GORDON v. NEW YORK STOCK EXCHANGE

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Argument of Mr. Chief Justice Burger

Mr. Chief Justice Burger: We'll resume arguments Gordon against the New York Stock Exchange.

Mr. Jackson, you may proceed whenever you're ready.

You have 16 minutes remaining of your time.

Argument of William Eldred Jackson

Mr. William Eldred Jackson: Mr. Chief Justice and may it please the Court.

First, if I may, I'd like to deal with two questions from the bench yesterday afternoon.

First, Mr. Justice Stewart asked the question of the petitioner with respect to the legislative history of the Exchange Act, in a particular, a draft which utilized the word uniform, uniform rights and that matter is laid out at pages 20 and 21 of SEC's brief, Your Honor.

Secondly, it has been suggested that perhaps I misunderstood a question of Mr. Justice White with regard to the antitrust situation if fixed rates are abolished on May 1st in accordance with the SEC's directive.

I understood the question to relate to exchanges and I answered that there would be no antitrust liability, obviously, they would not be fixing rates anymore.

But if Your Honors question related to the situation of brokers, members of exchanges, I'd like to make it clear that at least in my view, there is no question that Merrill-Lynch and Bache or other firms got together and fixed the rates between them, they would be subject to the full range of antitrust liabilities and penalties.

Justice Byron R. White: Apparently then the fact that the Commission has authority to the order or to order uniform rates or to order non-uniform rates or to say that there should be no uniform rates and to say that there shouldn't be any exchange rule about it.

The commission's jurisdiction would not be exclusive.

Mr. William Eldred Jackson: Not in the case of members of exchanges fixing rates amongst themselves in my judgment.

Justice Byron R. White: So that the power of the Commission to have a rule under enforcement would not outstand antitrust laws in that area.

Mr. William Eldred Jackson: Not in that area, in my judgment.

It would if the exchanges again reinstituted fixed rates at some time in the future.

And assuming no change in the statute.

Justice Byron R. White: What if the -- what if the exchange had replaced its present rule in accordance with the Commission's directive to say that there should be no -- there is no uniform rate.

Mr. William Eldred Jackson: Yes, Your Honor.

That's the situation I'm addressing myself to.

There would no longer be fixing of rates by the exchange.

Justice Byron R. White: So then you got just a silver -- you got the antitrust remedy could supplement or -- just be unaffected by the security clause.

Mr. William Eldred Jackson: Well, the antitrust remedy would run only against members.

Justice Byron R. White: I understand.

Mr. William Eldred Jackson: Members and would be --

Justice Potter Stewart: -- transpire with each other.

Mr. William Eldred Jackson: That's exactly right, Your Honor.

And the exchanges would be out of the business in fixing rights.

Justice Byron R. White: Even though they're conspiring, it would be contrary to an exchange rule, the antitrust laws could still go.

Justice Potter Stewart: Yes, in that instance, that's my view Your Honor.

Justice Potter Stewart: Your submission is that the Commission's jurisdiction is exclusive over the exchange as such.

Mr. William Eldred Jackson: Exactly, Your Honor, exactly.

And it's that jurisdiction from which we believe that exemption is derived.

Justice William J. Brennan: Yes but if the members violated the exchange rule, the exchange could discipline them.

Mr. William Eldred Jackson: Yes, exactly.

Justice William J. Brennan: And what the fact that the exchange could discipline them does not mean that the antitrust laws would be oust.

Mr. William Eldred Jackson: If the members were conspiring exactly Your Honor.

Justice William J. Brennan: Right.

Mr. William Eldred Jackson: Right.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Really, what you're saying is that if the individual members of the exchange violates some federal law, they are subject to the same penalties as any other cities that violates the federal law.

Rebuttal of William Eldred Jackson

Mr. William Eldred Jackson: Exactly sir.

Justice Byron R. White: Well, the Security and Exchange Commission has no whatever its jurisdiction is, it isn't such as to preclude an antitrust remedy in those -- on those facts.

Mr. William Eldred Jackson: Against members conspiring themselves to violate the antitrust laws after fixed rates, exchange fixed rates are over.

And I just want to make that clear because perhaps I haven't been clear yesterday.

If I may recapitulate, Your Honors, our position in this case which of course deals with past conduct is that the exchanges are entitled to an antitrust exemption.

For this limited area of activity, the fixing of commission rates through implied repeal of the antitrust laws on the twin grounds of first, irreconcilability of the two statutory schemes.

And secondly, because the jurisdiction of the District Courts under the antitrust laws would create a conflict with SEC jurisdiction and would prevent the functioning of the Exchange Act and this presents the different case which this Court reserved in Silver.

Now, Mr. Shapiro yesterday afternoon if I understood him correctly suggested that there might be various degrees of exemption including the concurrent jurisdiction of the courts in the SEC, depending on the type of procedure utilized by the SEC whether it was action or inaction or a formal order or whatnot and it seemed to me that this argument dealt rather much on form over substance.

But in any event, I would suggest that the argument derives no support from either Section 19 (b) of the Exchange Act and certainly not from the implied repeal cases.

Because either the Exchange Act creates an implied exemption or it does not.

I failed to see any room for shades of gray in a matter of that area and it seems to me that certainly the exchanges of this country are entitled to know with some certainty what conduct on their part is lawful and what is not.

Mr. Shapiro also argued if I understood him correctly that there could be no repugnancy in this situation and therefore no exemption until and unless the SEC actually issued a formal order to the exchange to fix commission rates and this is a mirror image, I believe of the what I regard as a concession in the Department of Justice's brief at page 48 that if there were a formal order by the SEC to the exchanges to fix rates, no antitrust liability could arise.

Now, by limiting this concession to a formal order, I would submit that the argument fails to recognize the unique statutory scheme of the Exchange Act and of Section 19 (b) which does not provide for a direct SEC regulation by a formal order.

It is not a public utility type regulatory statute.

It has provided for a system of exchange self-regulation.

The exchanges first themselves on their own initiative adopt rules.

The SEC has the power if it deems those rules objectionable in the light of the statutory standards to first to request an exchange to change them and if the exchange does so, that's the end of the matter.

If the exchange refuses the request, then and only then does the SEC have to proceed by a formal hearing and an order or a rule.

So that the argument which Mr. Shapiro made, it seems to me would in essence re-write Section 19 (b) of the Exchange Act by requiring an order whereas the Act itself indicates that request by the SEC in compliance by the exchange are sufficient to achieve the statutory objectives without a hearing and without an order.

Justice Byron R. White: What about -- what about the situations where nothing has happened, the Commission, the exchange has a rule and the SEC has never addresed itself to it.

Mr. William Eldred Jackson: Now, in that, --

Justice Byron R. White: Although it has the power to do that.

Mr. William Eldred Jackson: Exactly.

In that situation Your Honor, let's assume that.

The exchange adopts a rule.

The -- it has to be pre-filed with the SEC three weeks before it becomes effective.

The SEC looks it over, finds nothing objectionable.

Justice Byron R. White: Well, it doesn't say a word.

Do you know when it does or not?

Mr. William Eldred Jackson: Well, it has the power as you've indicated and it has the duty I would submit under the statute to request and if request is refused, to order the exchange to change it if it doesn't comport with the statutory standards.

Justice Byron R. White: Well --

Mr. William Eldred Jackson: So that --

Justice Byron R. White: -- do you accept the test in Silver that there is immunity where some rule is essential to the effectuation of the Act?

Mr. William Eldred Jackson: I do not accept that test because I do not believe that is the test that this Court laid down in the Silver case.

Justice Byron R. White: What do you think the test was there?

Mr. William Eldred Jackson: Well, in the Silver case as I read it, what this Court was saying was this.

What may be necessary to make the act work in a given case would be implied repeal of the antitrust laws.

It did not say, as I read it, what might be necessary to make the Act work would be a particular rule or practice of an exchange.

That sir, in my judgment, is where the fill court, the Seventh Circuit, went off the tracks.

Justice Byron R. White: But within, the -- in that effect -- your position as to then that anything the SEC, any rule the SEC fails to disapprove is automatically immune from antitrust attack?

Not regardless of its position, its overall position in the Act and regardless of whether or the SEC might say, “Well, it just isn't harmful.”

Mr. William Eldred Jackson: That certainly is my position Your Honor and it's because of the existence of the SEC's jurisdiction and also because I don't understand the fundamental justice and fairness of holding an exchange liable for trouble damages for doing something that a Government agency has power to stop but does not stop and I think that there is an exemption in those circumstances.

I think there's an exemption --

Justice Byron R. White: That's entirely a different rule.

Mr. William Eldred Jackson: Well, it comes --

Justice Byron R. White: Do you find that in Silver or --?

Mr. William Eldred Jackson: I find that this may be --

Justice Byron R. White: Find it in statute, I guess.

I suppose that's your --

Mr. William Eldred Jackson: Well, I think I analogize it to Parker against Brown which was argued yesterday.

It comes close to Government action.

Its inaction but to me it has the effect of action because the hand is withheld when the hand could have been stretched out and stop the action by this private party but instead the Government agency doesn't do so.

Justice William H. Rehnquist: You're saying it's something more than the Government just not discovering some wrongdoing or some of that very sufficiently small number of exchanges that the SEC presumably is cognizant of what they're doing.

Mr. William Eldred Jackson: Precisely, Your Honor and the exchange -- the SEC does know because rules as I said have to be filed in advance for scrutiny and if there's something wrong in our rules, such as the commission fixing rule, they can say, “Stop it.”

And as a matter of fact, they have said “Stop it” as of May 1st.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Are you arguing that this is a sort of de facto approval when they failed to disapprove after notice?

Rebuttal of William Eldred Jackson

Mr. William Eldred Jackson: I would argue that it has the legal effect of approval since they have the effect to -- the power to disapprove.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Are there not some statutes relating to regulatory agencies which provide a mechanism that -- like the filing of a tariff which had not disapproved goes into effect?

Rebuttal of William Eldred Jackson

Mr. William Eldred Jackson: Yes, Mr. Chief Justice.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: In areas other than tariffs?

Rebuttal of William Eldred Jackson

Mr. William Eldred Jackson: Well, I'm certainly aware of that procedure for tariffs.

I believe under the Interstate Commerce Act and if I'm not mistaken perhaps also under the Shipping Act but that is not the same as the procedure in this case because those tariffs as I understand those acts require some affirmative action by the agency.

In this case, the structure of the statute is such that no affirmative action is required in order for the exchange rules on whatever subject to become effective.

Affirmative action by the agency is required only to set them aside and therefore, in action, has to me as I said the effect, the same effect as affirmative action and the result should be the same in terms of antitrust exemption, I would submit.

The -- in effect that the result of Mr. Shapiro's argument would mean this that in order to avoid antitrust liability, an exchange would have to refuse a request from the SEC even though it was perfectly willing to do what the SEC asked it to do and precipitate a hearing, precipitate an order and then at last come to rest with its absolution and I submit that that would be a charade, a sham and hardly a usual exercise.

