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Rosin v. New York Stock Exchange Inc.

decided: September 6, 1973.

JOSEPH A. ROSIN, ETC., PLAINTIFFS-APPELLANTS,
v.
THE NEW YORK STOCK EXCHANGE, INC., DEFENDANT-APPELLEE. JOSEPH A. ROSIN, ETC., PLAINTIFFS-APPELLANTS, V. THE AMERICAN STOCK EXCHANGE, INC., DEFENDANT-APPELLEE. VICTOR H. GOULDING, ETC., PLAINTIFFS-APPELLANTS, V. THE MIDWEST STOCK EXCHANGE, DEFENDANT-APPELLEE



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.

I.

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.

II.

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 ...


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