Petitioner, individually and on behalf of an asserted class of
small investors, filed suit against respondents -- the New York
Stock Exchange, the American Stock Exchange, and two member firms
of the Exchanges -- claiming that the system of fixed commission
rates utilized by the Exchanges at that time for transactions of
less than $500,000 violated §§ 1 and 2 of the Sherman Act. The
District Court and the Court of Appeals both concluded that the
fixed commission rates were immunized from antitrust attack because
of the authority of the Securities and Exchange Commission (SEC)
under § 19(b)(9) of the Securities Exchange Act of 1934 to approve
or disapprove exchange commission rates and its exercise of that
power.
Held: The system of fixed commission rates, which is
under the active supervision of the SEC, is beyond the reach of the
antitrust laws. Pp.
422 U. S.
663-691.
(a) The statutory provision authorizing regulation of rates, §
19(b)(9), the SEC's long regulatory practice in reviewing proposed
rate changes and in making detailed studies of rates, culminating
in the adoption of a rule requiring a transition to competitive
rates, and continued congressional approval of the SEC's authority
over rates, all show that Congress intended the Securities Exchange
Act to leave the supervision of the fixing of reasonable rates to
the SEC. Pp.
422 U. S.
663-682.
(b) To interpose antitrust laws, which would bar fixed
commission rates as
per se violations of the Sherman Act,
in the face of positive SEC action, would unduly interfere with the
intended operation of the Securities Exchange Act. Hence, implied
repeal of the antitrust laws is necessary to make that Act work as
intended, since failure to imply repeal would render § 19(b)(9)
nugatory.
Silver v. New York Stock Exchange, 373 U.
S. 341;
Ricci v. Chicago Mercantile Exchange,
409 U. S. 289,
distinguished. Pp.
422 U. S.
682-691.
498 F.2d 1303, affirmed.
BLACKMUN, J., delivered the opinion for a unanimous Court.
DOUGLAS, J., filed a concurring opinion,
post, p.
422 U. S. 691.
STEWART,
Page 422 U. S. 660
J., filed a concurring opinion, in which BRENNAN, J., joined,
post, p.
422 U. S.
692.
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.
I
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
Page 422 U. S. 661
Exchange, Inc. (NYSE), the American Stock Exchange, Inc. (Amex),
and two member firms of the Exchanges. [
Footnote 1] 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; [
Footnote 2] (2) the rules limiting the
number of exchange memberships; and (3) the rules denying
discounted commission rates to nonmembers using exchange
facilities. [
Footnote 3]
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
Page 422 U. S. 662
as without merit, [
Footnote
4] 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
373 U. S. 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
Page 422 U. S. 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).
II
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:
"'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).
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
Page 422 U. S. 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).
[
Footnote 5] The report, known
as the Pujo Report, did not recommend any change in this policy,
for the Committee believed
"the present rates to be reasonable, except as to stocks, say,
of $25 or less in value, and that the
Page 422 U. S. 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.
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
"the right to prescribe uniform rates of commission, it does not
otherwise authorize the Commission to
Page 422 U. S. 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 manyfold. 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.
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:
"(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
Page 422 U. S. 667
alter or supplement the rules of such exchange (insofar
as necessary or appropriate to effect such changes)
in respect
of such matters as . . . (9)
the fixing of reasonable
rates of commission, interest, listing, and other
charges."
(Emphasis added.)
This provision conformed to the Act's general policy of
self-regulation by the exchanges coupled with oversight by the SEC.
It is to be noted that the ninth category is one of 12 specifically
enumerated. In
Merrill Lynch, Pierce, Fenner & Smith v.
Ware, 414 U. S. 117,
414 U. S.
127-128 (1973), we observed:
"Two types of regulation are reflected in the Act. Some
provisions impose direct requirements and prohibitions. Among these
are mandatory exchange registration, restrictions on broker and
dealer borrowing, and the prohibition of manipulative or deceptive
practices. Other provisions are flexible, and rely on the technique
of self-regulation to achieve their objectives. . . . Supervised
self-regulation, although consonant with the traditional private
governance of exchanges, allows the Government to monitor exchange
business in the public interest."
The congressional reports confirm that, while the development of
rules for the governing of exchanges, as enumerated in § 19(b), was
left to the exchanges themselves in the first instance, the SEC
could compel adoption of those changes it felt were necessary to
insure fair dealing and protection of the public.
See
H.R.Rep. No. 1383, 73d Cong., 2d Sess., 15 (1934); S.Rep. No. 792,
73d Cong., 2d Sess., 13 (1934). The latter report,
id. at
15, noted that registered exchanges were required to provide the
SEC with "complete information" regarding its rules.
Page 422 U. S. 668
III
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, [
Footnote 6] 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
Page 422 U. S. 669
securities exchanges, including rules relating to the fixing of
commission rates."
Ibid.
Under subsection (d) of § 19 of the Act (which subsection was
added in 1961, 75 Stat. 465), the SEC was directed to investigate
the adequacy of exchange rules for the protection of investors.
Accordingly, the SEC began a detailed study of exchange rules in
that year. In 1963, it released its conclusions in a six-volume
study. SEC Report of Special Study of Securities Markets, H.R.Doc.
No. 95, 88th Cong., 1st Sess. The study, among other things,
focused on problems of the structure of commission rates and
procedures, and standards for setting and reviewing rate levels.
Id. pt. 5, p. 102. The SEC found that the rigid commission
rate structure based on value of the round lot was causing a
variety of "questionable consequences," such as "giveups" and the
providing of special services for certain large, usually
institutional, customers. These attempts indirectly to achieve rate
alterations made more difficult the administration of the rate
structure and clouded the cost data used as the basis for
determination of rates. These effects were believed by the SEC to
necessitate a complete study of the structure. Moreover, the SEC
concluded that methods for determining the reasonableness of rates
were in need of overhaul. Not only was there a need for more
complete information about the economics of the securities business
and commission rates in particular, but also for a determination
and articulation of the criteria important in arriving at a
reasonable rate structure. Hence, while the study did not produce
any major immediate changes in commission rate structure or levels,
it did constitute a careful articulation of the problems in the
structure and of the need for further studies that would be
essential as a basis for future changes.
