Thill Securities Corp. v. New York Stock Exchange

• Decision Date: 18 November 1970
• Docket Number: No. 18036.,18036.
• Citation: 433 F.2d 264
• Parties: THILL SECURITIES CORPORATION, etc., Plaintiff-Appellant, v. The NEW YORK STOCK EXCHANGE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

433 F.2d 264 (1970)

THILL SECURITIES CORPORATION, etc., Plaintiff-Appellant, v. The NEW YORK STOCK EXCHANGE, Defendant-Appellee.

No. 18036.

United States Court of Appeals, Seventh Circuit.

August 27, 1970.

Rehearing Denied November 18, 1970.

E. Campion Kersten, Arlo McKinnon, Milwaukee, Wis., for appellant; Lewis D. Thill, Elm Grove, Wis., Kersten & McKinnon, Milwaukee, Wis., of counsel.

Isaac Shapiro, William E. Jackson, New York City, Robert V. Abendroth, Milwaukee, Wis., Samuel L. Rosenberry, New York City, for appellee; Whyte, Hirschboeck, Minahan, Harding & Harland, S.C., Milwaukee, Wis., Milbank, Tweed, Hadley & McCloy, New York City, of counsel.

Before SWYGERT, Chief Circuit Judge, PELL, Circuit Judge and CAMPBELL, Senior District Judge.^*

CAMPBELL, District Judge.

The basic question presented here is whether stock-brokers who are members of the New York Stock Exchange should continue to enjoy their self-acquired freedom from competition by stockbrokers who are not members. Using the vehicle of Stock Exchange rules, members seem effectively to have negated the congressionally mandated principle of competition as it would otherwise apply to them.

The New York Stock Exchange ("Exchange") is the largest organized securities market in the United States. Its dominance of the securities industry is a well known and commonly accepted commercial and historical fact. It transacts well over 70 per-cent of the dollar value of all stock transactions on exchanges in the United States. See, New York Stock Exchange, 1970 Fact Book. Its policies and practices have an ever increasing effect on our economy.

By the Exchange's Constitution, its membership is limited to 1366 members. In 1969 a membership sold for the record price of $515,000. Id. at 55.

The Exchange is governed by a 33 man Board, consisting of 29 members elected by the membership and a president and 3 governors who are to represent the public view and who are elected by the Board. The economic power of the Exchange and its members extends well beyond the operations of the Exchange itself. As the author of a leading article explains:

"The influence wielded by these Big Board members, along with their `allied\' brethren, reaches way beyond the NYSE: thus they comprise 23 of the 32 Governors of the American Exchange; 16 of 25 of the Midwest Exchange\'s Governors; 8 out of 11 for the Pacific Exchange; and 16 of the 22-man Board of the National Association of Securities Dealers, a `self-regulatory institution for the over-the-counter markets\' to which, since it bars any of its members `from dealing with a non-member broker or dealer except at the prices * * * accorded to members of the public\', for `all practical purposes the vast majority of brokers or dealers\' must belong `in order to engage profitably in most underwritings and over-the-counter business\'. Quite understandably, then, it is on the operations of the NYSE and its members that antitrust interest has so far principally focused." Bicks, Antitrust And The New York Stock Exchange, 21 Bus.Lawy. 129, 134 (1965).

In many respects the Exchange has been delegated governmental authority. Its counsel describes it as a "unique self regulator." Under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) it may adopt its own constitution and rules, and discipline violations thereof. The Securities Exchange Commission ("SEC") has the power, however, to order changes in Exchange rules respecting a number of subjects, set forth in section 19(b) of the Act.¹ 15 U.S.C. § 78s(b). Except for the limited review authority of the SEC, the Exchange's economic power in the securities field appears complete and absolute.

