Chicago Board Options Exchange, Inc. Petitioner,
Securities and Exchange Commission, Respondent, and Nasdaq OMX PHLX, LLC, Intervening Petitioner, and Citadel Securities, LLC, et al. Intervening Respondents.
March 29, 2018
Petition for Review of an Order of the Securities and
Exchange Commission. No. 3-17189
Bauer, Flaum, and Manion, Circuit Judges.
Citadel Securities, LLC v. Chicago Board Options
Exchange, Inc., we held that "the district court
did not abuse its discretion in dismissing [the] case [of
certain securities firms] for failure to exhaust
administrative remedies." 808 F.3d 694, 701 (7th Cir.
2015) [hereinafter Citadel I]. Following that
decision, the securities firms filed a petition before the
Securities and Exchange Commission ("SEC" or
"Commission") seeking damages from various
securities exchanges for improper fees. The SEC dismissed
that petition for lack of jurisdiction. The securities
exchanges now appeal that order. We affirm.
our decision in Citadel I,  certain securities firms
(the "Market Makers") filed a petition with the SEC.
The petition alleged that over a ten-year period the Chicago
Board Options Exchange and Nasdaq (the
"Exchanges") "mis-charged the Market Makers
potentially millions of dollars." Specifically, the
Market Makers claimed that the Exchanges improperly imposed
fees under Payment for Order Flow ("PFOF")
programs. The petition requested that the Commission
compel the Exchanges to (1) "provide a full
accounting" of the fees wrongly charged; and (2) award
damages in that amount, or in the alternative, order
disgorgement of the improperly charged fees.
April 1, 2016, the SEC ordered briefing as to whether it had
jurisdiction to review the Market Makers' petition. The
Market Makers argued the "the Commission ha[d] no
statutory authority to exercise jurisdiction over this
matter." The Exchanges, citing our decision in
Citadel I, maintained the SEC had jurisdiction under
Section 19(h)(1) of the Securities Exchange Act (the
"Exchange Act") and the SEC's Rules of Practice
because the petition sought a determination that the
Exchanges had violated their own rules. The SEC acknowledged
our conclusion in Citadel I that "the plain
language of the Exchange Act calls for SEC review of
plaintiffs' allegations of improper PFOF Fees, "
see 808 F.3d at 699, but nevertheless held that it
lacked jurisdiction over the Market Makers' petition.
the SEC explained that Section 19(d) of the Exchange Act,
which authorizes it to review allegations that a national
exchange has unduly "prohibit[ed] or limit[ed] …
access to services, " see 15 U.S.C. §
78s(d)(1), did not apply to the Market Makers' petition.
It determined that the petition did not allege that the
Exchanges had denied or limited access to any service. It
also stated that even if it had alleged such a claim, the
petition sought damages, which was "incongruous
with" the SEC's remedial authority under Section
the SEC declined to exercise jurisdiction over the petition
under Section 19(h)(1). That provision permits the SEC to
take regulatory action against an exchange when "in its
opinion such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in
furtherance of the purposes of [the Exchange Act]."
Id. § 78s(h)(1). The SEC reasoned that this
text "exclusively authorizes … the Commission, in
its discretion, to commence an administrative disciplinary
action against an [exchange], " but "does not
authorize claims by private parties." The SEC also
determined that the provision only authorizes it "to
suspend and/or impose limitations upon [an exchange]
…, not to award damages." Because the Market
Makers are private parties seeking damages, the SEC held that
it lacked jurisdiction under Section 19(h)(1).
in response to our statement in Citadel I that
"sections of the Exchange Act explicitly provide for
monetary penalties, " see 800 F.3d at 701, the
SEC concluded that the Exchange Act said nothing about its
power to award damages in private actions. It noted
that it was permitted to impose civil penalties and seek
disgorgement under certain sections of the Act, but clarified
that "civil money penalties … are not
damages." Because it determined that the Market
Makers' petition did not initiate a proceeding under any
Exchange Act provision that permitted money penalties, it
held it could not "provide 'monetary
compensation' to the Market Makers."
the SEC noted that the mere fact that the dispute involved a
rule overseen by the Commission did not provide it
jurisdiction. As it explained, "[t]hat the fees at issue
were imposed pursuant to rules subject to Commission review
does not make the Commission the arbiter of any and all
disputes about such fees or rules."
CBOE appealed the SEC's order to this Court, and the
Market Makers and Nasdaq intervened pursuant to Federal Rule
of Appellate Procedure 15.