Page 422 U. S. 670
Meanwhile, the NYSE began an investigation of its own into the
particular aspect of volume discounts from the fixed commission
rates. App. A219-A220. This study determined that a volume discount
and various other changes were needed, and so recommended to the
SEC. The Commission responded in basic agreement. Letter dated Dec.
22, 1965, from SEC Chairman Cohen to NYSE President Funston, App.
A249. The NYSE study continued over the next few years and final
conclusions were presented to the SEC in early 1968.
Id.
at A253. [
Footnote 7]
In 1968, the SEC, while continuing the study started earlier in
the decade, began to submit a series of specific proposals for
change and to require their implementation by the exchanges.
Through its Exchange Act Release No. 8324, May 28, 1968, App. A286,
the SEC requested the NYSE to revise its commission rate schedule,
including a reduction of rates for orders for round lots in excess
of 400 shares or, alternatively, the elimination of minimum rate
requirements for orders in excess of $50,000. These changes were
viewed by the SEC as interim measures, pending further
consideration
"in the context of the Commission's responsibilities to consider
the national policies embodied both in the securities laws and in
the antitrust laws."
Letter dated May 28, 1968, from SEC Chairman Cohen to NYSE
President Haack, App. A285. In response to these communications,
the NYSE (and Amex) eventually adopted a volume discount for orders
exceeding 1,000 shares, as well as other alterations in rates, all
approved by the SEC.
See,
Page 422 U. S. 671
e.g., letter dated Aug. 30, 1968, from Chairman Cohen
to President Haack, App. A310; memorandum dated Sept. 20, 1968,
Amex Subcommittee on Commission Structure, App. A104.
Members of the securities exchanges faced substantial declines
in profits in the late 1960's and early 1970. These were attributed
by the NYSE to be due, at least in part, to the fact that general
commission rates had not been increased since 1958. Statement of
Feb. 13, 1970, by President Haack to the SEC, App. A313. The NYSE
determined that a service charge of at least the lesser of $15 or
50% of the required minimum commission on orders of fewer than
1,000 shares should be imposed as an interim measure to restore
financial health by bringing rates in line with costs. NYSE
Proposed Rule 383, App. A331.
See also letter dated
Mar.19, 1970, from President Haack to members of the NYSE, App.
A327. This proposal, submitted to the SEC pursuant to its Rule
17a-8, was permitted by the SEC to be placed into operation on a
90-day interim basis. Letter dated Apr. 2, 1970, from SEC Chairman
Budge to President Haack, App. A333. Continuation of the interim
measure was thereafter permitted pending further rate structure
hearings undertaken by the SEC. SEC Exchange Act Release No. 8923,
July 2, 1970, App. A336. The interim rates remained in effect until
the rate structure change in March 1972.
In 1971, the SEC concluded its hearings begun in 1968. Finding
that "minimum commissions on institutional size orders are neither
necessary nor appropriate," the SEC announced that it would not
object to competitive rates on portions of orders above a stated
level. Letter dated Feb. 3, 1971, from SEC Commissioner Smith to
President Haack, App. A353.
See also SEC Exchange Act
Release No. 9007, Oct. 22, 1970, App. A348.
Page 422 U. S. 672
Although at first supporting a $100,000 order as the cutoff
below which fixed rates would be allowed,
ibid., the SEC
later decided to permit use of $500,000 as the breakpoint. After a
year's use of this figure, the SEC required the exchanges to reduce
the cutoff point to $300,000 in April, 1972. Statement of the SEC
on the Future Structure of the Securities Markets, Feb. 2, 1972,
App. A369, A387, A388 (Policy Study).
The 1972 Policy Study emphasized the problems of the securities
markets, and attributed as a major cause of those problems the
prevailing commission rate structure. The Policy Study noted:
"Our concern with the fixed minimum commission . . . is not only
with the level of the rate structure but with its side effects as
well. Of these, perhaps the most important are the following:"
"(a) Dispersion of trading in listed securities."
"(b) Reciprocal practices of various kinds."
"(c) Increasing pressure for exchange membership by
institutions."
Id. at A385. Since commission rates had been fixed for
a long period of time, however, and since it was possible that
revenue would decline if hasty changes were made, the SEC believed
that there should be no rush to impose competitive rates. Rather,
the effect of switching to competition should be gauged on a
step-by-step basis, and changes should be made "at a measured,
deliberate pace."
Id. at A387. The result of the
introduction of competitive rates for orders exceeding $500,000 was
found to be a substantial reduction in commissions, with the rate
depending on the size of the order. In view of this result, the SEC
determined to institute competition in the $300,000-$500,000 range
as well.
Further reduction followed relatively quickly. By March 29,
1973, the SEC was considering requiring the reduction
Page 422 U. S. 673
of the breakpoint on competitive rates to orders in excess of
$100,000. SEC Policy Statement on the Structure of a Central Market
System 3. In June, the SEC began hearings on the rate schedules,
stimulated in part by a request by the NYSE to permit an increase
of 15% of the current rate on all orders from $5,000 to $300,000,
and to permit a minimum commission on small orders (below $5,000)
as well. SEC Exchange Act Release No. 10206, June 6, 1973,
Documentary Appendix to Brief for SEC as
Amicus Curiae 24
(Doc. App.). Three months later, after completion of the hearings,
the SEC determined that it would allow the increases. SEC Exchange
Act Release No. 10383, Sept. 11, 1973, [
Footnote 8] Doc. App. 27. The SEC also announced, however,
that
"[i]t will act promptly to terminate the fixing of commission
rates by stock exchanges after April 30, 1975, if the stock
exchanges do not adopt rule changes achieving that result."
Id. at 28.
Elaboration of the SEC's rationale for this phasing out of fixed
commission rates was soon forthcoming. In December, 1973, SEC
Chairman Garrett noted that the temporary increase in fixed rates
(through April 1975) was permitted because of the inflation in the
cost of operating the exchanges, the decline in the volume of
transactions on the exchanges, and the consequently severe
financial losses for the members. SEC Exchange Act Release No.