Plaintiff Thill Securities Corporation, ("Thill") is a licensed securities dealer-broker, registered with the Securities and Exchange Commission, and a member in good standing of the National Association of Securities Dealers, Inc., but is not a member of the New York Stock Exchange. It brings this action on its own behalf and on behalf of all other securities dealers and brokers similarly situated, being those who are not members of the New York Stock Exchange and who are denied access to the auction market and trading facilities of the Exchange except through one of its members. In its complaint Thill charges the Exchange with substantial anti-competitive conduct in violation of the antitrust laws of the United States. Sherman Antitrust Act, § 1 and § 2, 15 U.S.C. § 1 and § 2; and Clayton Act, § 4, 15 U.S. C. § 15. Specifically, Thill charges that the Exchange has engaged in an unlawful and unreasonable combination and conspiracy in restraint of interstate trade and commerce and has unlawfully and unreasonably monopolized the securities market in the United States by among other things adopting, subscribing and adhering to a rule which prohibits any member of the Exchange from sharing any commission earned from the purchase or sale of securities with a non-member, even though the nonmember may have furnished the order;² and by discriminately discouraging customers and prospective customers of Thill and other non-members from doing business with non-members.

Thill alleges that as a proximate result of the unlawful and monopolistic rules and practices of the Exchange, it and other non-members of the Exchange are totally deprived of commissions or other fair compensation on transactions which they have initiated and serviced. It further alleges that the intended, necessary and actual effect of this unlawful conduct is to restrain trade by preventing any competition by and between members of the Exchange and non-member securities dealers and brokers. Thill alleges to have suffered damages in the amount of seven million dollars, for which it seeks treble damages ($21,000,000) under the antitrust laws. It also seeks a declaratory judgment that the Exchange's prohibition against sharing of commissions constitutes a violation of the antitrust laws; and an injunction prohibiting the Exchange from enforcing the prohibition. Subsequent to the filing of this action, Thill Securities Corporation went out of business.

The defendant Exchange does not contest the anti-competitive effects of its rule prohibiting the sharing of commissions — sometimes referred to as the antirebate rule. At oral argument its counsel admitted, as is obvious, that the conduct complained of would constitute a violation of the antitrust laws, were those statutes applicable to the activities of the Exchange in this case. Its position is that the Sherman Act does not apply to the rule of the Exchange prohibiting the sharing of commissions by members with non-members. It contends that this broad immunity is enjoyed by virtue of the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) which authorizes registered national securities exchanges to adopt rules in respect to the "fixing of reasonable rates of commission" subject to review and revision by the Securities Exchange Commission under section 19(b) of the Act. 15 U.S.C. § 78s(b). It also contends that the SEC has and is exercising exclusive review jurisdiction over such rules of the Exchange, and that its conduct is thus immune from antitrust liability. This immunity, in its view, extends beyond the "fixing of reasonable rates of commission" and includes rules relating to the "sharing" of commissions, because the prohibition against sharing of commissions with nonmember broker dealers is an integral part of the "fixing of reasonable rates".

The district court essentially agreed with the position taken by the Exchange. It first found that the conduct complained of, i. e. the prohibition against the sharing of commissions, was one method of regulating commission rates, and as such was subject to review by the SEC under section 19(b); and that the SEC is exercising its section 19(b) power of supervision over the commission structure.

The district court then concluded that the "challenged Exchange practice, being within the scope and purpose of the 1934 Act, does not constitute a per se violation of the antitrust laws", and that it would not be proper to inquire into the reasonableness of the Exchange's prohibition as "the SEC is currently exercising its supervisory duty over this area of Exchange self-regulation". Accordingly, the court found no genuine issue of any material fact and entered summary judgment for the Exchange. Plaintiff Thill then took an appeal to this court.

In our consideration of the issues presented in this appeal we must begin with the teachings of the Supreme Court in Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). The controversy in Silver arose from the Exchange's unilateral direction to certain of its member firms to discontinue private wire connections with the plaintiff non-member broker-dealer. This conduct, as the Supreme Court noted in its opinion, had it occurred in a context free from other federal regulations, would constitute a per se violation of section one of the Sherman Act. Because the activities of the Exchange are at least in part subject to the regulation of another statutory scheme, the Securities Exchange Act of 1934, the Court was confronted with the issue as to whether the Securities Exchange Act, which created a duty of Exchange self regulation, constituted an implied repealer of the antitrust laws, thereby exempting the Exchange from liability. Upon consideration of the question, the Supreme Court soundly rejected any notion that the Exchange enjoyed blanket immunity from the enforcement of the antitrust laws simply because its activities were to a certain extent subject to the regulatory provisions of the Securities Exchange Act. On the contrary, the Court concluded that the proper approach is an analysis which reconciles the operation of both statutory schemes (the antitrust laws and the Securities Exchange Act) with one another rather than holding one completely...