Exchange Services, Inc. v. S.E.C.
| Decision Date | 07 August 1986 |
| Docket Number | No. 85-1920,85-1920 |
| Citation | 797 F.2d 188 |
| Parties | Fed. Sec. L. Rep. P 92,865 EXCHANGE SERVICES, INC., Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Dennis M. Ryan (Karen A. Gould; Crews, Hancock & Dunn on brief), for petitioner.
Richard A. Kirby, Asst. Gen. Counsel, S.E.C. (Daniel L. Goelzer, Gen. Counsel; S.E.C. on brief), for respondent.
Before WINTER, Chief Judge, and MURNAGHAN and ERVIN, Circuit Judges.
Exchange Services, Inc. petitions this court to reverse the Securities and Exchange Commission (SEC) order upholding the decision of the National Association of Securities Dealers, Inc. (NASD) that certain personnel of Exchange Services must register as General Securities Representatives. Specifically, Exchange Services claims that the personnel perform only clerical or ministerial functions and thus should be exempt from registration. Exchange Services further contends that if registration is required, the qualifications should be modified to fit the personnel's job description, since otherwise a burden on competition will result. We reject these arguments, finding that the SEC's order is not arbitrary and capricious and is supported by substantial evidence. Accordingly, we affirm.
Exchange Services is a discount brokerage firm that offers limited services to its customers. The company transacts only in book entry securities and maintains no markets, effects no principal transactions, engages in no secondary transactions or underwritings, neither offers margin accounts nor trades in options or commodities and carries no inventory. Given this confined structure and low profit margin, Exchange Services employs personnel (order takers) to perform limited duties, described as: verifying the identity of the customer placing the order; determining whether the customer has sufficient cash or securities to cover the proposed buy or sell order; providing bid and asking quotations for securities; describing for customers their current securities positions and free credit balances; taking customer buy and sell orders; transmitting orders placed by the customers to the appropriate market; and reporting to the customers the execution price. The order takers are not allowed to solicit orders from customers or make any recommendations with respect to securities. Their salaries are fixed and unrelated to the number of orders taken.
Because the order takers' functions are so restricted, Exchange Services submitted a request to NASD that these personnel be exempt from the requirement of registration as General Securities Representatives. 1 To qualify for registration, the General Securities Representative Examination (Test Series 7) must be passed. This exam is a comprehensive test of the securities and brokerage field. 2
The NASD denied the company's request reasoning that the order takers' functions were more than clerical or ministerial and that the regular and continuous communications with the public warranted registration. The association found the Test Series 7 to be the appropriate qualifying registration exam since the order takers accepted a broad range of securities orders and no alternative test was available that covered such general subject matter.
Exchange Services sought review by the SEC of the NASD decision. After an independent review of the record, the SEC affirmed. 3 This petition followed.
Exchange Services challenges the SEC's order on three grounds. First, the company argues that the SEC's decision that the order takers are not exempt from registration is arbitrary and capricious and is not supported by substantial evidence. We disagree.
The SEC found that the order takers perform more than clerical or ministerial duties. This finding is supported by substantial evidence. The order takers must be familiar with the securities business and be able competently to respond to customers' questions. Such duties involve more than clerical and ministerial activities. In addition, the NASD has a long-standing policy that anyone who takes orders from the public must register. The SEC relied on this policy in denying exemption. Exchange Services complains that this reliance was arbitrary and capricious. Such complaint lacks merit.
The regular and continuous contact order takers have with the public is a reasonable rationale for the policy. These personnel may stray from their limited duties during public contact, resulting in harm to investors. Such risk and the overriding concern for protection of public interest are sound bases for the SEC's reliance on the policy denying exemption status for the order takers.
Furthermore, because determining whether certain personnel must register inherently involves concern for public interest, we defer to the expertise of the SEC.
The Commission is given the duty to protect the public. What will protect the public must involve, of necessity, an exercise of discretionary determination. This Court ordinarily should not substitute its judgment of what would be appropriate under the circumstances in place of the Commission's judgment as to measures necessary to protect the public interest.
Pierce v. Securities and Exchange Commission, 239 F.2d 160, 163 (9th Cir.1956) (citing Wright v. Securities and Exchange Commission, 112 F.2d 89 (2d Cir.1940)). Cf. Consolo v. Federal Maritime Commission, 383 U.S. 607, 86 S.Ct. 1018, 16 L.Ed.2d 131 (1966). We can find no abuse of the SEC's discretion in its judgment. Accordingly, we affirm that the order takers must register with the NASD.
Exchange Services also argues on appeal that if the order takers must register, they should...
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...of Securities Dealers. These exams include questions about federal and state securities regulations. See Exch. Services, Inc. v. S.E.C., 797 F.2d 188, 189, n. 2 (4th Cir.1986). Six other securities firms employed Laurienti before he began working with Hampton Porter. Laurienti's clients tes......
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...of Securities Dealers. These exams include questions about federal and state securities regulations. See Exch. Services, Inc. v. S.E.C., 797 F.2d 188, 189, n.2 (4th Cir. 1986). Six other securities firms employed Laurienti before he began working with Hampton Porter. Laurienti's clients tes......