10560, Dec. 14, 1973, Doc. App. 29. Indeed, without the rate
increase,
"the continued deterioration in the capital positions of many
member firms was foreseeable, with significant capital impairment
and indirect, but consequential, harm to investors the likely
Page 422 U. S. 674
result."
Id. at 36. The rate increase also would forestall the
possibility that the industry would be impaired during transition
to competitive rates and other requirements. This view conformed to
the suggestion of Senator Williams, Chairman of the Subcommittee on
Securities of the Senate Committee on Banking, Housing and Urban
Affairs.
See statement dated July 27, 1973, of Senator
Williams submitted to the SEC, cited in Exchange Act Release No.
10560 n. 12, Doc.App. 37. Although not purporting to elucidate
fully its reasons for abolishing fixed rates, the SEC did suggest
several considerations basic to its decision: the heterogeneous
nature of the brokerage industry; the desirability of insuring
trading on, rather than off, the exchanges; doubt that small
investors are subsidized by large institutional investors under the
fixed rate system; and doubt that small firms would be forced out
of business if competitive rates were required.
In response to a request by the NYSE, the SEC permitted
amendment to allow competitive rates on nonmember orders below
$2,000. SEC Exchange Act Release No. 10670, Mar. 7, 1974. Doc.App.
42. Hearings on intramember commission rates were announced in
April, 1974. SEC Exchange Act Release No. 10751, Apr. 23, 1974,
Doc.App. 45. The SEC concluded that intramember rates should not be
fixed beyond April 30, 1975. SEC Exchange Act Release No. 11019,
Sept. 19, 1974. Doc.App. 60. At this time, the SEC stated:
"[I]t presently appears to the Commission that it is necessary
and appropriate (1) for the protection of investors, (2) to insure
fair dealing in securities traded in upon national securities
exchanges, and (3) to insure the fair administration of such
exchanges, that the rules and practices of such exchanges that
require, or have the effect of requiring,
Page 422 U. S. 675
exchange members to charge any person fixed minimum rates of
commission, should be eliminated."
Id. at 63. The SEC formally requested the exchanges to
make the appropriate changes in their rules. When negative
responses were received from the NYSE and others, the SEC released
for public comment proposed Securities Exchange Act Rules 19b-3 and
10b-22. Proposed Rule 19b-3, applicable to intramember and
nonmember rates effective May 1, 1975, would prohibit the exchanges
from using or compelling their members to use fixed rates of
commission. It also would require the exchanges to provide
explicitly in their rules that nothing therein require or permit
arrangements or agreements to fix rates. Proposed Rule 10b-22 would
prohibit agreements with respect to the fixing of commission rates
by brokers, dealers, or members of the exchanges.
See SEC
Exchange Act Release No. 11073, Oct. 24, 1974, Doc.App. 65.
Upon the conclusion of hearings on the proposed rules, the SEC
determined to adopt Rule 19b-3, but not Rule 10b-22. SEC Exchange
Act Release No. 11203, Jan. 23, 1975, Doc. App. 109. Effective May
1, 1975, competitive rates were to be utilized by exchange members
in transactions of all sizes for persons other than members of the
exchanges. Effective May 1, 1976, competitive rates were to be
mandatory in transactions for members as well,
i.e., floor
brokerage rates. Competition in floor brokerage rates was so
deferred until 1976 in order to permit an orderly transition.
[
Footnote 9] The required
Page 422 U. S. 676
transition to competitive rates was based on the SEC's
conclusion that competition, rather than fixed rates, would be in
the best interests of the securities industry and markets, as well
as in the best interests of the investing public and the national
economy.
Ibid. This determination was not based on a
simplistic notion in favor of competition, but rather on
demonstrated deficiencies of the fixed commission rate structure.
Specifically mentioned by the SEC were factors such as the rigidity
and delay inherent in the fixed rate system, the potential for
distortion, evasion, and conflicts of interest, and fragmentation
of markets caused by the fixed rate system. Acknowledging that the
fixed rate system perhaps was not all bad in all periods of its
use, the SEC explicitly declined to commit itself to permanent
abolition of fixed rates in all cases: in the future, circumstances
might arise that would indicate that reinstitution of fixed rates
in certain areas would be appropriate.
The SEC dismissed the arguments against competitive rates that
had been raised by various proponents of the
status quo.
First, the SEC deemed the possibility of destructive competition to
be slim, because of the nature of the cost curve in the industry.
[
Footnote 10] Second, there
was substantial doubt whether maintenance of fixed rates, in fact,
provided various subsidies that would be beneficial to the
operation of the securities markets. For example, it was unlikely
that small investors reaped a subsidy from higher rates charged
larger investors, because of
Page 422 U. S. 677
separation of the business between large and small investors.
Nor did the SEC believe that regional brokers were substantially
benefited by maintenance of fixed rates. Third, the possibility of
an exodus from membership on the exchanges was unlikely, and should
be dealt with only as it occurred. In any event, inasmuch as the
SEC anticipated that there would be detailed studies of the
operation of the competitive rates effectuated by its orders, any
problems that arose could be effectively resolved upon further
consideration.
During this period of concentrated study and action by the SEC,
lasting more than a decade, various congressional committees
undertook their own consideration of the matter of commission
rates. Early in 1972, the Senate Subcommittee on Securities
concluded that fixed commission rates must be eliminated on
institution-size transactions, and that lower fees should be
permitted for small transactions with "unbundled" services than for
those having the full range of brokerage services. Senate Committee
on Banking, Housing and Urban Affairs, 92d Cong., 2d Sess.,
Securities Industry Study (For the Period Ended Feb. 4, 1972), 4
(1972) (containing a report of the Subcommittee on Securities). The
Subcommittee objected particularly to the failure of the fixed rate
system to produce "fair and economic" rates,
id. at 59,
and to distortion in the rate structure in favor of the
institutionally oriented firms.
