The opinion of the court was delivered by: Parsons, District Judge.
MEMORANDUM OPINION AND ORDER
This action was commenced on January 26, 1973. Plaintiffs have
brought this action both individually and on behalf of a class of
persons similarly situated; the class includes all nonmembers of
three named stock exchanges who have paid or became liable to pay
commissions for the purchase or sale of any securities to members
of various stock exchanges during a particular four year period.
The defendants are three national securities exchanges, who are
named individually and as representatives of an alleged class of
securities exchanges, and several brokerage houses belonging to
the exchanges, who are named individually and as representatives
of an alleged class of securities exchange members. Plaintiffs
claim that defendants have violated Section One of the Sherman
Act, and their complaint contains four separate counts. Count I
makes allegations about the nature and mechanics of defendants'
purported price fixing and its effects. Count II alleges that the
purported price fixing is not necessary to effectuating the
purposes of the 1934 Securities Exchange Act and that there has
never been any regulation of commission rates by any governmental
agency. Count III alleges that the price fixing exceeded the
minimum extent necessary for effectuating the purposes of the
1934 Act. Count IV alleges that the fixed minimum commission
rates have been applied far beyond the extent necessary to
achieve the goals and regulatory aims of the 1934 Securities
Exchange Act. Subject matter jurisdiction is said to arise under
28 U.S.C. § 1337.
I begin my analysis of defendants' motion to dismiss by noting
that most national securities exchanges have traditionally
possessed rather broad powers to promulgate rules and regulations
pertaining to the administration of their ordinary affairs,
Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246,
10 L.Ed.2d 389 (1962). However, these powers are now limited by
the Securities Exchange Act of 1934 as amended, by the rules and
regulations of the SEC adopted thereunder, and by applicable
state laws, 15 U.S.C. § 78f(c). Limitations on these powers
include a registration requirement, 15 U.S.C. § 78e; the need for
rules on the expulsion, suspension, or disciplining of a member,
15 U.S.C. § 78f(b); a requirement that exchange rules be obeyed
and be just and adequate to insure fair dealing and to protect
investors, 15 U.S.C. § 78f(d); and the potential intervention by
the SEC in certain securities exchange rule-making,
15 U.S.C. § 78s(b).
Among these broad powers of national securities exchanges is
the ability to fix minimum commission rates to be charged by
members and member organizations. The fixing of minimum
commission rates is also among the areas of exchange rule-making
where the SEC may intervene, 15 U.S.C. § 78s(b)(4) and Kaplan v.
Lehman Brothers, 371 F.2d 409 (7th Cir. 1967); incidentally, such
intervention may occur when the rates affect nonmembers as well
as members of any exchange, Silver, supra, 373 U.S. at 356, 83
S.Ct. 1246. SEC — prompted rule changes on commission rates are
only authorized, however, when the agency determines 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 .
. .", 15 U.S.C. § 78s(b). The three securities exchanges who are
defendants in this case all allege to have operated within the
legal limitations of their rule-making power, and have all had
rules on minimum commission rates since at least 1934. The
undisputed record before me at this point indicates that the
various changes which have occurred since 1934 in the minimum
commission rates of the three defendant exchanges have at least
been closely watched, if not regulated, by the SEC.
In the present case, plaintiffs contend the minimum commission
rates of the defendant exchanges violate antitrust law — even
though they may have been established pursuant to the exchanges'
Congressionally recognized authority and even though the rates
may be subject to potential SEC regulation. Thus, as in the
leading case of Silver v. New York Stock Exchange, supra, the
Court's main concern here is how to relate the goal of
eliminating restraints on competition which is embodied in the
Sherman Act of 1890 as amended (15 U.S.C. § 1) with the public
policy favoring self-regulation by national securities exchanges
which is embodied in the Securities Exchange Act of 1934 as
amended (15 U.S.C. § 78a). And as in Silver, this Court — if
possible — should reconcile the operation of both statutory
schemes with one another rather than holding one completely
ousted. Silver, supra, 373 U.S. at 357, 83 S.Ct. 1246.
According to the defendants, such a reconciliation is
impossible in this case. In their motion to dismiss, defendants
have generally argued that antitrust law does not apply to the
self-regulating rules of the national securities exchanges which
have been Congressionally authorized and which are subject to
review by the SEC. Defendants contend that the fixing of minimum
commissions complained of here is within the scope of authorized
exchange self-regulation; was intended by Congress to be immune
from antitrust attack; has been held by other courts to be so
immune; and would be improperly thwarted by a collateral
antitrust attack. Defendants thus ask that the complaint be
dismissed since no antitrust action may lie.
The 1934 Securities Exchange Act which recognizes the broad,
self-regulatory powers of national securities exchanges,
including the aforementioned traditional rule-making powers,
contains no express exemption of exchange rules from the
application of antitrust laws. Silver, supra, 373 U.S. at 357,
83 S.Ct. 1246. This is particularly significant in light of other
comparable statutes which do contain express exempt provisions.