Justice Byron R. White: Of course there's a -- there's something beyond -- I don't suppose this Court is necessarily bound by Mr. Shapiro's concession.

Mr. William Eldred Jackson: Of course not.

Justice Byron R. White: Either?

Mr. William Eldred Jackson: Of course not.

Justice Byron R. White: And part of his argument of course has been that even that the SEC approves either arguably that the SEC approves it has no authority at all to immunize under the antitrust law, so that it has no responsibility for competitive considerations that if it disapproves that wholly within the scope of the security's laws and has no eye to and no authority with respect the antitrust laws.

Mr. William Eldred Jackson: Well, I --

Justice Byron R. White: That's been the whole lead in some other context with some other agencies.

Mr. William Eldred Jackson: Well, on the other hand, Your Honor, the -- I think it's quite clear under this Court's decision and I believe Gulf Utilities that the public interest standards which are embraced in the Exchange Act 19 (b) would include competitive considerations and I say also that those considerations have been considered by the SEC in the past as is reflected in this record.

In fact, going as far back as 1941 in the multiple trading case where they brought a proceeding against the exchange on anticompetitive grounds.

Those factors have been considered and as I said yesterday, they have been considered with the active assistance of the Department of Justice which is intervened in the hearings which the SEC has held under subject.

Now, I would submit Your Honors that the argument of Mr. Shapiro means that if there can be exemption only where there's an order there is no exemption and this would repeal the doctrine of implied repeal and would result in endless litigation rather than regulation.

Thank you Mr. Chief Justice.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Very well, Mr. Jackson.

Mr. Nerheim.

Argument of Lawrence E. Nerheim

Mr. Lawrence E. Nerheim: Mr. Chief Justice and may it please the Court.

To the extent that time permits today, I would like to present the Commission's views on the issue in this case by discussing three points and in doing so, address myself to some of the questions asked by this Court yesterday.

The first point is what is the regulatory scheme of the Exchange Act and how did Congress deal with the question of fixed commission rates in that scheme?

The second is how does that regulatory scheme actually work at the SEC and what has the SEC been doing for the last 41 years in dealing with the question of fixed rates?

And third, why to use this Court's expression, we believe a plain repugnancy exists between two regulatory regimes and why the regulatory scheme of the Exchange Act simply will not work as Congress intended it if antitrust courts are given the opportunity to substitute their judgments for the reason to regulatory judgment of the Commission.

Justice Byron R. White: Don't you think the decisions to whether there's repugnance?

Mr. Lawrence E. Nerheim: This Court.

Justice Byron R. White: Oh what's the matter with the exchange?

Mr. Lawrence E. Nerheim: The exchange --

Justice Byron R. White: You don't claim that authority.

Mr. Lawrence E. Nerheim: No we don't, Your Honor.

Justice Byron R. White: But why not?

Why not?

Mr. Lawrence E. Nerheim: We don't claim the authority to determine a repugnancy issue.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Well, in the first instance, you have to make a decision, do you not?

Rebuttal of Lawrence E. Nerheim

Mr. Lawrence E. Nerheim: Well, on the first instance, Your Honor, we applied the standards of the Act.

The public interest standards of the Act and we do consider competitive considerations but we also consider other economic considerations, regulatory considerations and the other considerations under the Act and then take action.

And we believe that's the Commission exercising its jurisdiction and we do not believe that then our action should be attacked collaterally in an antitrust action.

The Congress gave the Commission specific authority under the 34 Act to do several things.

It gave it specific authority to adopt rules, mandatory rules concerning financial responsibility, concerning borrowing practices, concerning manipulative and deceptive practices and concerning practically every other important thing in dealing with investor protection.

And the Congress also gave the SEC authority to register stock exchanges, to police stock exchanges and to require amendments to their Constitution and by-laws as the commission determines necessary in the interest of investor protection.

Now, at Section 19 (b), Congress gave the Commission jurisdiction to supervise rules and required changes in exchange by-laws and rules and regulations in such matters as 12 enumerated categories in similar matters including specifically the authority to regulate the fixing of fixed commission by exchanges.

And that subject to fixed commissions by exchanges had been 142 years old in 1934 when Congress addressed itself to this issue.

Congress argued as to how to regulate that practice not whether they should be outlawed.

Congress chose to regulate the practice by subjecting it to the jurisdiction of its new federal agency like so many other things it did.

Now, in the Act, Congress gave the Commission a variety of regulatory tools.

It gave the Commission authority to adopt rules and impose them upon the industry.

It gave the Commission authority to conduct investigations, hold hearings and make recommendations to the industry and expect them to follow the recommendations.

It gave it authority to supervise these rules and to require changes.

It gave it authority to issue demand letters which are called the 19 (b) letters of request in effect are demands.

And lastly, it gave it the ultimate club by giving the Commission authority to withdraw or suspend the registration of an exchange for failure to follow the commission rule, order or regulation.

That is the regulatory scheme we're talking about today and it is the regulatory scheme that Mr. Justice Blackmun analyzed in the Ware case just 15 months ago in talking about the kinds of direct supervisory authority the SEC had and then other areas like Ware, like Silver but in that case analyzed that there should be a repealer when we are talking about an area over which the Commission has direct supervisory jurisdiction which we think is this case.

Now, yesterday, a question was asked by Mr. Justice White about the Commission's authority to take action against a member of an exchange for violating an exchange rule and that -- and the question to that -- and the answer to that question is that there are four parts to it.

The Commission does have authority to take action directly against a member if the member violates the Exchange Act or an SEC rule or regulation.

It doesn't specifically refer to exchange rules.

The SEC does have specific power under Section 15 (b) of the Exchange Act to revoke the authority of a member to do business in the security's industry if it violates certain conduct in that fashion but again it doesn't specifically refer to exchange rules.

Thirdly, if that conduct in violating an exchange rule, also violated another rule of the Commission or of the statute then the Commission has direct authority under Section 21 to bring an injunctive action against that member for violating a statute or a rule and regulation of the Commission.

And then lastly, of course, the commission has the authority under 19 (a) (1) to withdraw the registration of that exchange for failure to comply, or forced compliance by its members of its own rules which the Commission did in 1966 revoke in the registration of San Francisco Mining Exchange for among other things just that, failing to require compliance by exchange members.

The question was also asked yesterday and Mr. Jackson came back to it today and I think the Commission would like to make its position clear on the question of what happens after May 1, 1975 when we have said there shall be no practice of fixed rates.

We --

Justice Potter Stewart: What happens if two or more members of the exchange agreed together to have a raise?

Mr. Lawrence E. Nerheim: Precisely, we were a little bit puzzled yesterday by Mr. Jackson's comment but today we agree completely that after May 1st, if we have adopted a rule as we have that there shall be no -- that the exchanges shall have not rules requiring their members to fixed rates and if the members thereafter do agreed to fix their rates, high or low or wherever, we do not claim that the existence of the Exchange Act, the presence of the SEC repeals or exempts antitrust application of that situation, nor indeed would we if members did something like that today even in a fixed rate environment because members can charge more than the minimum commission rate.

Justice Potter Stewart: That is today if members -- couple of members of the exchange agreed to divide their markets or --

Mr. Lawrence E. Nerheim: Exactly, it's another example Mr. Justice Stewart.

Justice Potter Stewart: That would be clearly amenable of the antitrust laws in your suit.

Mr. Lawrence E. Nerheim: And we agree and we would not claim any repealer of that kind of anti-competitive conduct.

Justice Byron R. White: Would you claim -- let's assume that the claim was that the exchange was conniving with those conspirators, how about the liability of the exchange?

Mr. Lawrence E. Nerheim: We -- if there was an allegation of conniving or conspiracy by the exchange of its members, we would say the mere presence of the SEC or its jurisdiction would not exempt the antitrust application.

Justice Byron R. White: And so today, -- so today, if there were some -- if two or three of the -- any kind of the conspiracy then among the members today under the present, even under the rule that did set minimum rates, if members conspired either to charge higher or lower prices than then, you wouldn't think -- you would say that the antitrust liability.

Mr. Lawrence E. Nerheim: Yes, we would Your Honor.

There would be antitrust liability there because we do not believe that application of the antitrust laws collides or conflict with our jurisdiction in that case, but we believe that supplementary and complementary toward jurisdiction.

We are concerned about those acts and practices and rules which exchanges and their members operate under which are consistent with our jurisdiction and consistent with our policies, not inconsistent.

Now, the second aspect of our presentation is to just describe how this process under this regulatory scheme works in practice.

Our brief in our documentary appendix go into detail to describe the steps taken by the SEC over the last 41 years, most particularly the last 15 years in reviewing, proving, modifying, changing and finally eliminating the practice of fixed rates.

These studies contained in practically the entire documentary appendix and indeed most of the appendix of the petitioner, these studies, hearings, investigations, 19 (b) letter, demand letters have resulted 1968 in the introduction of a volume discount by exchanges.

They resulted in the introduction of a non-member discount in 1971, permitting persons who are not members of the exchange to get a 40% discount from the public rate.

The exchanges in that situation that come in with a rule proposing a 30% non-member discount and we said no.

It had to be 40% and the exchange adopted a 40% discount.

That's how this process works.

These studies and these letters also resulted in the elimination of the give up practice in 1968 at the SEC insistence.

These policies and these procedures resulted in the elimination of fixed rates for under $2,000.00 and for over $500,000.00 and then for over $300,000.00 all of which came at the insistence of the SEC through these informal procedures, 19 (b) letters if you will.

Now, we heard yesterday that the Commission should act by order and that the antitrust laws would not apply if the Commission ordered these things.

I suppose we could issue orders on every single rule but that isn't the way the Exchange Act intended us to operate.

The --

Justice Byron R. White: Suppose the -- suppose an exchange files a rule with you and you look at over and you don't think it requires any approval or disapproval or you just don't take any action?

You say that's tantamount to an approval.

Mr. Lawrence E. Nerheim: Yes, we --

Justice Byron R. White: Even though you issued an order.

Is that -- how can anybody get review of that?

Mr. Lawrence E. Nerheim: Well, let me -- may I first answer the first part Mr. Justice by saying, we simply don't file these rule changes in a drawer and forget them.

Justice Byron R. White: I get that and I understand.

You've already answered that I think earlier.

Mr. Lawrence E. Nerheim: Alright, so that when there is this procedure by the SEC, do not disapprove because we believe that the rule change is consistent with the Act.

That we believe is agency action and as the --

Justice Byron R. White: As long as it's consistent with the Act, do you say that --

Mr. Lawrence E. Nerheim: No.

Justice Byron R. White: As long as it's consistent with the Act do you think that it's -- that it ought to be?

Mr. Lawrence E. Nerheim: We say that it ought to be but we believe that that is agency action and is reviewable under the Administrative Procedure Act and the circuit court --

Justice Byron R. White: How do you ever know when that happened?