The Subcommittee was perturbed at the SEC's actions regarding
fixed commission rates for several reasons. First, the Subcommittee
noted that, in litigation the SEC had taken the position that it
had not approved NYSE rate changes in 1971, but had merely failed
to object to the introduction of the new rates,
id. at 58,
referring to the SEC position in
Independent Investor
Protective League v. SEC (SDNY No. 71-1924), dismissed
without
Page 422 U. S. 678
opinion (CA2 1971). This posture precluded review of the SEC
action in the Court of Appeals. [
Footnote 11] Second, the Subcommittee was displeased with
the length of time the SEC took in arriving at its decisions
regarding commission rate structure and level. Third, the
Subcommittee feared that statements of the SEC lacked clarity and
perpetuated uncertainty as to the status of fixed rates on
transactions exceeding $100,000. Therefore, the Subcommittee report
stressed:
"[I]t is essential that fixed commission rates be phased out in
an orderly and systematic manner, and that a date certain be set
promptly for elimination of fixed commissions on institutional-size
transactions, which have resulted in the most serious distortions.
Based on the SEC's conclusions and on testimony submitted to the
SEC and to this Subcommittee, this could best be achieved by
eliminating fixed rates on orders in excess of $100,000."
Securities Industry Study,
supra at 60.
The House Committee on Interstate and Foreign Commerce, in a
report issued only six months after the Senate Report
supra, concluded that fixed rates of commission were not
in the public interest and should be replaced by competitively
determined rates for transactions of all sizes. Such action should
occur "without excessive delay." H.R.Rep. No. 92-1519, pp. xiv,
141, 144-145, 146 (1972). Although prodding the SEC to take quick
measures to introduce competitive rates for transactions of all
sizes, the House Committee determined
Page 422 U. S. 679
to defer enacting legislation so long as reasonable progress was
being made. These conclusions resulted from a detailed study, by
the Subcommittee, of asserted costs and benefits of competitive
versus fixed rates, and reflected information gained through
lengthy hearings.
Id. at 131-146, and related Study of the
Securities Industry, Hearings before the Subcommittee on Commerce
and Finance of the House Committee on Interstate and Foreign
Commerce, 92d Cong., 1st and 2d Sess., serials 92-37 to 92-37h
(1971-1972). Similarly, after lengthy analysis, the Senate
Subcommittee on Securities concluded both that competitive rates
must be introduced at all transaction levels, and that legislation
was not required at that time in view of the progress made by the
SEC. Securities Industry Study Report of the Subcommittee on
Securities of the Senate Committee on Banking, Housing and Urban
Affairs, S.Doc. No. 93-13, pp. 5-7, 43-63 (1973), and Hearings on
S. 3169 before the Subcommittee on Securities of the Senate
Committee on Banking, Housing and Urban Affairs, 92d Cong., 2d
Sess. (1972).
In 1975, both Houses of Congress did, in fact, enact legislation
dealing directly with commission rates. Although the bills
initially passed by each chamber differed somewhat, the Conference
Committee compromised the differences.
Compare H.R. 4111,
§ 6(p), as discussed in H.R.Rep. No. 94-123, pp. 51-53, 67-68
(1975),
with S. 249, § 6(e), as discussed in S.Rep. No.
94-75, pp. 71-72, 98 (1975). The measure, as so compromised, was
signed by the President on June 4, 1975, 89 Stat. 97.
The new legislation amends § 19(b) of the Securities Exchange
Act to substitute for the heretofore existing provision a scheme
for SEC review of proposed rules and rule changes of the various
self-regulatory organizations.
Page 422 U. S. 680
Reference to commission rates is now found in the newly amended
§ 6(e), generally providing that, after the date of enactment "no
national securities exchange may impose any schedule or fix rates
of commissions, allowances, discounts, or other fees to be charged
by its members." 89 Stat. 107. An exception is made for floor
brokerage rates which may be fixed by the exchanges until May 1,
1976. Further exceptions from the ban against fixed commissions are
provided if approved by the SEC after certain findings: prior to
and including November 1, 1976, the Commission may allow the
exchanges to fix commissions if it finds this to be "in the public
interest," § 6(e)(1)(A); after November 1, 1976, the exchanges may
be permitted by the SEC to fix rates of commission if the SEC finds
(1) the rates are reasonable in relation to costs of service (to be
determined pursuant to standards of reasonableness published by the
SEC), and (2) if the rates
"do not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of this title, taking
into consideration the competitive effects of permitting such
schedule or fixed rates weighed against the competitive effects of
other lawful actions which the Commission is authorized to take
under this title."
§ 6(e)(1)(b)(ii). The statute specifically provides that, even
if the SEC does permit the fixing of rates pursuant to one of these
exceptions, the SEC by rule may abrogate such practice if it finds
that the fixed rates "are no longer reasonable, in the public
interest, or necessary to accomplish the purposes of this title." §
6(e)(2).
The new section also provides a detailed procedure which the SEC
must follow in arriving at its decision to permit fixed commission
rates. § 6(e)(4). This procedure was described in the Conference
Report as
"comparable to that provided for in Section 18 of the
Federal
Page 422 U. S. 681
Trade Commission Act, 15 U.S.C. [§] 58, which is more formal
than normal notice and comment rulemaking under Section 553 of
title 5 U.S.C., but less formal than 'on the record' procedure
under Section[s] 556 and 557 of title 5 U.S.C."
H.R.Conf.Rep. No. 9229, p. 108 (1975). Finally, the amendments
require the SEC to file regularly until December 31, 1976, with
both branches of Congress, reports concerning the effect of
competitive rates on the public interest, investors, and the
securities markets. § 6(e)(3). [
Footnote 12]
As of May 1, 1975, pursuant to order of the SEC, fixed
commission rates were eliminated and competitive rates effectuated.
Although it is still too soon to determine the total effect of this
alteration, there have been no reports of disastrous effects for
the public, investors, the industry, or the markets.