U.S. v. Philadelphia National Bank, 374 U.S. 321, footnote 27 at
350, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1962). Thus, the defendants'
claim that its rules regarding minimum commissions are immune
from antitrust attack must be based on the Act's implied repeal
of the antitrust laws. The Supreme Court in Silver recognized
that the Securities Exchange Act did impliedly repeal antitrust
law to a certain extent, though it recognized the longstanding
rule that repeals by implication were not favored. Silver,
supra, 373 U.S. at 357, 83 S.Ct. 1246. The Court in Silver
found that ". . . repeal 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." Silver, supra, 373 U.S.
at 357, 83 S.Ct. at 1257. Thus, the Court in Silver recognized
that ". . . particular instances of exchange self-regulation . .
. may be regarded as justified in answer to the assertion of an
antitrust claim." Silver, supra, 373 U.S. at 361, 83 S.Ct. at
1259. The plaintiffs' complaint essentially states that the acts
of self-regulation in the present case, i.e., the fixing of
minimum commission rates, do not justify a repeal of the
antitrust laws. Defendants' motion to dismiss does not, however,
go to the question of whether the defendant exchanges'
self-regulatory acts were justified; rather, it asks this Court
to decide who should properly decide whether or not the acts were
justified. Defendants' alternative motion to stay proceedings
also addresses itself to this question of who should decide, as
well as to the manner in which the question of justification
should be decided.
Since the statutory scheme setting up exchange self-regulation
was not sufficiently pervasive to create a total exemption from
the antitrust laws, the Court in Silver recognized that ". . .
some form of review of exchange self-policing . . . is therefore
not at all incompatible with the fulfillment of the aims of the
Securities Exchange Act." 373 U.S. at 359, 83 S.Ct. at 1258. The
Court stated that such review could be by either administrative
agency or by the courts. In Silver, since the defendants'
actions which plaintiffs claimed violated antitrust laws were not
subject to the SEC's jurisdiction, the Court held that the
plaintiffs' claim was recognizable in an antitrust court. Yet the
Court said: "Should review of exchange self-regulation be
provided through a vehicle other than the antitrust laws, a
different case as to antitrust exemption would be presented."
Silver, supra, 373 U.S. at 360, 83 S.Ct. at 1258. Because the
SEC allegedly has the power to review minimum commission rates
under 15 U.S.C. § 78s(b)(9) and their antitrust effects, the
defendants argue that there is no jurisdiction in the antitrust
court to review the rates for alleged antitrust violations.
It seems clear that the SEC has the power to review minimum
commission rates under 15 U.S.C. § 78s(b)(9). Gordon v. New York
Stock Exchange, Inc., 366 F. Supp. 1261 (S.D.N.Y. 1973), affirmed
498 F.2d 1303 (2nd Cir. 1974); Kaplan v. Lehman Brothers,
250 F. Supp. 562 (N.D.Ill. 1966), affirmed 371 F.2d 411 (7th Cir.
1967). It also seems clear that the SEC has the power to consider
antitrust matters when reviewing exchange self-regulatory rules
and policies, including those relating to minimum commission
rates. Thill Securities Corp. v. New York Stock Exchange,
433 F.2d 264, at 271 (7th Cir. 1970); The Rules of the New York Stock
Exchange, 10 SEC 270 (1941); Eisen v. Carlisle and Jacquelin, 54
F.R.D. 565, at 572 (S.D.N.Y. 1972). The provision that national
securities exchange rules must be "just and adequate to insure
fair dealing," 15 U.S.C. § 78f(d) seems quite similar to
provisions limiting rules to those which serve the "public
interest," Gulf States Utilities Co. v. F.P.C., 411 U.S. 747, at
757-758, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1972) or those which are
not "detrimental to the commerce of the United States . . . or is
unjustly discriminating or unfair," Latin America/Pacific Coast
Steamship Conference v. Federal Maritime Commission, 150
U.S.App.D.C. 362, 465 F.2d 542 at 554 and 558 (1972), cert. den.
409 U.S. 967, 93 S.Ct. 269, 34 L. Ed.2d 234. Finally, it seems
clear that the SEC considered antitrust matters in this case when
it at least allowed the defendant exchanges' minimum commission
rates to function over the past 4-6 years. See the affidavits of
Calvin, Crawford, Weithers and Rotberg.
In light of the foregoing, the central issue in the case at
hand becomes this: Does SEC supervision, or at least the
potential for SEC supervision, of minimum commission rates —
including the consideration of relevant antitrust matters — mean
that antitrust courts have absolutely no jurisdiction to
entertain suits concerning these rates under the antitrust acts?
In answering this question, I am aware of this Court's possible
jurisdiction over the minimum rate structure under the
Administrative Procedure Act and under 15 U.S.C. § 78y, Gordon,
supra, 498 F.2d 1303; Thill Securities Corp., supra, 433 F.2d
The Second Circuit Court of Appeals has held that under these
conditions, there can be no antitrust suits. The federal district
court in Gordon held:
"Without venturing to describe the full contours of
this immunity, we believe that the Exchange Act, as
construed by Silver, left the power to fix
commission rates within the exclusive jurisdiction of
the Exchange, ...