Mr. Lawrence E. Nerheim: When the agency took the action.

Well, if you're following the developments of exchanges with respect to rule changes, you would know when they put into effect the rule change.

Justice Byron R. White: And how do we -- how would you know when you decided not to do anything about it?

Mr. Lawrence E. Nerheim: Well, it would be -- it would be at that point because if a rule change comes in, and we have a reason to question it, we would then notify the exchange and we suggest you not adopt that rule or you drop another rule.

Justice Byron R. White: When -- are there administrative agencies when they have some authority to take any consideration, competitive considerations, you have a hearing and you get the -- somebody has a chance to present the agency some of the competitive considerations.

None here, zero and you say it's not reviewable, would it be reviewable on administrative record or get at a new lawsuit or what?

Mr. Lawrence E. Nerheim: It would be reviewable under District Court, Your Honor.

Justice Byron R. White: Who would you sue?

Mr. Lawrence E. Nerheim: We wouldn't sue anyone but Mr. Bader would sue as he has before testing our jurisdiction.

Justice Byron R. White: Well, as I understood in the -- with all about six times and it wasn't reviewable.

Mr. Lawrence E. Nerheim: Well, it isn't quite that bad, Mr. Justice.

The last time --

Justice Byron R. White: -- give me some advice here.

Mr. Lawrence E. Nerheim: Yes I'd like to.

Justice Byron R. White: Right now.

Mr. Lawrence E. Nerheim: I've gave him the same advice we gave him in the Second Circuit Court of Appeals in 1974, the last time he sued.

Well, he brought just such an action, attesting the agency's non-disapproval of an exchange rule and he brought a direct appeal on the Second Circuit under Section 25 (a) of the Exchange Act which calls for direct appeal in the circuit courts for --

Justice Byron R. White: Is that a de novo thing?

Can you make a new record there?

Or do you -- are you stuck with your record?

Mr. Lawrence E. Nerheim: You're stuck with record.

But the --

Justice Byron R. White: Which is only the rule here, a letter a came in and gave you the rule and that's it.

Mr. Lawrence E. Nerheim: Well, but the point Mr. Justice is this that in that case, we suggested to the Second Circuit that this was not an order just as the Third Circuit find in the PBW case that our rule was not an order within the meaning of Section 25 of the Exchange Act.

We suggested to the Court that Mr. Bader had an action in the District Court on the basis of agency action which he did not pursue.

He did not then go to the District Court.

Justice Byron R. White: In your view, could he present evidence?

Could there be an evidentiary hearing in the District Court or not?

Mr. Lawrence E. Nerheim: Under that circumstance, I would say yes

Justice William H. Rehnquist: Well, the Administrative Procedure Act provides, doesn't it that if there has been no record made in the agency, you're permitted to make one in the District Court?

Mr. Lawrence E. Nerheim: I believe it does Mr. Justice and of course if the record consisted of a rule proposal in a non-disapproval, there wouldn't be much of a record and I think in that case, there would have to be a record and I'm sure that the Department of Justice would be an active participant in a hearing.

Justice Byron R. White: Well, you have instructed us with the record before you.

Mr. Lawrence E. Nerheim: No, I would not believe so in that case.

I just wanted to conclude that part of my remarks by saying that in the PBW case in the Third Circuit 1973, in an independent broker-dealer case in 1971 in the Circuit Court of Appeals for the District of Columbia, those two circuits analyzed exactly how this regulatory scheme works, talking about the jurisdiction, how this informal assortment of regulatory tools are intended to operate and both concluded that is the way the Exchange Act is intended to work and the agency should not be required to resort to formal hearings, mandates and orders unless the exchange refuses to cooperate.

And that we believe is what happened in this case and that's what we have before us.

I'd also like to say that we believe that the record in this case is replete with example after example, of what the SEC has been doing in this situation and the Department of Justice's reply brief at page 6 which was filed on a Saturday but suggests that the SEC has done nothing with respect to the practice fixed commission rates until September 1973 but merely tolerated the practice is we believe shockingly disingenuous.

The last point gets to the issue of plain repugnancy and as I've indicated, this Court had that question before it in Silver, and analyzed the commission's regulatory jurisdiction again more thoroughly in Ware where there, Mr. Justice Blackmun speaking for a unanimous court said that these kinds of measures and rules by exchanges authorized by the commission are designed to ensure fair dealing and to protect investors and are the kind directly related to the Act's purposes.

And we believe that we are talking about it in essential ingredient in the Exchange Act in this case and in Silver which was a particular enforcement of an exchange rule, this Court spent five pages of its opinion reciting rule after rule after rule over the exchange everyone of which was anti-competitive and then said that those rules were designed to meet the standards of the Act but that there will be no repealer in that case because the SEC didn't have jurisdiction over the particular enforcement of that situation.

But that a different case would be presented when this Court was faced with a rule over which the SEC does have jurisdiction and if there was ever a classic different case, we believe that this is that case.

Justice Potter Stewart: Your brothers on the other side of the rostrum take a good deal of comfort from the Ricci case saying that that answered the question left unanswered in Silver.

What do you have to say with that?

Mr. Lawrence E. Nerheim: Yes, they do and we think that they have misread Ricci, Mr. Justice.

Ricci involved a withdrawal of a membership on the Chicago Mercantile Exchange and this Court's opinion said that there were facts that had to be resolved in that dispute, had Ricci voluntarily given up his membership?

Did Segal have a lien of shares?

Did Ricci owe Segal brokerage fees and was the withdrawal of the membership or the taking away of the membership consistent with a valid rule of the exchange?

Said this is something that should be sent to the Commodity Exchange Authority for decision on the facts.

And after the facts are in, we will decide if there is an implied repealer because if the membership was taken away pursuant to an invalid rule or taken away improperly, then the implied repealer question goes away.

The antitrust case should proceed but if it was taken away from him --

Justice Potter Stewart: Stay away contrary to a valid rule, say.

Mr. Lawrence E. Nerheim: Then the antitrust court action proceeds.

Justice Potter Stewart: Right.

Mr. Lawrence E. Nerheim: And as the Chief Justice indicated in that case, the Silver case was clearly not before it in Ricci and we agree.

We think this is -- we believe this is a situation where the District Court properly applied Silver.

We believe that the Second Circuit properly applied Silver and we respectfully urged this Court to affirm the lower court.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Thank you, Mr. Nerheim.

Mr. Bader.

Argument of I. Walton Bader

Mr. I. Walton Bader: May it please, Your Honor.

May I first point out to the Court that based upon everything that has been said here, it is my feeling and belief that in fact, the record in this case before this Court is completely inadequate to make a proper determination and I think that really what should be done in this case is to send this back to the District Court for a full and complete trial.

They could erase the question of the antitrust immunity involved, the position of the stock exchange, the position of the SEC are completely different.

Interestingly enough, Mr. Nerheim now tells me that if I started a District Court action against the SEC in connection with the stock exchange rules that that District Court action would not have been subject to a motion to dismiss but we did start such an action and with Civil Action 1984-71 of the United States District Court for the District of Columbia and as pointed out on page 6 of my brief, the SEC did make a motion to dismiss on the ground that the District Court had no jurisdiction, that motion was granted.

Now, perhaps the SEC has taken a different view at this point but I don't think that a plaintiff in this should have to come all the way up to the Supreme Court to obtain a change in the rule.

The fact remains that the procedures that the SEC has for the review of their so-called non-objection to stock exchange rules are now, are basically not reviewable by any court and if you try the circuit court, you're dismissed on the ground that it's not an order.

If you tried at District Court, you're dismissed on the ground that there are other considerations involved which make that inappropriate.

And I submit that without a consistent means for the public to proceed in any of these agency determinations that as a practical matter, such an agency determination could not repeal the antitrust laws and as matter of fact, there might be some serious due process violations involved as well.

Now, basically, as far as this Court has determined under the Silver case, it seems that the exemption in each case has to be considered under the facts that are involved in the particular case and under the facts that are involved in this particular case, I submit to the Court that if the record is considered by the Court to be complete that there is no such implied exemption of the antitrust laws.

I point out for example that let us assume that the stock exchange provided for a rule which similar to it, I believe Mr. Justice Stewart mentioned, that let us say the rule provided for a division of markets and we'll assume that the SEC does not object to that rule for one reason or another.

Is the position of the defendant now in this case that such a clear violation of the antitrust laws would now be insulated?

Or let us go to something else.

Let us suppose that the SEC has a rule now abolishing fixed commission rates as they do.

Two exchange members get together now and go ahead and determine that they are going to fixed commission rates regardless.

Mr. Nerheim has said and Mr. Jackson has said quite correctly that that would not be exempt from the antitrust laws.

However, since this is now a violation of the SEC Act, we are now met with a situation where there are a number of cases holding that if you sue under antitrust counts for a violation of the anti -- of the SEC Act, that at that point, you're only entitled to single damages and not triple damages.

So that what I'm pointing out to the Court is that you're ending up into a plethora of problems.

The proper regulatory scheme as the plaintiff submits and I so believe justice submits is that any particular regulatory scheme which is tended to be a claim exemption from the antitrust laws must be considered in each individual case.

Now, what actually happens that in so far as fixed commission rights, there has been no significant agency action taken in this case except now after some 41 years.

Now, furthermore, the SEC grants any of their requests that it may -- of files a Rule 19 (b) request, there is no public participation in such request.

Now, to say that that can now be reviewed by a member of the public now coming in and bringing a suit in the District Court and getting into a full dress trial would belie the entire administrative process.

This means now that there is no way to come before the SEC first and say to the SEC gentlemen, this rule that is being proposed has serious anti-competitive effects.

The normal rule of exhaustion of administrative remedies, it would seem to me, would be completely violated by permitting such a procedure and since there is no mechanism for public participation in connection with such a rule, it seems to me that such a statutory scheme cannot be held to be regulatory authority and violated and not immune from the antitrust laws.

As a matter of fact, this is precisely what ought to tell held.

And it seems to me that this case is almost directly analogous to ought to tell.

Also, I point out to the Court that there has been never any SEC order of any kind ordering any fixed commission rates.

The only SEC order that has been imposed, has been made has been the order now that fixed commission rates shall be phased out.

Now, let us suppose that the SEC now determines after let us say the 1st of June and the 1st of July, that fixed unblocked rates have not worked out and the stock exchange now presents a proposal for fixed rates, the SEC now goes ahead and permits that fixed rate order to go in without any review, without any hearing, without anything of that sort going on.

Now, I as a member of the public do not have any right to make my views know to the SEC.

I must now go ahead to the District Court of the District of Columbia, bring an action with respect to this and I have the entire burden on myself of a full-dress trial with the SEC no longer in a position where I am attempting to convince a regulatory agency to take certain action but as an adversary to the regulatory agency and I submit that that is not the proper regulatory practice.

I thank the Court for its consideration.

Rebuttal of Mr. Chief Justice Burger

Mr. Chief Justice Burger: Thank you gentlemen.