This lengthy history can be summarized briefly: in enacting the
Securities Exchange Act of 1934, the Congress gave clear authority
to the SEC to supervise exchange self-regulation with respect to
the "fixing of reasonable rates of commission." Upon SEC
determination that exchange rules or practices regarding commission
rates required change in order to protect investors or to insure
fair dealing, the SEC was authorized to
Page 422 U. S. 682
require adoption of such changes as were deemed necessary or
appropriate. This legislative permission for the fixing of
commission rates under the supervision of the SEC occurred seven
years after this Court's decision in
United States v. Trenton
Potteries Co., 273 U. S. 392
(1927), to the effect that price-fixing was a
per se
violation of the Sherman Act. Since the Exchange Act's adoption,
and primarily in the last 15 years, the SEC has been engaged in
thorough review of exchange commission rate practices. The
committees of the Congress, while recently expressing some
dissatisfaction with the progress of the SEC in implementing
competitive rates, have generally been content to allow the SEC to
proceed without new legislation. As of May 1, 1975, the SEC, by
order, has abolished fixed rates. And new legislation, enacted into
law June 5, 1975, codifies this result, although still permitting
the SEC some discretion to reimpose fixed rates if warranted.
IV
This Court has considered the issue of implied repeal of the
antitrust laws in the context of a variety of regulatory schemes
and procedures. Certain axioms of construction are now clearly
established. Repeal of the antitrust laws by implication is not
favored, and not casually to be allowed. Only where there is a
"plain repugnancy between the antitrust and regulatory provisions"
will repeal be implied.
United States v. Philadelphia National
Bank, 374 U. S. 321,
374 U. S.
350-351 (1963).
See also Merrill Lynch, Pierce,
Fenner & Smith v. Ware, 414 U.S. at
414 U. S. 126;
Hughes Tool Co. v. Trans World Airlines, Inc.,
409 U. S. 363,
409 U. S.
385-389 (1973);
Carnation Co. v. Pacific
Conference, 383 U. S. 213,
383 U. S.
217-218 (1966);
Silver v. New York Stock
Exchange, 373 U.S.
Page 422 U. S. 683
at
373 U. S.
357-358;
United States v. Borden Co.,
308 U. S. 188,
308 U. S.
198-199 (1939).
See United States v. National Assn.
of Securities Dealers, post at
422 U. S.
719-720,
422 U. S.
729-730.
The starting point for our consideration of the particular issue
presented by this case,
viz., whether the antitrust laws
are impliedly repealed or replaced as a result of the statutory
provisions and administrative and congressional experience
concerning fixed commission rates, of course, is our decision in
Silver. There, the Court considered the relationship
between the antitrust laws and the Securities Exchange Act, and did
so specifically with respect to the action of an exchange in
ordering its members to remove private direct telephone connections
with the offices of nonmembers. Such action, absent any immunity
derived from the regulatory laws, would be a
per se
violation of § 1 of the Sherman Act. 373 U.S. at
373 U. S. 347.
Concluding that the proper approach to the problem was to reconcile
the operation of the antitrust laws with a regulatory scheme, the
Court established a "guiding principle" for the achievement of this
reconciliation. Under this principle,
"[r]epeal 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."
Id. at
373 U. S.
357.
In
Silver, the Court concluded that there was no
implied repeal of the antitrust laws in that factual context
because the Exchange Act did not provide for SEC jurisdiction or
review of particular applications of rules enacted by the
exchanges. It noted:
"Although the Act gives to the Securities and Exchange
Commission the power to request exchanges to make changes in their
rules, § 19(b), 15 U.S.C. § 78s(b), and impliedly, therefore, to
disapprove any rules adopted by an exchange,
see also
Page 422 U. S. 684
§ 6(a)(4), 15 U.S.C. § 78f(a)(4), it does not give the
Commission jurisdiction to review particular instances of
enforcement of exchange rules."
Ibid. At the time
Silver was decided, both the
rules and constitution of the NYSE provided that the Exchange could
require discontinuance of wire service between the office of a
member and a nonmember at any time. There was no provision for
notice or statement of reasons. While these rules were permissible
under the general power of the exchanges to adopt rules regulating
relationships between members and nonmembers, and the SEC could
disapprove the rules, the SEC could not forbid or regulate any
particular application of the rules. Hence, the regulatory agency
could not prevent application of the rules that would have
undesirable anticompetitive effects; there was no governmental
oversight of the exchange's self-regulatory action, and no method
of insuring that some attention at least was given to the public
interest in competition.
The Court, therefore, concluded that the absence in
Silver of regulatory supervision over the application of
the exchange rules prevented any conflict arising between the
regulatory scheme and the antitrust laws.
See also Georgia v.
Pennsylvania R. Co., 324 U. S. 439,
324 U. S.
455-457 (1945), where the Court found no conflict
because the regulatory agency (the Interstate Commerce Commission)
had no jurisdiction over the rate-fixing combination involved. The
Court in
Silver cautioned, however, that,
"[s]hould 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."
373 U.S. at
373 U. S. 360.
It amplified this statement in a footnote:
"Were there Commission jurisdiction and ensuing judicial review
for scrutiny of a particular exchange
Page 422 U. S. 685
ruling . . . a different case would arise concerning exemption
from the operation of laws designed to prevent anticompetitive
activity, an issue we do not decide today."
Id. at
373 U. S. 358
n. 12.
It is patent that the case presently at bar is, indeed, that
"different case" to which the Court in
Silver referred. In
contrast to the circumstances of
Silver, § 19(b) gave the
SEC direct regulatory power over exchange rules and practices with
respect to "the fixing of reasonable rates of commission." Not only
was the SEC authorized to disapprove rules and practices concerning
commission rates, but the agency also was permitted to require
alteration or supplementation of the rules and practices when
"necessary or appropriate for the protection of investors or to
insure fair dealings in securities traded in upon such exchange."
Since 1934, all rate changes have been brought to the attention of
the SEC, and it has taken an active role in review of proposed rate
changes during the last 15 years. Thus, rather than presenting a
case of SEC impotence to affect application of exchange rules in
particular circumstances, this case involves explicit statutory
authorization for SEC review of all exchange rules and practices
dealing with rates of commission and resultant SEC continuing
activity.
