York City (Milbank, Tweed, Hadley & McCloy, Lord, Day & Lord, Brown, Wood, Fuller, Caldwell & Ivey, New York City, on the brief, Isaac Shapiro, Mark L. Davidson, John J. Loflin, James B. May, New York City, of counsel), for defendants-appellees.

Seymour H. Dussman, Atty., Dept. of Justice, Washington, D. C. (Thomas E. Kauper, Asst. Atty. Gen., on the brief), as amicus curiae urging reversal.

Lawrence E. Nerheim, Gen. Counsel, Securities Exchange Commission, Washington, D. C. (Walter P. North, Associate Gen. Counsel, Frederic T. Spindel, Sp. Counsel, Theodore L. Freedman, Washington, D. C., Atty., on the brief), as amicus curiae urging affirmance.

Before KAUFMAN, Chief Judge, and MANSFIELD and MULLIGAN, Circuit Judges.

IRVING R. KAUFMAN, Chief Judge:

Whether the minimum rate structure presently employed by the nation's stock exchanges enjoys immunity from attack under the antitrust laws is a question of such importance that we need not belabor its significance. The Supreme Court in Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963), although subjecting the application of an exchange rule to antitrust scrutiny, acknowledged that if there were Securities Exchange Commission SEC jurisdiction to review a challenged rule, a different case would arise concerning antitrust exemption. We are here presented with that different case.

The complaint itself provides all the facts necessary for our disposition. Richard A. Gordon brought this private antitrust action on April 2, 1971, on his own behalf and for a purported class of small investors, against the New York Stock Exchange, Inc. NYSE, the American Stock Exchange, Inc. Amex, and two representative member firms of the exchanges,1 alleging that the exchanges' fixed minimum commission system violated the Sherman Act, 15 U.S.C. §§ 1 and 2 (1970), and the Robinson-Patman Act, 15 U.S.C. § 13(a) (1970). More specifically, we read Gordon's complaint to have alleged: (1) that the exchange rules providing for a volume discount from the minimum commission rate in the case of large transactions, together with negotiated rates only on portions of orders in excess of $500,000,2 and the interim surcharge on transactions involving less than 1000 shares,3 amounted to a system of price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. § 13(a) (1970),4 and the Sherman Act, 15 U.S.C. §§ 1, 2 (1970) ; and (2) that the fixed commissions charged those unable to avail themselves of negotiated rates constituted a scheme of price-fixing, contrary to the provisions of the Sherman Act, 15 U.S.C. §§ 1, 2 (1970).5

Without reaching the merits of Gordon's principal claims, the district court found the challenged practice of fixing commission rates not within the jurisdiction of an antitrust court since judicial oversight of this particular aspect of exchange self-regulation had been displaced by the review power vested in the SEC under § 19(b) of the Securities Exchange Act of 1934 1934 Act, 15 U.S.C. § 78s(b) (1970). Accordingly, the district court granted the defendants' motion for summary judgment, and dismissed the complaint.6 For the reasons set forth below, we agree.

Since Gordon's other claims are essentially frivolous,7 we turn directly to his principal allegation that the exchange practice of fixing commission rates violated the Sherman Act. Any analysis of the interrelation of the antitrust laws and the system of supervised exchange self-regulation embodied in the 1934 Act must begin with Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). The Court was there asked to decide whether the NYSE's enforcement of an exchange rule without notice or hearing, resulting in the removal of a nonmember's private telegraph wires from member offices— concededly a group boycott—was subject to antitrust scrutiny. Seeking to achieve the requisite accommodation between the antitrust laws and the 1934 Act's policy of exchange self-regulation, Mr. Justice Goldberg, speaking for a majority of the Court, formulated the following test:

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.