The case is submitted.

Print this transcript Transcript: 

Argument of I. Walton Bader

Chief Justice Warren E. Burger: We'll hear arguments next in 74-304, Gordon against the New York Stock Exchange.

Mr. I. Walton Bader: Hold on.

Thank you sir.

Chief Justice Warren E. Burger: Mr. Bader, I think you may proceed whenever you're ready.

Mr. I. Walton Bader: Mr. Chief Justice and may it please the Court.

This case involves the legality of the fixed commission rates which have been charged by brokerage houses in a security business since the Buttonwood Tree Agreement in 1792 which of course antedates the passage of the Sherman Antitrust Act in the 1890's.

The minimum fee schedules charged by the securities industry brokerage houses, thus, the longest sustained conspiracy in restraint of trade that this country has ever seen.

In 1792, the brokerage community got under a Buttonwood Tree and they agreed that they would do the following things.

They first would have minimum commission rates which would be charged and that no broker would have the right to charge to meet the fixed minimum.

If the broker in fact charged beneath the fixed minimum, he would be expelled from the exchange so that we had at that time a clear per se violation of the antitrust laws but of course that wasn't the per se violation of the antitrust laws at that time because the Sherman Act hadn't been passed.

Justice Potter Stewart: Where was the Buttonwood Tree down in the Wall Street?

Mr. I. Walton Bader: Down in Wall Street, it was a tree, Mr. Justice Stewart that was I think somewhere around the present area of Bowling Green, Manhattan but I don't want to be pinned down to that.

In 1890, the Sherman Act was passed.

That didn't affect the practice of the brokerage community in charging fixed rates of commission and apparently the reason for that was that the requirements of interstate commerce at that time had not been broaden by this Court and the decisions that were passed during the Roosevelt and New Deal era.

And therefore, that was considered to be a mere local problem which would not fall within the reach of the antitrust laws.

In 1934, the Securities Act was passed and in 1934, the Pujo Committee which was considering the passage of the Securities Acts consider the practices of the stock exchanges which had been charging fixed rates of commission in accordance with the Buttonwood Tree Agreement.

And the -- there was discussion at that time that the fixed rates of commission again because of the restrictive decisions of interstate commerce that had been in effect at that time would probably not go and fall within the reach of the antitrust laws.

But now in the securities exchange --

Justice William H. Rehnquist: Well, Mr. Bader, what grant of authority was Congress legislating under to regulate the Securities and Exchange Commission in 1934, wasn't that the commerce power?

Mr. I. Walton Bader: Yes, that's true Mr. Justice Rehnquist but the question of fixed rates of commission there had been a discussion in the Pujo Committee, that does appear in the Attorney General's brief where that legislative history is set forth where apparently the Pujo Committee had felt that the legislation with respect to Commission rates might possibly be beyond the Commerce power of Congress.

I don't think we have to go that far.

I think the legislative history amply determines as I will point out in my subsequent argument Mr. Justice Rehnquist that the fixed rates of Commission are per se illegal and that Congress never intended to give the Securities and Exchange power -- Exchange Commission regulatory power over commission rates which I will get to in a moment.

Now, the Securities and Exchange Act basically says that unless there is a specific provision repealing any other statute with respect to the protection of the public and the protection of investors that this -- the Securities and Exchange Act will not repeal such prior statutory enactment.

However, the Securities and Exchange Act does have a provision in it which is Section -- I believe its 19 (b) and Section 19 (b) (9) and that Section provides that under certain conditions which I will allude to a little bit more fully in my subsequent argument.

The Securities and Exchange Commission has the right to fix reasonable rates of commission.

Now originally, the proposal that had been put into that Section was to fix uniform rates of commission.

The word “uniform” was subsequently taken out and the word “reasonable” was placed therein.

Now, it is absolutely clear and I think that none of the other parties arguing this matter will deny that if the Securities and Exchange Act of 1934 had not been passed and that if the practice of the Stock Exchanges and the brokerage members thereof in fixing reasonable -- in fixing minimum rates of commission were before this Court at this time.

There would be no question that there would be per se violation of the antitrust laws involved.

We have here a conspiracy in restraint of trade and with a penalty that if you fail to maintain the minimum rates of commission that you become expelled from the exchange.

However, the exchange is contend and the lower courts in this case also found that because of the supervisory ability of the Securities and Exchange Commission in fixing the various matters in which the exchange community does business.

Therefore, there is a different method of regulation proposed for securities' transactions than there is in the normal course of commerce and that whereas I, in selling various widgets in the marketplace, must abide by the antitrust laws.

I, as a member of the Securities and Exchange brokerage community do not because there is another method of regulation to protect the public interest namely a Securities and Exchange Commission which is standing over the head of the brokerage industry and ensuring fair dealing to the public.

Now, Your Honors are well aware of course of the large amount of literature that has been written about the effectiveness of regulatory oversight over an industry and that in general regulatory oversight of an industry is considerably inferior to the regulation by the laws of the marketplace.

What happens of course is that the regulatory agency gets its input primarily from the industry regulated whereas the public normally does not have the ability to put that input into the agency.

But interestedly enough the defendants in this case argue for even a more less stringent rule.

They say, “We are a self-regulatory agency.”

The SEC merely has supervisory authority over our self-regulation and not -- but despite that, despite the fact that we are not subject to regulation such as for example the railroads are, or the airlines are, or the other regulatory segments of the -- are mentioned economy are.

We're still exempt from the antitrust laws and that is what the District Court in effect found and that is what the Circuit Court in effect found and I submit to this Court that that is not correct.

As a matter of fact, in this particular case, the Securities and Exchange Commission really did nothing effectively against fixed minimum commission rates until this action was started.

When this action was started, then the Securities and Exchange Commission did start considering the particular problem with respect to minimum commission rates.

And the first time around when we participated in a proceeding before the Securities and Exchange Commission, we of course said that that fixed minimum commission rates were bad in connection with the public interest and we present the various arguments to the Commission.

The Commission nevertheless agreed to a certain fixed scale of commission rates which the Stock Exchange had requested.

We went to the Circuit Court of Appeals for the Second Circuit attempting to review that under the Securities Act provision with respect to review.

The Securities and Exchange Commission brought on a motion to dismiss and that was in docket 71-1924 which was before the Circuit Court of Appeals for the Second Circuit and then in effect the Securities and Exchange Commission said to that Court, “We have not issued any order, we've not told the Exchanges to do anything.

All we said is that we wouldn't object to this particular commission rate being in effect.

And therefore, you have no right of judicial review.”

This is not an order.

And therefore, this does not fall within the ambit of review granted to you under the Securities and Exchange Act of 1934.

So, we went ahead and we went down to the District Court for the District of Columbia.

We said, “Well, maybe there are trying to proceed in accordance with the manner of the independent broker dealer's case maybe we're in the wrong court.

Maybe what we really should do is go after the determination is not constituting an order but constituting a determination which we want to review.”

We proceeded in the United States District Court for the District of Columbia.

The SEC promptly filed the brief to dismiss and in -- and as I quoted on page 6 of my brief the Commission in effect said, “However, the question of the type and extent of immunity that may flow from Commission determinations regarding exchange rules need not to be decided in this case.”

The appropriate form for resolution of that question is an antitrust action against the self-regulatory organization challenging its rules or the administration of such rules indeed plaintiffs recognize that they may seek the challenge exchange rules directly.

They have instituted suit against the New York Stock Exchange for this very purpose which is this action which is now pending before this Honorable Court.

The SEC while this action was pending then made a further study of the commission rate structure and based upon the further study, they permitted fixed commission rates to remain in effect and accordance with the proposal that the New York Stock Exchange had submitted and which we opposed in another proceeding before the Commission.

And the Commission at that point while determining that their jurisdiction was in effect and that they would on May 1, 1975 mandate the end of fixed commission rates.

They nevertheless held that prior to that time essentially the proposal presented by the New York Stock Exchange for maintaining fixed Commission rates would be permitted to stand.

We again went to the United States Circuit Court of Appeals for the Second Circuit again, the SEC came in and said, “This is no order, you can't review it.”

The Court of Appeals for the Second Circuit without opinion again dismissed the petition.

And again, we had no judicial review.

Meanwhile, this case was coming along, we went to the Second Circuit Court of Appeals with respect to this determination.

The Second Circuit Court of Appeals came along and said, “Well, we feel that the fixed commission rates as under the oversight of the New York Stock Exchange constitute the appropriate administrative regulatory authority and therefore, constitute the “different case” that this Court held to be involved in the Silver case where they held that there was no specific antitrust immunity with respect to the New York Stock Exchange or with respect to matters that the self-regulatory agency carried out but nevertheless, there might be an area of immunity if it was necessary to make the Securities Act work.

Well, the Circuit Court of Appeals said that this is the different case necessary to make the Securities Act work and they therefore, held that there was no antitrust liability on the part of the defendant exchanges.

Interestingly enough, the Circuit Court of Appeals said, “We do not say that the petitioner does not have an appropriate form for judicial review.”

How we are supposed to get judicial review is something I don't know.

We've been in six courts already and we still haven't got judicial review.

Now, I say this to this Court, first, the court has held in the Silver case that the self-regulatory agencies such as the Securities industry does not have a blanket immunity from the antitrust laws.

So that the immunity in each case must be considered on a case by case basis.

This is not the different case that is necessary to make the Securities Act work.

The fixation of commission rates by the Securities and Exchange Commission is not necessary to make the Securities Act work.

Justice Byron R. White: Let's assume the commission had set a schedule of fees ordered it into effect.

Mr. I. Walton Bader: Yes, a schedule of minimum fees?

Justice Byron R. White: Yes.

Mr. I. Walton Bader: I don't think they have -- I don't think they would have a power to do it.

I think that what they would have to do --

Justice Byron R. White: Let's assume that it did had the power to do it then, up today it hasn't done it but then all of the sudden it does ordered into effect, would you then say that the antitrust division would be put on a business for awhile at least?

Mr. I. Walton Bader: That's a very interesting question.

Justice Byron R. White: Yes, it is.

Mr. I. Walton Bader: It's a very interesting question.

Justice Byron R. White: But you say that it is until it does that there is no -- it isn't necessary.

They haven't done it and it's so it can't be necessary?

Mr. I. Walton Bader: Well, that's precisely it.

That is precisely what I do say and I say that the act furthermore does not provide for the fixation of rates of commission.

It says, “To fix reasonable rates of commission.”

Now, this is the reason why it was done in my opinion but of course I'm not a -- I was not in Congress at the time and I don't have the wisdom to know that Congress really intended.

But when Congress took the word “uniform” out and put the word “reasonable” in I would think that it would be logical to consider that what Congress really wanted to do was this, they wanted the market place to fix commission rates.

However, if the market place for one reason or another didn't do it properly so that the rates were excessive then I think the Securities and Exchange Commission could come in and fix the rates.