Having determined that this case is, in fact, the "different
case," we must then make inquiry as to the proper reconciliation of
the regulatory and antitrust statutes involved here, keeping in
mind the principle that repeal of the antitrust laws will be
"implied only if necessary to make the Securities Exchange Act
work, and even then only to the minimum extent necessary." 373 U.S.
at
373 U. S. 357.
We hold that these requirements for implied repeal are clearly
satisfied here. To permit operation of the antitrust laws with
respect to commission rates, as urged by
Page 422 U. S. 686
petitioner Gordon and the United States as
amicus
curiae, would unduly interfere, in our view, with the
operation of the Securities Exchange Act.
As a threshold matter, we believe that the determination of
whether implied repeal of the antitrust laws is necessary to make
the Exchange Act provisions work is a matter for the courts and, in
particular, for the courts in which the antitrust claims are
raised.
Silver exemplifies this responsibility. In some
cases, however, the courts may defer to the regulatory agency
involved in order to take advantage of its special expertise. The
decision in the end, however, is for the courts.
Ricci v.
Chicago Mercantile Exchange, 409 U. S. 289,
409 U. S.
306-308 (1973).
The United States, as
amicus curiae, suggests not only
that the immunity issue is ultimately for the courts to decide, but
also that the courts may reach the decision only on a full record.
A summary record, as compiled in this case on motions for summary
judgment, though voluminous, is said to be an inadequate basis for
resolution of the question. We disagree. In this case, nothing is
to be gained from any further factual development that might be
possible with a trial on the merits. We have before us the detailed
experience of the SEC regulatory activities, and we have the
debates in the Congress culminating in the 1975 legislation. This
information is sufficient to permit an informed decision as to the
existence of an implied repeal.
Our disposition of this case differs from that of the Seventh
Circuit in
Thill Securities Corp. v. New York Stock
Exchange, 433 F.2d 264 (1970),
cert. denied, 401 U.S.
994 (1971), where antitrust immunity for the NYSE's anti-rebate
rule was claimed and denied. The Court of Appeals reversed a grant
of summary judgment in favor of the NYSE, and remanded for further
evidence
Page 422 U. S. 687
regarding the effects of the anti-rebate rule on competition,
the degree of actual review by the SEC, and the extent to which the
rule was necessary to make the Exchange Act work. 433 F.2d at 270.
This ruling is persuasively distinguishable on at least two grounds
from the case at bar: first, there was no evidence presented
regarding the extent of SEC review of the challenged rule. Second,
the anti-rebate practice differs from fixed commission rates in
that (1) it was not among the items specifically listed in § 19(b),
although the practice might reasonably be thought to be related to
the fixing of commission rates, and (2) it does not necessarily
apply uniformly, and may be applied in a discriminatory manner. We
do not believe it necessary, in the circumstances of this case, to
take further evidence concerning the competitive effects of fixed
rates or the necessity of fixed rates as a keystone of the
operation of exchanges under the Exchange Act. To the extent that
the Court of Appeals in
Thill viewed the question of
implied repeal as a question of fact, concerning whether the
particular rule itself is necessary to make the Act work, we
decline to follow that lead.
We also regard our specific disposition in
Ricci v. Chicago
Mercantile Exchange, supra, as inapposite for this case. In
Ricci, an antitrust complaint charged that the Chicago
Mercantile Exchange arbitrarily transferred a membership, in
violation of both the Commodity Exchange Act, 42 Stat. 998, as
amended, 7 U.S.C. § 1
et seq., and the exchange rules. We
held that consideration of the antitrust claims should be stayed
pending determination by the Commodity Exchange Commission as to
whether the actions taken were in violation of the Act or the
rules. Although we noted that the Act did not confer a general
antitrust immunity, we stated that, if the actions complained of
were in
Page 422 U. S. 688
conformity with the Act and exchange rules, a substantial
question would be presented concerning whether the actions were
insulated from antitrust attack. It is manifest, then, that
Ricci involved a deference to the expertise of a
regulatory agency in determining if the activities violated the Act
or rules, and did not represent a decision on antitrust immunity
where the conduct charged was clearly encompassed by the
legislation or rules and where there was no factual dispute.
We believe that the United States, as
amicus, has
confused two questions. On the one hand, there is a factual
question as to whether fixed commission rates are actually
necessary to the operation of the exchanges as contemplated under
the Securities Exchange Act. On the other hand, there is a legal
question as to whether allowance of an antitrust suit would
conflict with the operation of the regulatory scheme which
specifically authorizes the SEC to oversee the fixing of commission
rates. The factual question is not before us in this case. Rather,
we are concerned with whether antitrust immunity, as a matter of
law, must be implied in order to permit the Exchange Act to
function as envisioned by the Congress. The issue of the wisdom of
fixed rates becomes relevant only when it is determined that there
is no antitrust immunity.
The United States appears to suggest that only if there is a
pervasive regulatory scheme, as in the public utility area, can it
be concluded that the regulatory scheme ousts the antitrust laws.
Brief for United States as
Amicus Curiae 16, 35. It is
true that, in some prior cases, we have been concerned with the
question of the pervasiveness of the regulatory scheme as a factor
in determining whether there is an implied repeal of the antitrust
laws.
See, e.g., Otter Tail Power Co. v. United States,
410 U. S. 366,
410 U. S.
373-375 (1973). In the present case, however,
Page 422 U. S. 689
respondents do not claim that repeal should be implied because
of a pervasive regulatory scheme, but because of the specific
provision of § 19(b)(9) and the regulatory action thereunder. Brief
for Respondents 35. Hence, whether the Exchange Act amounts to
pervasive legislation ousting the antitrust acts is not a question
before us.
We agree with the District Court and the Court of Appeals, and
with respondents, that to deny antitrust immunity with respect to
commission rates would be to subject the exchanges and their
members to conflicting standards. It is clear from our discussion
in
422 U. S.
supra, that the commission rate practices of the exchanges
have been subjected to the scrutiny and approval of the SEC.