373 U.S. at 357, 83 S.Ct. at 1257.

In Silver, the Court concluded that exercise of its antitrust jurisdiction was proper for two reasons. Because there was no possibility of SEC review of the challenged act—disconnection of Silver's wires to member offices—assertion of judicial oversight would have resulted in no conflict, between agency and court, rendering cumbersome and inconsistent the system of administrative regulation. 373 U.S. at 358, 83 S.Ct. 1246. Moreover, denial of antitrust jurisdiction on the facts presented in Silver would have left no governmental body to perform the antitrust function of preventing an injury to competition which could not be justified as furthering legitimate self-regulatory ends. Id. at 358-361, 83 S.Ct. 1246. Though the Court hinted that some breathing space should be left the exchange for unsupervised self-regulation, if found inexcusable the failure to provide the procedural safeguards of notice and hearing. Id. at 361-367, 83 S.Ct. 1246.

The instant case, of course, is toto caelo different from Silver, for there is here governmental oversight of the fixing of commission rates, vested expressly in the SEC pursuant to § 19(b) (9) of the 1934 Act, 15 U.S.C. § 78s(b) (9) (1970). And, as we have indicated, the Silver Court recognized that a "different case" would be posed if the exchange practice allegedly violative of the antitrust laws were subject to control by the SEC. Although the Silver rationale might well authorize us to ground our holding here on the existence of SEC review power, we do not rely upon that authority alone to support a finding of antitrust immunity. Rather, we are of the view that both the language and the history of the 1934 Act, together with the sound policy behind supervised exchange self-regulation, mandate the conclusion that Congress intended to exempt from the antitrust laws the exchange practice of fixing commission rates.

Section 19(b) of the 1934 Act states, in pertinent part:

The Commission is further authorized, if after making appropriate request in writing to a national securities exchange that such exchange effect on its own behalf specified changes in its rules and practices, and after appropriate notice and opportunity for hearing, the Commission 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 appropriate to effect such changes) in respect of such matters as . . . (9) the fixing of reasonable rates of commission, interest, listing, and other charges . . .

It is clear from this language that the "congressional aim in supervised self-regulation is to insure fair dealing and to protect investors from harmful or unfair trade practices," Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 130, 94 S.Ct. 383, 391, 38 L.Ed.2d 348 (1973). It is equally plain that Congress considered the "fixing of reasonable rates of commission" to be essential to meeting these goals, for it listed this factor explicitly among the twelve items so denominated. Finally, and most importantly for this jurisdictional dispute between an antitrust court and the SEC, Congress vested in the Commission the power to determine whether changes are "necessary" in the exchanges' rate-fixing practices to assure fulfillment of the goals of the Act. Accordingly, Congress defined in § 19 (b) those matters fundamental to achieving "the aims of the securities Exchange Act," Silver v. New York Stock Exchange, 373 U.S. at 361, 83 S. Ct. at 1259, and accorded the SEC the authority to make whatever changes respecting those matters are "neccessary or appropriate" (§ 19(b)) to effectuate those aims—i. e., in the terms of the Silver test, "necessary to make the Securities Exchange Act work." 373 U.S. at 357, 83 S.Ct. at 1257.

If the discussion in Silver of a core of exchange self-regulation necessary to make the 1934 Act work, and thus immune from application of the antitrust laws, is to be given any meaningful application, we are of the view that it must have reference to the practices enumerated in § 19(b), and in this instance to the fixing of reasonable rates of commission. The Supreme Court also recognized in Silver that the exercise of antitrust jurisdiction, where it conflicted with a power of review expressly delegated to the SEC, could render ineffective the supervised self-regulatory scheme designed to accomplish the aims of the 1934 Act. 373 U.S. at 358-361, 83 S.Ct. 1246. Frustration of those aims would be the inevitable consequence of duplicative or inconsistent standards announced contemporaneously by courts and Commission.

That Congress intended Commission-supervised exchange self-regulation to be of central importance in the scheme of the 1934 Act is emphasized by the legislative history of the Act. Both House and Senate reports stress the broad responsibility left...

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