And the reason for it is that the fixation of rates here is not the usual fixation of rates that is provided for in the normal regulatory statute.

And the normal regulatory statute, the regulatory agency holds hearings to determine what a reasonable rate is to be such as the Federal Power Act and the utility involved attempting to justify a rate comes in with their cost data, comes in with their fixed rates, their fixed expenses, the public who opposed the rate increase come in and attempt to argue against this and the agency then makes the determination.

This isn't the way this is done.

In this case, the Commission has to first ask the exchange to supplement its rules.

Then, if the exchange doesn't do it, then the Commission can go ahead and order a hearing and after that hearing can direct the exchange to do it with the exchange then having the right of normal appeal review.

I think that in my opinion for whatever its worth and it's probably not worth very much that the determination here was only with respect to excessive rates of commission and that the minimum rates of commission that were involved here at this point are of course not excessive rates of commission.

Justice Potter Stewart: Do I remember correctly from being in the briefs that the change from the word “uniform” to the word “reasonable” was made after some testimony by Mr. Samuel on or by before the Committee?

Mr. I. Walton Bader: Yes, sir.

Justice Potter Stewart: In which he took the position that what, do you remember?

Mr. I. Walton Bader: I believe he took the position that there was a question as to whether or not the Commission did have the right to determine to fixed commission rates in view of the none interstate aspect of the stock brokerage commission field and view of law and development of law at that time sir.

Justice Potter Stewart: And there was a -- beyond that is a -- is there any legislative history that you know of explaining the word “change” from “uniform” to “reasonable”?

Mr. I. Walton Bader: Not that I know, all I can say is that I have attempted to find that my learned colleague from the SEC is attempted to find that, my learned colleague from Department of Justice attempted to find that.

I think we've had one of the most thorough expositions of the law that anybody could hope for and that's all we've been able to come up with.

Justice Potter Stewart: This testimony and then the subsequent --

Mr. I. Walton Bader: And the subsequent change.

I'm not sure whether or not the legislative history is really necessary in this particular case to make the determination.

I think that the fact that you have a clear per se violation involved plus the determination of this Court in Otter Tail plus the Silver case would seem to indicate to me that we may not have to go that far.

But all I can tell Your Honor is that that's all that I've been able to find.

Now, the only thing that I have further to say, I'm just about run out of my time was that the court did have a very similar case and of course Otter Tail Power Company against the United States and there it is perfectly well within the statutory and regulatory scheme to have regulatory agency oversight over a group of individuals or a trade and at the same time to make the trade subject to the antitrust laws.

Justice Byron R. White: May I ask you, does the exchange or does the Commission purport to have any authority to adjudicate particular violations of its rules?

Mr. I. Walton Bader: Well, that -- there is the Commission of course does have power to proceed against violations of the Act and has proceeded against violations of the Act in number of cases.

And at the same time individuals have the right to proceed against violations of the Act.

Justice Byron R. White: Let's assume the Commission did put out -- assume it had the power to and that that it did propound a minimum charge for brokers and then an individual broker didn't live up to the rule, could the Commission move against them?

Mr. I. Walton Bader: I would think the Commission probably could under those circumstances.

I -- I wonder whether or not in view of the statutory provisions involved that if the Commission did do something of that kind whether the Commission itself might not be subject to attack for exceeding its authority.

Justice Byron R. White: Well, I understand your position on that?

Mr. I. Walton Bader: I thank this Court for its consideration.

Chief Justice Warren E. Burger: Mr. Shapiro.

Argument of Howard E. Shapiro

Mr. Howard E. Shapiro: Mr. Chief Justice and may it please the Court.

Subsequent to the grant of the writ in this case, the Securities and Exchange Commission on January 23rd this year adopted Securities and Exchange Act Rule 19 (b) (3).

This rule prospectively abolishes fixed Commission rates to the public effective May 1, 1975 and as to members or associated members of the Exchanges in what's called “floor brokerage” as of May 1 the next year.

The decision appears in the Securities Exchange Commission documentary appendix at page 109 and I will refer to it from time to time in my argument.

It concisely reviews the history of exchange price fixing before and after the Securities Act of 1934 and sets forth very effectively the reasons why the problem had not been given attention until the last decade.

The position of the United States as amicus curiae is that when Congress enacted Section 19 (b), it created no blanket exemption from the antitrust laws.

Instead, the question of exemption should be resolve by the method defined in Silver against New York Stock Exchange.

Respondent's contention that this method is inapplicable really amounts to a reassertion of the same claim of blanket immunity which they advanced in the Silver case and which the Court rejected in Silver as to the application of the method.

Now, under the Silver test as applied to Section 19 (b) including Section 19 (b) expressed reference to the fixing of rates of commission.

The usual antitrust standards are changed.

Silver indicates that there must be a particularize inquiry to determine whether exchange rules within 19 (b) are necessary but no more restrictive than necessary to make the Securities Exchange Act work.

Thus, exemption is implied only when in a reconcilable conflict is found as to particular instances of exchange self-regulation.

Now, this accommodation of the antitrust in regulatory requirements serves to reconcile the statutory schemes rather than to hold one or the other ousted.

It rests on the Court's recognition that the antitrust laws and the regulatory scheme of the Exchange Act are complimentary not antithetical.

Now, its application here we think is confirmed by Ricci against Chicago Mercantile Exchange and Merrill Lynch against Ware.

The question of whether when this method of Silver is applied in this case an exemption actually arises cannot be answered on this record.

The courts below did not attempt to make the Silver type inquiry.

They found a blanket exemption.

Now, Silver did three things as I have said first, it defined a method for reconciling antitrust laws and the duty of collective self-regulation which the Exchange Act requires.

Second, in Silver, the Court applied the method to the case before it and made the determination in the circumstances of that case as to exemption.

Thus, whether there is exemption or non-exemption is really a product of the application of the Silver method.

Now, the third thing the Court did in Silver was to state that a different case as to exemption would arise where the act provided SEC jurisdiction and ensuing judicial review of particular exchange rulings.

So, what was reserved in Silver was not the method for reconciling the two statutes.

That is the requirement for a particularize the inquiry.

The Court reserved decision on the effect of SEC jurisdiction on cases where the SEC has jurisdiction and where there is ensuing judicial review.

When the Silver test is applied to particular instances of exchange self-regulation, now, the Court in Silver was fully aware of Section 19 (b) and its relation to the rules of the exchange because in this case, we are dealing with a jurisdiction overruled in the rules fixing Commission rates as listed in Section 19 (b).

The Court in footnote 16 of the Silver decision at page 364 assumed that under Section 19 (b) the SEC could adopt the rule imposing that very notice in hearing of requirements whose absence from the exchange rules involved in that case had led the Court to the conclusion that there was no justification to support the exemption under the 1934 Act.

Since the record in that case fully explored the question of necessity and there was no possible basis in which the SEC could find that notice and hearing were not required by the 1934 Act.

The Court itself resolved the exemption question despite the SEC's reserved jurisdiction over exchange rules.

Now, because Section 19 (b) expressly refers to the fixing of commission rates, we have to consider the effect of that language.

Section 19 (b) does not authorize the exchanges to do anything.

It confers a reserved or secondary jurisdiction on the SEC over any rules the exchanges may adopt in carrying out their duty of self-regulation which fall within the enumeration of particular matters contained in Section 19 (b).

In our view, it adds to the panoply of remedies available under existing law.

Section 28 of the Exchange Act expressly declares that the rights and remedies that defined by the Exchange Act are in addition to all others that may exist at law or equity.

With respect to Section 19 (b)'s reference to fixed commissions, we agree subject to qualifications then I will state with the SEC's brief at page 11 where it says Congress recognized the existence of fixed commissions but shows neither to outlaw that practice nor to endorse it but rather to bring it under the complete control of the Commission.

I -- I express three qualifications to that.

First, Congress gave the Commission complete but not exclusive power within the purposes of the Exchange Act.

Second, Congress recognized price fixing as it has existed since 1792 but did not endorse it.

And third, Congress neither condemned nor endorsed whether that recognize so that the fixing of commission rates is thus permitted as a matter of securities law until the SEC acts on the practice as it now has.

But, even though it's permitted under the Securities Act that's not enough, it's fundamental that even though a practice maybe permitted under a regulatory statute.

That does not exempt it from the antitrust laws thus, with the power Commission's approval the acquisition of a Northwest Pipeline Company by El Paso Natural Gas was permitted by the Natural Gas Act but it was still subject to antitrust scrutiny as in California against the FPC.

And the banks that merged in Philadelphia with the approval of the comptroller of currency were permitted to do so under the old Bank Merger Act but they still had the postmaster under the antitrust laws.

Now, the amici and the respondents have viewed -- have reviewed the legislative history of the 1934 Act at some length.

What it boils down to is this, Congress knew about commission rate fixing like exchanges but it never specifically considered the practice in relation to the antitrust laws.

I think the history is well summarized in the Commission's decision abolishing fixed commission rates where at pages 116 and 117 of the SEC's documentary appendix.

The Commission says that Congress was focused primarily upon such obvious evils as corners, pools manipulations insider trading and other fraudulent and deceptive practices which seriously injured investors.

With respect to commission rates, there were some concern that the possible overcharging with the possible overcharging of unsophisticated investors and with possible monopoly profits and the Commission was therefore giving regulatory authority.

As the SEC's report on 19 (b) (3) also shows Congress didn't substitute pervasive public utility type regulation for competition.

It just doesn't fit this industry.

Thus, the assumption that the antitrust laws are ousted because the regulatory scheme leaves no room for them even when a reference to rate fixing cannot be sustained here.

What Congress adopted was a system of private initiative and self-regulation subject to a reserved commission oversight.

Now, where there is a system and which an industry is given collective power to control its own affairs through voluntary commercial relationships governed in the first instance by private business judgment then it cannot be assumed that the antitrust laws are overridden absence some expression by Congress.

Justice Byron R. White: Or by the Commission?

Mr. Howard E. Shapiro: Or by the Commission and that opens another aspect of it.

I said a moment ago that the SEC's jurisdiction is complete, I think that the Commission could in appropriate case make a determination that fixed commissions are required and at least as far as the antitrust laws are concerned that would be the end of the matter since the --

Justice Byron R. White: (Inaudible)

Mr. Howard E. Shapiro: Yes, I do.

Justice Byron R. White: (Inaudible)

Mr. Howard E. Shapiro: That's right.

Justice Byron R. White: (Inaudible)

Mr. Howard E. Shapiro: That is correct Your Honor.

The exchange would be under an enforceable -- under a duty which is enforceable against them to obey the SEC's order.

Now, the SEC's report on Section 19 (b) (3) also reflects that until --

Chief Justice Warren E. Burger: I'm not sure Mr. Shapiro when I track that with what you said just previously about Congress is not giving the Securities Exchange Commission exclusive power but only a shared power at least I got that impression from -- I got the wrong impression.

Mr. Howard E. Shapiro: No, it is a shared power as we view it.