[
Footnote 13] If antitrust
courts were to impose different standards or requirements, the
exchanges might find themselves unable to proceed without violation
of the mandate of the courts or of the SEC. Such different
standards are likely to result because the sole aim of antitrust
legislation is to protect competition, whereas the SEC must
consider, in addition, the economic health of the investors, the
exchanges, and the securities industry. [
Footnote 14] Given the expertise of the SEC, the
confidence
Page 422 U. S. 690
the Congress has placed in the agency, and the active roles the
SEC and the Congress have taken, permitting courts throughout the
country to conduct their own antitrust proceedings would conflict
with the regulatory scheme authorized by Congress, rather than
supplement that scheme. [
Footnote 15]
In
422 U. S.
supra, we outlined the legislative and regulatory agency
concern with the fixing of commission rates. Beginning with the
enactment of the Securities Exchange Act in 1934, the Congress
persistently has provided for SEC authority to regulate commission
rates. Although SEC action in the early years appears to have been
minimal, it is clear that, since 1959, the SEC has been engaged in
deep and serious study of the commission rate practices of the
exchanges and of their members, and has required major changes in
those practices. The ultimate result of this long-term study has
been a regulatory decree requiring abolition of the practice of
fixed rates of commission as of May 1, 1975, and the institution of
full and complete competition. Significantly, in the new
legislation enacted subsequent to the SEC's abolition of commission
rate fixing, the Congress has indicated its continued approval of
SEC review of the commission rate structure. Although
legislatively
Page 422 U. S. 691
enacting the SEC regulatory provision banning fixed rates, the
Congress has explicitly provided that the SEC, under certain
circumstances and upon the making of specified findings, may allow
reintroduction of fixed rates.
In sum, the statutory provision authorizing regulation, §
19(b)(9), the long regulatory practice, and the continued
congressional approval illustrated by the new legislation, point to
one, and only one, conclusion. The Securities Exchange Act was
intended by the Congress to leave the supervision of the fixing of
reasonable rates of commission to the SEC. Interposition of the
antitrust laws, which would bar fixed commission rates as
per
se violations of the Sherman Act, in the face of positive SEC
action, would preclude and prevent the operation of the Exchange
Act as intended by Congress and as effectuated through SEC
regulatory activity. Implied repeal of the antitrust laws is, in
fact, necessary to make the Exchange Act work as it was intended;
failure to imply repeal would render nugatory the legislative
provision for regulatory agency supervision of exchange commission
rates.
Affirmed.
[
Footnote 1]
The member firms are Merrill Lynch, Pierce, Fenner & Smith,
Inc., and Bache & Company, Inc.
[
Footnote 2]
Petitioner urged that these practices were in violation of the
Robinson-Patman Price Discrimination Act, 49 Stat. 1528, 15 U.S.C.
§ 13n.
[
Footnote 3]
The relief requested included an injunction prohibiting the
implementation of certain negotiated commission rates that were to
be placed in effect on April 5, 1971, or, alternatively, requiring
that negotiated rates be available for transactions of any size.
Petitioner also requested treble damages amounting to 1.5 billion
and an award of attorneys' fees of 10 million plus interest and
costs.
[
Footnote 4]
In short, the District Court concluded that (1) since petitioner
had never applied for exchange membership, he was not in a position
to complain that he was arbitrarily precluded from membership; (2)
the Exchange Act's § 3(a)(3), 15 U.S.C. § 78c(a)(3), by its
definition of "member," specifically limited access of nonmembers
to the Exchanges; and (3) the Robinson-Patman Act did not apply to
services or intangibles, but only to commodities or goods, and the
latter were not involved in this litigation.
[
Footnote 5]
See, for example, the comments of the report in
reviewing evidence on fixed commissions:
"As stated by Mr. Sturgis, a former president of the exchange,
since 1876, a governor, and now the chairman of the law committee .
. . :"
"'The violation of the commission law we regard as one of the
most infamous crimes that a man can commit against his fellow
members in the exchange, and as a gross breach of good faith and
wrongdoing of the most serious nature, and we consider it a crime
that we should punish as severely as, in the judgment of the
governing committee, the constitution permits.'"
"
* * * *"
"'Q. . . . But the breach of that rule (referring to the rule
for uniform commissions) by a broker you consider the most heinous
crime he can commit?'"
"'A. It is absolute bad faith to his fellow men.'"
"The rule is rigidly enforced by suspension from one to five
years for a first violation and expulsion for a second. . . . The
acknowledged object is to prevent competition amongst the
members."
H.R.Rep. No. 1593, 62d Cong., 3d Sess., 39 (1913).
[
Footnote 6]
Since 1947, rates generally have been based on the value of
stock in a round lot, SEC Report of Special Study of Securities
Markets, H.R.Doc. No. 95, 88th Cong., 1st Sess., pt. 5, p. 103
(1963). There was no volume discount at the time of this SEC
report.
[
Footnote 7]
The basic NYSE proposal included some volume discounts,
continuation of limited give-ups if directed by the customers,
termination of "rebative" reciprocal practices, discounts for
certain nonmembers, and limitation of membership and discounts to
"
bona fide broker-dealers." App. A255.
[
Footnote 8]
The increases were permitted through March 31, 1974, without
restriction. Such increases could continue from April 1, 1974,
through April 30, 1975, if the NYSE permitted its members to charge
in excess of the old rate and also permitted reductions in
brokerage services in return for discounts from the rate.
[
Footnote 9]
It was also believed that members of the exchanges had not
expected that floor brokerage rates would be included among those
required to be made competitive, and that extra time for planning
and adjustment would be needed. The SEC noted, additionally, that
the impact of floor brokerage rates on public investors was
significantly less than the impact of public rates,
i.e.,
the rates on transactions for nonmembers. SEC Exchange Act Release
No. 11203, Jan. 23, 1975, Doc.App. 109, 110.
