Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

Rosin v. New York Stock Exchange Inc.


decided: September 6, 1973.


Swygert, Chief Judge, and Moore*fn* and Fairchild, Circuit Judges.

Author: Moore

MOORE, Circuit Judge (sitting by designation):

Plaintiffs, in three cases, Rosin v. The New York Stock Exchange, Inc. (No. 72-1594), Rosin v. The American Stock Exchange, Inc. (No. 72-1840), and Goulding v. The Midwest Stock Exchange (No. 72-1841), (these cases having been consolidated for purposes of appeal), appeal from orders of the United States District Court for the Northern District of Illinois, William J. Bauer, Judge, granting motions for summary judgment in favor of the defendant stock exchanges and dismissing the separate actions against each exchange. (Mem. Opinion and Order, N.D.Ill., No. 71-C-2085, Apr. 17, 1972 [hereinafter, Mem. Op.]; Order, 71-C-3130, 72-C-17, June 26, 1972). Since the complaints in these cases raise similar issues, specific reference will be made only to the New York Stock Exchange (NYSE) action. This opinion, however, fully applies to the actions against the American Stock Exchange and Midwest Stock Exchange.


The amended complaint against defendant NYSE alleges in substance that a charge of one five-hundredths of one percent on the aggregate dollar volume of securities transactions on that exchange, which charge is made by the broker-members of the exchanges against the individual customers on each separate sale transaction, is illegal. Plaintiff sues as an individual investor on behalf of himself and on behalf of the alleged Class of all investors who have paid this fee. (Rule 23, F.R.Civ.P.).

Plaintiff's claim and argument are based primarily on Section 31 of the Securities Exchange Act of 1934 (the Act). (15 U.S.C. § 78ee). This section imposes upon every national securities exchange an annual registration fee payable to the Securities and Exchange Commission (the SEC) for the privilege of doing business as such exchange.

The Act provides:

Section 31. Every national securities exchange shall pay to the Commission on or before March 15 of each calendar year a registration fee for the privilege of doing business as a national securities exchange during the preceding calendar year or any part thereof. Such fee shall be in an amount equal to one five-hundredths of 1 per centum of the aggregate dollar amount of the sales of securities (other than securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States or such securities issued or guaranteed by corporations in which the United States has a direct or an indirect interest as shall be designated for exemption from the provisions of this section by the Secretary of the Treasury) transacted on such national securities exchange during the preceding calendar year and subsequent to its registration as a national securities exchange. 15 U.S.C. § 78ee.

The thrust of plaintiff's argument is that the statute reads: "Every national securities exchange shall pay to the Commission * * * [a registration fee]." Therefore, argues plaintiff, the exchange itself must bear the expense of this fee which it cannot recoup through its broker-members and their customers.

Recoupment is presently accomplished on the NYSE through Exchange Rule 440 under which the Exchange has directed its members to report their sales volume monthly and to pay to the Exchange a sum equal to one cent for each $500 or fraction thereof of the total aggregate dollar sales.*fn1

Plaintiff also alleges that NYSE Rule 440 violates SEC Rule 10b-5 (17 C.F.R. 240.10b-5) in that this charge operates as a fraud on the customers.

Plaintiff seeks damages on behalf of himself and the Class and an injunction against the NYSE restraining it from continuing the practice of charging to brokers' customers the SEC registration fee specified in Section 31.


Defendant NYSE moved to dismiss the complaint for failure to state a claim (Rule 12(b)(6), F.R.Civ.P.) and for summary judgment on the ground that there is no genuine issue as to any material fact. (Rule 56, F.R.Civ.P.). The motion was supported by the affidavit of the Secretary of the NYSE with exhibits annexed. From this affidavit there appear the following facts as to which there is no dispute.

On September 11, 1934, the NYSE applied for registration as a national exchange pursuant to Section 6 of the Act. With its application the NYSE submitted copies of its Constitution and Rules.

Prior to this application, on September 6, 1934, the Governing Committee of the NYSE had adopted a resolution providing, upon registration with the SEC, for the payment of the Section 31 fee to the NYSE by the broker-members thereof and that such members "shall charge and collect from the person for whom he was acting in making such transaction the sum of one cent for each $500 or fraction thereof of the dollar amount involved in such transaction."*fn2 In other words, the charge was to be imposed upon the customer. This resolution was apparently not submitted to the SEC with the Exchange's original application for registration as a national securities exchange. Thereafter, in response to an SEC inquiry as to how the NYSE contemplated "collecting the registration fee required by Section 31 of the Securities Exchange Act",*fn3 the NYSE replied and enclosed a copy of the September 6, 1934 resolution.

Under date of September 28, 1934, the SEC registered the NYSE as a national securities exchange and reserved the privilege of revoking the registration if it should appear to the SEC that "the rules of said exchange in any aspect are not just and adequate to insure fair dealing and to protect investors * * *."*fn4


In ruling on the motion for summary judgment, the District Court first determined that "the material facts presented are uncontroverted." (Mem. Op. at 2). This conclusion is clearly correct; plaintiff bases his claim upon his conception of the legal consequences of Section 31, Rule 440, Section 10(b), and Rule 10b-5, and thus this case is one which may properly be decided by summary judgment.

The Court below then turned to the question of whether there is a private right of action under Section 31 of the Act, supra, which would enable this plaintiff on behalf of himself and/or the alleged Class of customers which has paid the aliquot portion of the registration fee assessed against them, to sue the Exchange for recoupment of this charge.

The Court observed that "the language of Section 31 is nothing more than a revenue-raising device" (Mem. Op. at 5); that this section "does not provide for a private right of action" (Id. at 4); and that a situation in which such a right might be implied does not exist here. Therefore, the Court concluded, plaintiff has no private right of action for an alleged violation of Section 31.