And the answer relies in the fact as occurs elsewhere in the law that there maybe overlapping jurisdictions where the regulatory agency had some powers to compel conduct not authorized -- not otherwise authorized by the antitrust laws.

Chief Justice Warren E. Burger: I think what you say to Mr. Justice White just now that if they exercise the power then how's the antitrust jurisdiction (Voice Overlap) --

Mr. Howard E. Shapiro: Yes, sir.

Chief Justice Warren E. Burger: -- they misunderstand you then?

Mr. Howard E. Shapiro: No, I think you're -- you understood me correctly Your Honor.

The question is -- it turns on whether they actually require the particular conduct involuntary.

Chief Justice Warren E. Burger: And in enforceable way?

Mr. Howard E. Shapiro: In enforceable way that is the difference.

Chief Justice Warren E. Burger: If they do it and actually carried out in good faith then the antitrust is decide?

Mr. Howard E. Shapiro: Well, no, if they -- the scheme of Section 19 (b) is a little peculiar because it does call first for a request from the Commission to the exchange and if the exchange complies with just the request, it's doing so very voluntary, it's not compelled to do so.

We would say in that situation the necessary to make the Act work would apply, Silver case would apply.

I can envision a range of activities if the SEC requests fixed commission rates and the exchange is complied without a formal 19 (b) proceeding the Silver test applies.

If the SEC accompanies its request with the public -- with the reason determination of necessity which you used and doesn't and it simply request to the change to be made.

This has to be given appropriate weight by the antitrust court.

Now, if the SEC disapproves or terminates the rule well then of course there's no defense under the Silver test at all and nothing left.

If the SEC orders price fixing after a 19 (b) proceeding, the Silver test doesn't apply.

If the exchange -- I mean if the SEC simply acquiesces or tolerates or takes no action in what the exchanges have been doing over the years then the Silver test applies.

There's no immunity from that.

And finally, I suppose one can say that if the SEC determines as it argues it has here that rates should be faced out in step by step.

This determination of a need for transition period has to be waited with the rest of the Silver test.

Now, one of the questions that comes up in -- never we discussed this is why has everyone waited until now to start talking about the validity of fixed commission rates after all these years since 1792.

Justice Byron R. White: What page Mr. Shapiro?

Page 48 of your brief you say, if the SEC where the quarter the exchanges to adhere to a fixed commission rate system of some kind no antitrust liability could arise --

Mr. Howard E. Shapiro: That's correct.

Justice Byron R. White: -- and what you're telling is that is the only situation where immunity is clear.

Mr. Howard E. Shapiro: Where the immunity is clear, yes Your Honor.

Justice Byron R. White: And all other situation anything short of that than the Silver tests.

Mr. Howard E. Shapiro: And the Silver test applies.

With various amounts of weight being given to what the SEC has done in relation to the exchanged rules.

I was about to mention the long period which had gone by without anyone challenging these rules.

Now, the SEC report on Section 19 (b) (3) at page 136 I think succinctly sum that up also.

It reflects that until the special study of security's markets was published in 1963 everyone just sort of assumed that fixed commission rates were normal and the necessary feature of the exchange markets.

Nobody the antitrust division, the private bar, the SEC itself had questioned the assumption either as a matter of economic policy or under the antitrust laws or even under the Securities Exchange Act as the report points out at page 118.

Now, the special study itself did not address this particular problem of fixed commission rates.

But it found that the practice of fixed commission rates was leading to -- attempts to evade them on such a massive scale particularly by institutional investors that the system was not only not working.

It -- it was harming the industry and this over the years slowly led the SEC to conclude that there was a need to abolish them and it's finally come to that conclusion this year.

There's a further argument made about applying the Silver test in the context of this case.

That is that as a matter of policy it's going to have severe adverse effects on the industry.

That the administration of the Act will be paralyzed because exchanges will be afraid to carry out their duty of self-regulation.

Silver has led to no such paralysis nor have there been any kind of flood of antitrust cases challenging every aspect of commission rulemaking.

The handful of cases have concerned the consequences of price fixing and most to the antitrust problems will disappear with its abolition.

The possibility that exchange rules may be tested under Silver and a Sherman Act suit will have a sagittary effect upon the exchanges exercise of their duty of self-regulation.

Justice Byron R. White: Just a minute if the Court would hold that the power given to the SEC whether exercised or not preempts the antitrust law and whether the Commission has a rule or whether it doesn't or whether it requires price fixing or whether it forbids it the antitrust law this would have no application?

Mr. Howard E. Shapiro: That's right.

If the Act -- if the Court construes the Act is conferring a blanket immunity and that you never worry about the antitrust laws.

Justice Byron R. White: An immunity in this area?

Mr. Howard E. Shapiro: In this area, that's under 19 (b).

Justice Byron R. White: Well, I take it that's the position of some people in this case that this reserve is granted but on exercise power preempts antitrust laws.

Mr. Howard E. Shapiro: That is the contention and our answer to that is that --

Justice Byron R. White: Well, you just answer Silver.

Mr. Howard E. Shapiro: We answer Silver and Ricci and also Merrill Lynch against Ware because just using that word “preemption” for a moment in a state preemption case.

The Silver analysis was applied.

Now, the point that I'm really making is that under those cases the determination of preemption if we want to use that or exemption or immunity is not made in the abstract on the face of the statute.

It is applied to particularize instances of exchange action and it takes a record to do that which doesn't exist here.

Justice Byron R. White: Now what's the antitrust situation under the new order after it becomes effect?

Mr. Howard E. Shapiro: The new order?

Chief Justice Warren E. Burger: It's when you told us of May 1st.

Mr. Howard E. Shapiro: Abolishing fixed commission rates.

Well, once that becomes effective, there will be no defense under Silver for any price fixing thereafter.

Justice Byron R. White: (Inaudible)

Mr. Howard E. Shapiro: If it does, that's right Your Honor.

Justice Byron R. White: (Inaudible)

Mr. Howard E. Shapiro: Yes, that's right.

Our contention of course goes to the claim that there is no blanket immunity but a more particularized immunity.

I was discussing the policy question which is argued of course when we talk about policy here, you must recognize the policy has to be assessed under existing law.

It's the antitrust laws as they stand in the Securities Act as it stands without any express immunity and of course the principle it repeals to the antitrust laws by implication from a regulatory scheme are strongly disfavored.

There are policy arguments that the SEC should have absolute authority in this area that the exchange should be completely immune.

But this is not the form and which that kind of a broad contention can be made.

If it is to be considered, I'd point out that there are some important arguments the other way.

The possibility that exchange rules will be tested in the Sherman Act suit will have sagittary effect upon the exchanges exercise of their duty in self-regulation.

There will be stimulated to scrutinize closely any rules involving seriously in a competitive consequences.

To be certain that they're actually necessary to make the Exchange Act work, the SEC will benefit because the heightened attention to the acts requirement by the exchanges under the stimulus of the Silver test with its attendant minimization of practices that do not benefit investors will reduce the need for regulatory intervention by the SEC itself far from having a chilling effect.

Therefore, we think that continued application of the Sherman Act will serve to compliment for a self-regulation under the SEC's reserved jurisdiction.

Chief Justice Warren E. Burger: Thank you, Mr. Shapiro.

Mr. Jackson, you may proceed whenever you're ready.

Argument of William Eldred Jackson

Mr. William Eldred Jackson: Mr. Chief Justice, members of the Court, I think I'm not going too far when I say that the position taken by the Department of Justice in this case is nothing less than an effort to exalt the antitrust laws to a quasi constitutional status.

A status in which this particular statute is a far greater force than another later statute passed by Congress with which the antitrust laws are inconsistent.

I think this is the most extreme position the department has taken with respect to the doctrine of implied repeal that I know of because inherent in its position that there is no exemption here is that the following circumstances are of no moment whatsoever.

First, that the exchanges are authorized and permitted by the Exchange Act to adopt rules fixing commissions.

Secondly, that Congress created the SEC to act as the guardian of the public interest in supervising and changing if necessary rules relating to commissions.

Under regulatory standards that are broader than those of the antitrust laws.

And thirdly, despite the references to tame regulators as this record shows that the SEC has actively exercised these powers and has been an active watchdog.

Indeed, major changes seven of them in commission rules of exchanges have taken place in the past seven years.

All of them at the request or with the approval of the SEC and after hearings in which the Department of Justice participated, all these counts for not in the Department's world of antitrust absolutism.

There can be no antitrust exemption here despite a perfectly apparent head-on collision between the antitrust laws and the Exchange Act.

And this means that in any case and in every case where a rule of an exchange is challenged under the antitrust laws if this theory would apply there would have to be a trial de novo of the facts even after review and approval and even after modification of the rule in question by the SEC and this would be a trial under the standards not of the Exchange Act but of the antitrust laws.

This is to ignore the Exchange Act.

This is to second guess the SEC.

This is to say that exchanges should be regulated by District Courts with the aid of the Department of Justice and with the assistance of juries rather than by the expert agency to which Congress has created the task.

With the greatest of respect I submit that this is (Inaudible) run wild and that it was properly rejected by the lower courts.

I would submit Your Honors that the question before the Court is that which was left open in Silver.

The different case with respect to antitrust exemption where the SEC has jurisdiction over the practice attacked.

We submit of course that this is the case, the different case and that its resolution has been foreshadowed in Silver itself.

There's no issue here of blanket immunity for exchanges or for all exchange activities as this Court recognize in the Hugh's case a regulatory scheme may not be sufficiently pervasive to result in a total exemption but nevertheless, it may result in exemption in particular and discrete instances.

That's all we're dealing with here because the issue here of antitrust exemption relates only to a single aspect of exchange activities.

The fixing of reasonable rates of commission to be charge by members as permitted by Section 19 (b) (9) of the Exchange Act subject to SEC review jurisdiction.

Now, the Buttonwood Tree has been referred to and it is not without significance I submit that commission rate fixing by exchanges has been engaged in this country openly and above board since the Buttonwood Tree agreement in 1792.

We all know that horizontal price fixing and rate fixing by competitors has been unlawful at least since the passage of the Sherman Act and yet the Exchange commission rate fixing was not challenged by the Department of Justice at all prior to the Exchange Act of 1934 despite this Court's ruling in Trenton Potteries that price fixing was per se unlawful.

And then Congress in 1934 in enacting the Exchange Act an act which we all recognize was designed to correct abuses nevertheless permitted the exchanges to continue their historic and well known practice of fixing rates of commission.

Subject however, for the first time to regulation of that practice by a government agency and in giving the SEC jurisdiction to review those rates, the standards established by the Act with those of reasonableness and other standards listed in the Act, the primary one of which was a protection of investors.

So that after the passage of the Exchange Act the exchanges were no longer engaging in unfettered rate fixing by custom.

But they are engaging in statutory permitted and government's supervised rate fixing which even the Seventh Circuit in the Thill case with which we thoroughly disagree described as a system of authorized price fixing.