[
Footnote 10]
In order for destructive competition to occur on a large scale,
fixed costs must be a high percentage of total costs, and there
must be economies of scale in a wide range of production. Neither
of these factors was found to be present in the brokerage industry.
Id. at 138-139.
[
Footnote 11]
This view has been rejected by the United States Court of
Appeals for the District of Columbia Circuit.
Independent
Broker-Dealers' Trade Assn. v. SEC, 142 U.S.App.D.C. 384, 442
F.2d 132,
cert. denied, 404 U.S. 828 (1971). The SEC
appears no longer to take this position.
See Brief for SEC
as
Amicus Curiae 38-39, n. 45.
[
Footnote 12]
One further change in the 1975 amendments should be noted. The
1934 Act defined the term "member" of an exchange as any person
who, among other things, is permitted
"to make use of the facilities of an exchange for transactions
thereon . . . with the payment of a commission or fee which is less
than that charged the general public."
§ 3(a)(3), 48 Stat. 883. This implied a likelihood of fixed
rates for the general public, for otherwise it would have been
difficult to determine that a member, in fact, was given lower
rates. This definition was deleted in the 1975 amendments, and has
been replaced with a general definition of a member of an exchange.
§ 3(a)(3)(A), 89 Stat. 97.
[
Footnote 13]
We believe that this degree of scrutiny and approval by the SEC
is not significantly different for our purposes here than an
affirmative order to the exchanges to follow fixed rates. The
United States, as
amicus curiae, agrees that, if the SEC
"were to order the exchanges to adhere to a fixed commission rate
system of some kind, no antitrust liability could arise." Brief for
United States as
Amicus Curiae 48. We conclude that
immunity should not rest on the existence of a formal order by the
SEC, but that the actions taken by the SEC pursuant to § 19(b)(9),
as outlined in
422 U. S.
supra, are to be viewed as having an effect equivalent to
that of a formal order.
[
Footnote 14]
Compare Pan American World Airways v. United States,
371 U. S. 296,
371 U. S.
305-310 (1963),
with United States v. Philadelphia
National Bank, 374 U. S. 321,
374 U. S.
350-352 (1963). In the latter case, two factors pointed
against antitrust immunity: (1) congressional intent in the Bank
Merger Act not to immunize activities from antitrust legislation,
and (2) the lack of conflict between the Bank Merger Act and
Clayton Act standards. Also, there was an absence of continuing
oversight by the Comptroller General of the Currency. These factors
are not present in, and are inapplicable to, the case at bar.
[
Footnote 15]
We note, of course, that judicial review of SEC action is
available under the Administrative Procedure Act, 5 U.S.C. §§ 702
and 704, or under § 25 of the Securities Exchange Act, 15 U.S.C. §
78y.
See also Independent Broker-Dealers' Trade Assn. v.
SEC, 142 U.S.App.D.C. 384, 442 F.2d 132,
cert.
denied, 404 U.S. 828 (1971).
MR. JUSTICE DOUGLAS, concurring.
The Court relies upon three factors -- statutory authorization
for regulation by the Securities and Exchange Commission (SEC), a
long history of actual SEC oversight and approval, and continued
congressional affirmation of the SEC's role -- in holding that the
system of fixed commission rates employed on the securities
exchanges is immune from antitrust attack. While I join that
opinion, I write separately to emphasize the single factor which,
for me, is of prime importance.
The mere existence of a statutory power of review by the SEC
over fixed commission rates cannot justify immunizing
Page 422 U. S. 692
those rates from antitrust challenges. The antitrust laws are
designed to safeguard a strong public interest in free and open
competition, and immunity from those laws should properly be
implied only when some equivalent mechanism is functioning to
protect that public interest. Only if the SEC is actively and
aggressively exercising its powers of review and approval can we be
sure that fixed commission rates are being monitored in the manner
which Congress intended.
Cf. Hughes Tool Co. v. Trans World
Airlines, Inc., 409 U. S. 363,
409 U. S.
387-389 (1973).
The Court reviews at length the history of the SEC's involvement
with fixed commission rates. In light of that history, I am
satisfied to join the opinion of the Court and affirm the judgment
below.
MR. JUSTICE STEWART, with whom MR. JUSTICE BRENNAN joins,
concurring.
While joining the opinion of the Court, I add a brief word. The
Court has never held, and does not hold today, that the antitrust
laws are inapplicable to anticompetitive conduct simply because a
federal agency has jurisdiction over the activities of one or more
of the defendants. An implied repeal of the antitrust laws may be
found only if there exists a "plain repugnancy between the
antitrust and regulatory provisions."
United States v.
Philadelphia Nat. Bank, 374 U. S. 321,
374 U. S.
351.
The mere existence of the Commission's reserve power of
oversight with respect to rules initially adopted by the exchanges,
therefore, does not necessarily immunize those rules from antitrust
attack. Rather,
"exchange self-regulation is to be regarded as justified in
response to antitrust charges only to the extent necessary to
protect the achievement of the aims of the Securities Exchange
Act."
Silver v. New York Stock
Exchange, 373
Page 422 U. S. 693
U.S. 341,
373 U. S. 361.
The question presented by the present case, therefore, is whether
exchange rules fixing minimum commission rates are "necessary to
make the Securities Exchange Act work."
Id. at
373 U. S.
357.
As the Court's opinion explains,
see ante at
422 U. S.
663-667, when Congress enacted the Securities Exchange
Act of 1934, it was fully aware of the well established exchange
practice of fixing commission rates, which had existed continuously
since 1792. Nevertheless, Congress chose not to prohibit that
practice. Instead, in § 19(b)(9) of the 1934 Act, Congress
specifically empowered the Commission to exercise direct
supervisory authority over exchange rules respecting "the fixing of
reasonable rates of commission." Congress thereby unmistakably
determined that, until such time as the Commission ruled to the
contrary, exchange rules fixing minimum commission rates would
further the policies of the 1934 Act. Accordingly, although the Act
contains no express exemption from the antitrust laws for exchange
rules establishing fixed commission rates, under
Silver,
that particular instance of exchange self-regulation is immune from
antitrust attack.