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June 26, 1975



Burger, Douglas, Brennan, Stewart, White, Marshall, Blackmun, Powell, Rehnquist

Author: Blackmun

[ 422 U.S. Page 660]

 MR. JUSTICE BLACKMUN delivered the opinion of the Court.

This case presents the problem of reconciliation of the antitrust laws with a federal regulatory scheme in the particular context of the practice of the securities exchanges and their members of using fixed rates of commission. The United States District Court for the Southern District of New York and the United States Court of Appeals for the Second Circuit concluded that fixed commission rates were immunized from antitrust attack because of the Securities and Exchange Commission's authority to approve or disapprove exchange commission rates and its exercise of that power.


In early 1971 petitioner Richard A. Gordon, individually and on behalf of an asserted class of small investors, filed this suit against the New York Stock

[ 422 U.S. Page 661]

     Exchange, Inc. (NYSE), the American Stock Exchange, Inc. (Amex), and two member firms of the Exchanges.*fn1 The complaint challenged a variety of exchange rules and practices and, in particular, claimed that the system of fixed commission rates, utilized by the Exchanges at that time for transactions less than $500,000, violated §§ 1 and 2 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. §§ 1 and 2. Other challenges in the complaint focused on (1) the volume discount on trades of over 1,000 shares, and the presence of negotiated rather than fixed rates for transactions in excess of $500,000;*fn2 (2) the rules limiting the number of exchange memberships; and (3) the rules denying discounted commission rates to nonmembers using exchange facilities.*fn3

Respondents moved for summary judgment on the ground that the challenged actions were subject to the overriding supervision of the Securities and Exchange Commission (SEC) under § 19 (b) of the Securities Exchange Act of 1934, 48 Stat. 898, as amended, 15 U.S.C. § 78s (b), and, therefore, were not subject to the strictures of the antitrust laws. The District Court granted respondents' motion as to all claims. 366 F. Supp. 1261 (1973). Dismissing the exchange membership limitation and the Robinson-Patman Act contentions

[ 422 U.S. Page 662]

     as without merit,*fn4 the court focused on the relationship between the fixed commission rates and the Sherman Act mandates. It utilized the framework for analysis of antitrust immunity in the regulated securities area that was established a decade ago in Silver v. New York Stock Exchange, 373 U.S. 341 (1963). Since § 19 (b)(9) of the Exchange Act authorized the SEC to supervise the Exchanges "in respect of such matters as... the fixing of reasonable rates of commission," the court held applicable the antitrust immunity reserved in Silver for those cases where "review of exchange self-regulation [is] provided through a vehicle other than the antitrust laws." 373 U.S., at 360. It further noted that the practice of fixed commission rates had continued without substantial challenge after the enactment of the 1934 Act, and that the SEC had been engaged in detailed study of the rate structure for a decade, culminating in the requirement for abolition of fixed rates as of May 1, 1975.

On appeal, the Second Circuit affirmed. 498 F.2d 1303 (1974). Characterizing petitioner's other challenges as frivolous, the appellate court devoted its opinion to the problem of antitrust immunity. It, too, used Silver as a basis for its analysis. Because the SEC, by § 19 (b)(9), was given specific review power over the fixing of commission rates, because of the language, legislative history, and policy of the Exchange Act, and because of the SEC's actual exercise of its supervisory

[ 422 U.S. Page 663]

     power, the Court of Appeals determined that this case differed from Silver, and that antitrust immunity was proper.

By his petition for certiorari, petitioner sought review only of the determination that fixed commission rates are beyond the reach of the antitrust laws. Because of the vital importance of the question, and at the urging of all the parties, we granted certiorari. 419 U.S. 1018 (1974).


Resolution of the issue of antitrust immunity for fixed commission rates may be made adequately only upon a thorough investigation of the practice in the light of statutory restrictions and decided cases. We begin with a brief review of the history of commission rates in the securities industry.

Commission rates for transactions on the stock exchanges have been set by agreement since the establishment of the first exchange in this country. The New York Stock Exchange was formed with the Buttonwood Tree Agreement of 1792, and from the beginning minimum fees were set and observed by the members. That Agreement itself stated: S

"'We the Subscribers, Brokers for the Purchase and Sale of Public Stock, do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever, any kind of Public Stock at a less rate than one-quarter per cent. Commission on the Specie value, and that we will give a preference to each other in our Negotiations.'" F. Eames, The New York Stock Exchange 14 (1968 ed).I

See generally, R. Doede, The Monopoly Power of the New York Stock Exchange, reprinted in Hearings on S. 3169 before the Subcommittee on Securities of the Senate

[ 422 U.S. Page 664]

     Committee on Banking, Housing and Urban Affairs, 92d Cong., 2d Sess., 405, 412-427 (1972). Successive constitutions of the NYSE have carried forward this basic provision. Similarly, when Amex emerged in 1908-1910, a pattern of fixed commission rates was adopted there.