And so the question is whether Congress by providing for SEC supervised commission fixing in Section 19 (b) (9) of the Exchange Act intended by necessary implication to exclude such commission fixing from the scope of the antitrust laws.

Justice Byron R. White: Now, what if the Commission doesn't fix, what if it's just a power which has been granted to the SEC, is it your position just a grant of the power --

Mr. William Eldred Jackson: It is Your Honor.

Yes, indeed.

Justice Byron R. White: Whether -- whether it exercise or whether it does (Voice Overlap) --

Mr. William Eldred Jackson: Exactly.

Justice Byron R. White: -- would consider whether it permits or whether (Voice Overlap)?

Mr. William Eldred Jackson: Exactly, it's still a conflict of regulatory schemes a conflict of jurisdictions the existence of the power is sufficient.

On that point, we think the Thill court went off the track.

Justice Byron R. White: Now, suppose the Commission -- the Exchange has a rule which it does on commissions and the SEC says nothing it all about it, you say the antitrust laws have nothing to do with that.

Mr. William Eldred Jackson: We -- you say that that commission fixing is authorized --

Justice Byron R. White: Commission fixing, I mean it hasn't fixed anything it just hasn't disapprove and exchange rule?

Mr. William Eldred Jackson: No, sir but we say the commission fixing by the exchange being passively permitted by the SEC is not subject to the antitrust laws.

Justice Byron R. White: Yes, but in that event, does the SEC have any authority to enforce specific instant of violations of the exchange rule?

Mr. William Eldred Jackson: Of the fixed commission rule?

Justice Byron R. White: Yes.

It really doesn't --

Mr. William Eldred Jackson: No, I don't think so Your Honor.

Justice Byron R. White: And if so -- if the Commission rule is -- if the Exchange rule is going to be enforced at all, the Exchange enforces it?

Mr. William Eldred Jackson: Yes, that's right.

That's right and has done so.

Justice Byron R. White: And so if certain brokers engaged in price fixing inconsistent with the exchange rule that's an exchange matter, is it not?

Mr. William Eldred Jackson: Yes, it is.

They would be violating the exchange rule.

Justice Byron R. White: Thank you.

Mr. William Eldred Jackson: Or might be engaging in other practices which would be inconsistent with just and equitable principles of trade under the Exchange Act.

We submit Your Honors that a pro tanto implied repeal of the antitrust laws in this case is compelled by two separate considerations and the first is the doctrine of repugnancy which applies where the application of the antitrust laws would collide with the regulatory scheme of a later statute.

We submit that the Sherman Act prohibition against horizontal rate fixing simply cannot be reconciled where the Exchange Act provisions permitting commission fixing because the Exchange Act authorizes under Government edges the very conduct which is prohibited by the earlier statute.

The two statutes we think cannot be harmonize.

One says, “Thou shalt not.”

The other says, “Thou may.”

And one must yield to the other.

And under the cases of this Court, we think it's perfectly plain that the earlier statute must give way to the later one as the expression of Congress' intent on this particular matter.

Justice Byron R. White: What if the commission comes along to “Thou shalt not”?

Mr. William Eldred Jackson: That's what it is done?

Justice Byron R. White: Yes.

Mr. William Eldred Jackson: And --

Justice Byron R. White: And then its sanctions would be the exclusive sanctions I take it?

Mr. William Eldred Jackson: Yes.

Justice Byron R. White: And in according to your position?

Mr. William Eldred Jackson: Yes, Your Honor.

That's right.

Justice Byron R. White: And the antitrust laws would still have no --

Mr. William Eldred Jackson: Still have no effect.

Justice Byron R. White: No effect, was it?

Mr. William Eldred Jackson: For two reasons, one is the existence of commission authority then the other is the rule which they have adopted which we think has the effect of an order.

Its mere semantics to talk about a formal order where they have the power to order you to do something and you comply with their request without forcing them to go through an order proceeding.

The result should be the same.

Justice Byron R. White: They would order you to adopt the rule really that shall be no price fixing or there shall be no uniform (Voice Overlap) --

Mr. William Eldred Jackson: That's right and that's what they did.

Justice Byron R. White: And that's what they did and so it's still as an exchange rule?

Mr. William Eldred Jackson: It is -- it will be an exchange rule adopted in conformity with an SEC rule.

Justice Byron R. White: And in case of individual violation still the matter for the exchange to enforce?

Mr. William Eldred Jackson: Yes, Your Honor.

Justice Byron R. White: And please tell me about it?

Mr. William Eldred Jackson: Yes, Your Honor that's correct.

Chief Justice Warren E. Burger: What would be the power of the commission be if they thought there was a breakdown in enforcement?

Mr. William Eldred Jackson: By the exchange?

Chief Justice Warren E. Burger: Yes.

What would be SEC -- the Commission's power be?

Mr. William Eldred Jackson: Well, since the change in the exchange rule will have been adopted pursuant to an SEC rule adopted under the Act then I think the full panoply of powers available to the Commission for violations of the Act come in to play including at the most extreme of course deregistration of Exchanges, also termination of the offices of officers of Exchanges, and of course civil one and criminal proceedings are available for violation of the Act.

Justice Byron R. White: With no -- no remedies for any person hurt by violation?

Mr. William Eldred Jackson: Yes.

There is a remedy which is provided by the Administrative Procedures Act also remedy provided --

Justice Byron R. White: How about damages?

Mr. William Eldred Jackson: Damage remedies would not be provided nor are they required.

I would submit.

Justice Byron R. White: But if there are violations of the exchange rule against fixed fees and someone violates it and somebody is hurt by it, there are no damage remedy?

Mr. William Eldred Jackson: Well, there might be -- there is a developing body of law in which individuals have sought to sue for violation of exchange rule.

Justice Byron R. White: The exchange rule?

Mr. William Eldred Jackson: Yes, for damages.

Chief Justice Warren E. Burger: We'll resume there at 10 o'clock in the morning Mr. Jackson.

Mr. William Eldred Jackson: Thank you Mr. Chief Justice.

Print this transcript Transcript: 

Argument of William Eldred Jackson

Chief Justice Warren E. Burger: We'll resume arguments Gordon against the New York Stock Exchange.

Mr. Jackson, you may proceed whenever you're ready.

You have 16 minutes remaining of your time.

Mr. William Eldred Jackson: Mr. Chief Justice and may it please the Court.

First, if I may, I'd like to deal with two questions from the bench yesterday afternoon.

First, Mr. Justice Stewart asked the question of the petitioner with respect to the legislative history of the Exchange Act, in a particular, a draft which utilized the word uniform, uniform rights and that matter is laid out at pages 20 and 21 of SEC's brief, Your Honor.

Secondly, it has been suggested that perhaps I misunderstood a question of Mr. Justice White with regard to the antitrust situation if fixed rates are abolished on May 1st in accordance with the SEC's directive.

I understood the question to relate to exchanges and I answered that there would be no antitrust liability, obviously, they would not be fixing rates anymore.

But if Your Honors question related to the situation of brokers, members of exchanges, I'd like to make it clear that at least in my view, there is no question that Merrill-Lynch and Bache or other firms got together and fixed the rates between them, they would be subject to the full range of antitrust liabilities and penalties.

Justice Byron R. White: Apparently then the fact that the Commission has authority to the order or to order uniform rates or to order non-uniform rates or to say that there should be no uniform rates and to say that there shouldn't be any exchange rule about it.

The commission's jurisdiction would not be exclusive.

Mr. William Eldred Jackson: Not in the case of members of exchanges fixing rates amongst themselves in my judgment.

Justice Byron R. White: So that the power of the Commission to have a rule under enforcement would not outstand antitrust laws in that area.

Mr. William Eldred Jackson: Not in that area, in my judgment.

It would if the exchanges again reinstituted fixed rates at some time in the future.

And assuming no change in the statute.

Justice Byron R. White: What if the -- what if the exchange had replaced its present rule in accordance with the Commission's directive to say that there should be no -- there is no uniform rate.

Mr. William Eldred Jackson: Yes, Your Honor.

That's the situation I'm addressing myself to.

There would no longer be fixing of rates by the exchange.

Justice Byron R. White: So then you got just a silver -- you got the antitrust remedy could supplement or -- just be unaffected by the security clause.

Mr. William Eldred Jackson: Well, the antitrust remedy would run only against members.

Justice Byron R. White: I understand.

Mr. William Eldred Jackson: Members and would be --

Justice Potter Stewart: -- transpire with each other.

Mr. William Eldred Jackson: That's exactly right, Your Honor.

And the exchanges would be out of the business in fixing rights.

Justice Byron R. White: Even though they're conspiring, it would be contrary to an exchange rule, the antitrust laws could still go.

Justice Potter Stewart: Yes, in that instance, that's my view Your Honor.

Justice Potter Stewart: Your submission is that the Commission's jurisdiction is exclusive over the exchange as such.

Mr. William Eldred Jackson: Exactly, Your Honor, exactly.

And it's that jurisdiction from which we believe that exemption is derived.

Justice William J. Brennan: Yes but if the members violated the exchange rule, the exchange could discipline them.

Mr. William Eldred Jackson: Yes, exactly.

Justice William J. Brennan: And what the fact that the exchange could discipline them does not mean that the antitrust laws would be oust.

Mr. William Eldred Jackson: If the members were conspiring exactly Your Honor.

Justice William J. Brennan: Right.

Mr. William Eldred Jackson: Right.

Chief Justice Warren E. Burger: Really, what you're saying is that if the individual members of the exchange violates some federal law, they are subject to the same penalties as any other cities that violates the federal law.

Mr. William Eldred Jackson: Exactly sir.

Justice Byron R. White: Well, the Security and Exchange Commission has no whatever its jurisdiction is, it isn't such as to preclude an antitrust remedy in those -- on those facts.

Mr. William Eldred Jackson: Against members conspiring themselves to violate the antitrust laws after fixed rates, exchange fixed rates are over.

And I just want to make that clear because perhaps I haven't been clear yesterday.

If I may recapitulate, Your Honors, our position in this case which of course deals with past conduct is that the exchanges are entitled to an antitrust exemption.

For this limited area of activity, the fixing of commission rates through implied repeal of the antitrust laws on the twin grounds of first, irreconcilability of the two statutory schemes.

And secondly, because the jurisdiction of the District Courts under the antitrust laws would create a conflict with SEC jurisdiction and would prevent the functioning of the Exchange Act and this presents the different case which this Court reserved in Silver.

Now, Mr. Shapiro yesterday afternoon if I understood him correctly suggested that there might be various degrees of exemption including the concurrent jurisdiction of the courts in the SEC, depending on the type of procedure utilized by the SEC whether it was action or inaction or a formal order or whatnot and it seemed to me that this argument dealt rather much on form over substance.

But in any event, I would suggest that the argument derives no support from either Section 19 (b) of the Exchange Act and certainly not from the implied repeal cases.

Because either the Exchange Act creates an implied exemption or it does not.