We agree with this decision of the District Court. There is nothing in Section 31 of the Act relating to broker-members or brokers' customers. If an exchange should fail to pay the required registration fee, the SEC may take whatever action it deems necessary to enforce the statute. No private right of action under Section 31 is vested in any private citizen. Compare J.I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S. Ct. 1555, 1560, 12 L. Ed. 2d 423 (1964).


If plaintiff has any right at all to bring this action, that right must be based upon some allegedly unlawful imposition and collection of the registration fee from the customers. The District Court stated the question thus:

The real question presented here is whether this charge lawfully may be passed on to the customers of members without express statutory authority. Mem. Op. at 5.

Concisely stated, plaintiff's argument is that Section 31 assesses a registration fee against national stock exchanges "for the privilege of doing business." Therefore, he says, "the duty to pay for that privilege is the duty of the NYSE, not the Class" (Complaint, para. 17), and the charge may not be passed on to that Class.

In a long and convoluted argument in which he chooses to term the "registration fee" a tax, plaintiff, upon this assumption, claims that, in effect, no power was given to the Exchange by Congress to "retax" the customers. To build a foundation for his argument plaintiff resorts to such expressions as "excise tax on the stock exchanges", "excise license tax", "privilege tax", "excise privilege tax." (Brief at 26, 30). But as plaintiff concedes (Brief at 29), "The statute [Section 31] is unambiguous." The charge imposed is a registration fee, simpliciter ; it is not a tax. Therefore, the voluminous quotations from both Senate and House debates which plaintiff sets forth serve only as an interesting reminder of the intersectional views expressed by our equally intersectional Congressional representatives made in the depths of the Depression (circa 1929-1939) in an effort by many to attribute our national misfortune to the financial community, principally stock exchanges. The reasons and motives of the individual members of Congress which induced them to vote for a registration fee to be imposed on stock exchanges were merged into the bill as enacted, which is, as plaintiff says, "unambiguous." (Id.)

Equally irrelevant are plaintiff's arguments and cases based upon his "retax" theory. There is no "tax" and there is, therefore, no attempt on the part of the NYSE to effect a "retax."

It is unnecessary for our decision here that we accept the District Court's conclusion that this case presents "a classic example of an excise tax." (Mem. Op. at 6). Nor is it necessary, in view of our conclusion that Section 31 imposes no tax, that we determine whether such a "tax may be passed on to customers in the absence of express statutory authority." (Id. at 5). Finally, for the same reason, we need not consider whether this charge is authorized, as defendants urge, as included under "other charges" in Section 19(b)(9) of the Act. The District Court's decision that regardless of whether Section 31 imposes "a tax or a fee," it may be passed on indirectly or, as here, directly, is clearly correct. (Lash's Prods. Co. v. United States, 278 U.S. 175, 176, 49 S. Ct. 100, 73 L. Ed. 251 (1929)).


Plaintiff also argues that defendant's rules violate SEC Rule 10b-5. This argument is based upon two theories: (1) that investors are given nothing in return for the registration fee charge; and (2) that the method of computing the charge, in effect, results in unjust enrichment of the broker-members. (Plaintiff alleges that because customers must pay on each sale of stock a fee of $0.01 for each $500 or fraction thereof, excess fees totaling $300,000 were collected between 1967 and 1970).

As the District Court noted: "It would be virtually impossible to collect an amount identical to that of the Exchange's registration fee * * *" (Mem. Op. at 15), and that there is "no feasible alternative to the present procedure * * *." "Since all brokers' billing is handled on a per-transaction basis, it would be economically impractical, if not virtually impossible, to aggregate a customer's transactions over an extended period in order to lessen the amount of the over-collection by a few pennies per customer." (Mem. Op. at 16).

The facts clearly rebut any cause of action under Section 10(b) or Rule 10b-5. There was no fraud or misrepresentation in connection with the sale of securities. To the contrary, the charges made on each transaction are itemized and openly disclosed on the customer's confirmation slips.

To insure equal treatment of customers the NYSE imposes a uniform method of collecting the registration fee. Because the trading of customers varies from accounts having only a single isolated transaction to active trading accounts, the NYSE has enacted Rule 369*fn5 which prevents individual broker-members from giving preferential treatment to customers, either by the assumption of the registration fee charges or by resort to different methods of calculation.

The method of collecting the Section 31 registration fee adopted by the NYSE does not come within any proscription of the statute, the rules relating to fraud, or the intendment thereof. Plaintiff's frequent interspersing of the word "fraudulent" does not obscure the language thereof.


Brief comment must be made regarding plaintiff's attempt to seek discovery from the SEC, the American Stock Exchange, and the Midwest Stock Exchange. This discovery was sought after the District Court had entered its Memorandum Opinion and Order in the action against the NYSE and had indicated that it intended to dispose of the American and Midwest actions in similar fashion.

By such discovery plaintiff asserts that he had hoped to establish "material facts to dispute those invented by the Court in order to arm [himself] to defend against defendants' motions for summary judgment." (Brief at 73). In the first place, courts do not "invent" material facts: they pass upon such relevant and material facts as counsel properly present. Secondly, we are dealing not with "court-made facts", "erroneous facts dehors the record" or the "court's own invented 'facts'" (Brief at 69, 73), but with statutes and rules and plaintiff-made distortion thereof.

No deposition of the SEC or of the defendants can alter the few material facts necessary to decision here. The Court did not invoke "judicial magic" (Brief at 77) to find no substance in plaintiff's groundless, although ingenious, theories. Such alchemy as there may be results from plaintiff's efforts to turn a registration fee into a tax.

The motions for summary judgment in favor of defendants were properly granted.

Orders affirmed.



Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.