These fixed rate policies were not unnoticed by responsible congressional bodies. For example, the House Committee on Banking and Currency, in a general review of the stock exchanges undertaken in 1913, reported that the fixed commission rate rules were "rigidly enforced" in order "to prevent competition amongst the members." H.R. Rep. No. 1593, 62d Cong., 3d Sess., 39 (1913).*fn5 The report, known as the Pujo Report, did not recommend any change in this policy, for the Committee believed S

"the present rates to be reasonable, except as to stocks, say, of $25 or less in value, and that the

[ 422 U.S. Page 665]

     exchange should be protected in this respect by the law under which it shall be incorporated against a kind of competition between members that would lower the service and threaten the responsibility of members. A very low or competitive commission rate would also promote speculation and destroy the value of membership." Id., at 115-116.I

Despite the monopoly power of the few exchanges, exhibited not only in the area of commission rates but in a wide variety of other aspects, the exchanges remained essentially self-regulating and without significant supervision until the adoption of the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. At the lengthy hearings before adoption of that Act, some attention was given to the fixed commission rate practice and to its anticompetitive features. See Hearings on S. Res. 84 (72d Cong.) and S. Res. 56 and 97 (73d Cong.) before the Senate Committee on Banking and Currency, 73d Cong., 1st and 2d Sess., pts. 13, 15, and 16, pp. 6075, 6080, 6868, and 7705 (1934) (hereafter Senate Hearings). See also Hearings on S. Res. 84 before the Senate Committee on Banking and Currency, 72d Cong., 1st Sess., pt. 1, p. 85 (1932); Hearings on H.R. 7852 and H.R. 8720 before the House Committee on Interstate and Foreign Commerce, 73d Cong., 2d Sess., 320-321, 423 (1934).

Perhaps the most pertinent testimony in the hearings preparatory to enactment of the Exchange Act was proffered by Samuel Untermyer, formerly chief counsel to the committee that drafted the Pujo Report. In commenting on proposed S. 2693, Mr. Untermyer noted that although the bill would provide the federal supervisory commission with S

"the right to prescribe uniform rates of commission, it does not otherwise authorize the Commission to

[ 422 U.S. Page 666]

     fix rates, which it seems to me it should do and would do by striking out the word 'uniform.' That would permit the Commission to fix rates.

"The volume of the business transacted on the exchange has increased manifold. Great fortunes have been made by brokers through this monopoly. The public has no access to the exchange by way of membership except by buying a seat and paying a very large sum for it. Therefore it is a monopoly. Probably it has to be something of a monopoly. But after all it is essentially a public institution. It is the greatest financial agency in the world, and should be not only controlled by the public but it seems to me its membership and the commissions charged should either be fixed by some governmental authority or be supervised by such authority. As matters now stand, the exchange can charge all that the traffic will bear, and that is a burden upon commerce." Senate Hearings 7705.I

As finally enacted, the Exchange Act apparently reflected the Untermyer suggestion, for it gave the SEC the power to fix and insure "reasonable" rates. Section 19 (b) provided: S

"(b) The Commission is further authorized, if after making appropriate request in writing to a national securities exchange that such exchange effect on its own behalf specified changes in its rules and practices, and after appropriate notice and opportunity for hearing, the Commission determines that such exchange has not made the changes so requested, and 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, by rules or regulations or by order to

[ 422 U.S. Page 667]


With this legislative history in mind, we turn to the actual post-1934 experience of commission rates on the NYSE and Amex. After these two Exchanges had registered in 1934 under § 6 of the Exchange Act, 15 U.S.C. § 78f, both proceeded to prescribe minimum commission rates just as they had prior to the Act. App. A42, A216. These rates were changed periodically by the Exchanges,*fn6 after their submission to the SEC pursuant to § 6 (a)(4), 15 U.S.C. § 78f (a)(4), and SEC Rule 17a-8, 17 CFR § 240.17a-8. Although several rate changes appear to have been effectuated without comment by the SEC, in other instances the SEC thoroughly exercised its supervisory powers. Thus, for example, as early as 1958 a study of the NYSE commission rates to determine whether the rates were "reasonable and in accordance with the standards contemplated by applicable provisions of the Securities Exchange Act of 1934," was announced by the SEC. SEC Exchange Act Release No. 5678, Apr. 14, 1958, App. A240. This study resulted in an agreement by the NYSE to reduce commission rates in certain transactions, to engage in further study of the rate structure by the NYSE in collaboration with the SEC, and to provide the SEC with greater advance notice of proposed rate changes. SEC Exchange Act Release No. 5889, Feb. 20, 1959, App. A247. The SEC specifically stated that it had undertaken the study "in view of the responsibilities and duties imposed upon the Commission by Section 19 (b)... with respect to the rules of national

[ 422 U.S. Page 669]

     securities exchanges, including rules relating to the fixing of ...

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