I failed to see any room for shades of gray in a matter of that area and it seems to me that certainly the exchanges of this country are entitled to know with some certainty what conduct on their part is lawful and what is not.

Mr. Shapiro also argued if I understood him correctly that there could be no repugnancy in this situation and therefore no exemption until and unless the SEC actually issued a formal order to the exchange to fix commission rates and this is a mirror image, I believe of the what I regard as a concession in the Department of Justice's brief at page 48 that if there were a formal order by the SEC to the exchanges to fix rates, no antitrust liability could arise.

Now, by limiting this concession to a formal order, I would submit that the argument fails to recognize the unique statutory scheme of the Exchange Act and of Section 19 (b) which does not provide for a direct SEC regulation by a formal order.

It is not a public utility type regulatory statute.

It has provided for a system of exchange self-regulation.

The exchanges first themselves on their own initiative adopt rules.

The SEC has the power if it deems those rules objectionable in the light of the statutory standards to first to request an exchange to change them and if the exchange does so, that's the end of the matter.

If the exchange refuses the request, then and only then does the SEC have to proceed by a formal hearing and an order or a rule.

So that the argument which Mr. Shapiro made, it seems to me would in essence re-write Section 19 (b) of the Exchange Act by requiring an order whereas the Act itself indicates that request by the SEC in compliance by the exchange are sufficient to achieve the statutory objectives without a hearing and without an order.

Justice Byron R. White: What about -- what about the situations where nothing has happened, the Commission, the exchange has a rule and the SEC has never addresed itself to it.

Mr. William Eldred Jackson: Now, in that, --

Justice Byron R. White: Although it has the power to do that.

Mr. William Eldred Jackson: Exactly.

In that situation Your Honor, let's assume that.

The exchange adopts a rule.

The -- it has to be pre-filed with the SEC three weeks before it becomes effective.

The SEC looks it over, finds nothing objectionable.

Justice Byron R. White: Well, it doesn't say a word.

Do you know when it does or not?

Mr. William Eldred Jackson: Well, it has the power as you've indicated and it has the duty I would submit under the statute to request and if request is refused, to order the exchange to change it if it doesn't comport with the statutory standards.

Justice Byron R. White: Well --

Mr. William Eldred Jackson: So that --

Justice Byron R. White: -- do you accept the test in Silver that there is immunity where some rule is essential to the effectuation of the Act?

Mr. William Eldred Jackson: I do not accept that test because I do not believe that is the test that this Court laid down in the Silver case.

Justice Byron R. White: What do you think the test was there?

Mr. William Eldred Jackson: Well, in the Silver case as I read it, what this Court was saying was this.

What may be necessary to make the act work in a given case would be implied repeal of the antitrust laws.

It did not say, as I read it, what might be necessary to make the Act work would be a particular rule or practice of an exchange.

That sir, in my judgment, is where the fill court, the Seventh Circuit, went off the tracks.

Justice Byron R. White: But within, the -- in that effect -- your position as to then that anything the SEC, any rule the SEC fails to disapprove is automatically immune from antitrust attack?

Not regardless of its position, its overall position in the Act and regardless of whether or the SEC might say, “Well, it just isn't harmful."

Mr. William Eldred Jackson: That certainly is my position Your Honor and it's because of the existence of the SEC's jurisdiction and also because I don't understand the fundamental justice and fairness of holding an exchange liable for trouble damages for doing something that a Government agency has power to stop but does not stop and I think that there is an exemption in those circumstances.

I think there's an exemption --

Justice Byron R. White: That's entirely a different rule.

Mr. William Eldred Jackson: Well, it comes --

Justice Byron R. White: Do you find that in Silver or --?

Mr. William Eldred Jackson: I find that this may be --

Justice Byron R. White: Find it in statute, I guess.

I suppose that's your --

Mr. William Eldred Jackson: Well, I think I analogize it to Parker against Brown which was argued yesterday.

It comes close to Government action.

Its inaction but to me it has the effect of action because the hand is withheld when the hand could have been stretched out and stop the action by this private party but instead the Government agency doesn't do so.

Justice William H. Rehnquist: You're saying it's something more than the Government just not discovering some wrongdoing or some of that very sufficiently small number of exchanges that the SEC presumably is cognizant of what they're doing.

Mr. William Eldred Jackson: Precisely, Your Honor and the exchange -- the SEC does know because rules as I said have to be filed in advance for scrutiny and if there's something wrong in our rules, such as the commission fixing rule, they can say, “Stop it.�?

And as a matter of fact, they have said “Stop it�? as of May 1st.

Chief Justice Warren E. Burger: Are you arguing that this is a sort of de facto approval when they failed to disapprove after notice?

Mr. William Eldred Jackson: I would argue that it has the legal effect of approval since they have the effect to -- the power to disapprove.

Chief Justice Warren E. Burger: Are there not some statutes relating to regulatory agencies which provide a mechanism that -- like the filing of a tariff which had not disapproved goes into effect?

Mr. William Eldred Jackson: Yes, Mr. Chief Justice.

Chief Justice Warren E. Burger: In areas other than tariffs?

Mr. William Eldred Jackson: Well, I'm certainly aware of that procedure for tariffs.

I believe under the Interstate Commerce Act and if I'm not mistaken perhaps also under the Shipping Act but that is not the same as the procedure in this case because those tariffs as I understand those acts require some affirmative action by the agency.

In this case, the structure of the statute is such that no affirmative action is required in order for the exchange rules on whatever subject to become effective.

Affirmative action by the agency is required only to set them aside and therefore, in action, has to me as I said the effect, the same effect as affirmative action and the result should be the same in terms of antitrust exemption, I would submit.

The -- in effect that the result of Mr. Shapiro's argument would mean this that in order to avoid antitrust liability, an exchange would have to refuse a request from the SEC even though it was perfectly willing to do what the SEC asked it to do and precipitate a hearing, precipitate an order and then at last come to rest with its absolution and I submit that that would be a charade, a sham and hardly a usual exercise.

Justice Byron R. White: Of course there's a -- there's something beyond -- I don't suppose this Court is necessarily bound by Mr. Shapiro's concession.

Mr. William Eldred Jackson: Of course not.

Justice Byron R. White: Either?

Mr. William Eldred Jackson: Of course not.

Justice Byron R. White: And part of his argument of course has been that even that the SEC approves either arguably that the SEC approves it has no authority at all to immunize under the antitrust law, so that it has no responsibility for competitive considerations that if it disapproves that wholly within the scope of the security's laws and has no eye to and no authority with respect the antitrust laws.

Mr. William Eldred Jackson: Well, I --

Justice Byron R. White: That's been the whole lead in some other context with some other agencies.

Mr. William Eldred Jackson: Well, on the other hand, Your Honor, the -- I think it's quite clear under this Court's decision and I believe Gulf Utilities that the public interest standards which are embraced in the Exchange Act 19 (b) would include competitive considerations and I say also that those considerations have been considered by the SEC in the past as is reflected in this record.

In fact, going as far back as 1941 in the multiple trading case where they brought a proceeding against the exchange on anticompetitive grounds.

Those factors have been considered and as I said yesterday, they have been considered with the active assistance of the Department of Justice which is intervened in the hearings which the SEC has held under subject.

Now, I would submit Your Honors that the argument of Mr. Shapiro means that if there can be exemption only where there's an order there is no exemption and this would repeal the doctrine of implied repeal and would result in endless litigation rather than regulation.

Thank you Mr. Chief Justice.

Chief Justice Warren E. Burger: Very well, Mr. Jackson.

Mr. Nerheim.

Argument of Lawrence E. Nerheim

Mr. Lawrence E. Nerheim: Mr. Chief Justice and may it please the Court.

To the extent that time permits today, I would like to present the Commission's views on the issue in this case by discussing three points and in doing so, address myself to some of the questions asked by this Court yesterday.

The first point is what is the regulatory scheme of the Exchange Act and how did Congress deal with the question of fixed commission rates in that scheme?

The second is how does that regulatory scheme actually work at the SEC and what has the SEC been doing for the last 41 years in dealing with the question of fixed rates?

And third, why to use this Court's expression, we believe a plain repugnancy exists between two regulatory regimes and why the regulatory scheme of the Exchange Act simply will not work as Congress intended it if antitrust courts are given the opportunity to substitute their judgments for the reason to regulatory judgment of the Commission.

Justice Byron R. White: Don't you think the decisions to whether there's repugnance?

Mr. Lawrence E. Nerheim: This Court.

Justice Byron R. White: Oh what's the matter with the exchange?

Mr. Lawrence E. Nerheim: The exchange --

Justice Byron R. White: You don't claim that authority.

Mr. Lawrence E. Nerheim: No we don't, Your Honor.

Justice Byron R. White: But why not?

Why not?

Mr. Lawrence E. Nerheim: We don't claim the authority to determine a repugnancy issue.

Chief Justice Warren E. Burger: Well, in the first instance, you have to make a decision, do you not?

Mr. Lawrence E. Nerheim: Well, on the first instance, Your Honor, we applied the standards of the Act.

The public interest standards of the Act and we do consider competitive considerations but we also consider other economic considerations, regulatory considerations and the other considerations under the Act and then take action.

And we believe that's the Commission exercising its jurisdiction and we do not believe that then our action should be attacked collaterally in an antitrust action.

The Congress gave the Commission specific authority under the 34 Act to do several things.

It gave it specific authority to adopt rules, mandatory rules concerning financial responsibility, concerning borrowing practices, concerning manipulative and deceptive practices and concerning practically every other important thing in dealing with investor protection.

And the Congress also gave the SEC authority to register stock exchanges, to police stock exchanges and to require amendments to their Constitution and by-laws as the commission determines necessary in the interest of investor protection.

Now, at Section 19 (b), Congress gave the Commission jurisdiction to supervise rules and required changes in exchange by-laws and rules and regulations in such matters as 12 enumerated categories in similar matters including specifically the authority to regulate the fixing of fixed commission by exchanges.

And that subject to fixed commissions by exchanges had been 142 years old in 1934 when Congress addressed itself to this issue.

Congress argued as to how to regulate that practice not whether they should be outlawed.

Congress chose to regulate the practice by subjecting it to the jurisdiction of its new federal agency like so many other things it did.

Now, in the Act, Congress gave the Commission a variety of regulatory tools.

It gave the Commission authority to adopt rules and impose them upon the industry.

It gave the Commission authority to conduct investigations, hold hearings and make recommendations to the industry and expect them to follow the recommendations.

It gave it authority to supervise these rules and to require changes.

It gave it authority to issue demand letters which are called the 19 (b) letters of request in effect are demands.

And lastly, it gave it the ultimate club by giving the Commission authority to withdraw or suspend the registration of an exchange for failure to follow the commission rule, order or regulation.

That is the regulatory scheme we're talking about today and it is the regulatory scheme that Mr. Justice Blackmun analyzed in the Ware case just 15 months ago in talking about the kinds of direct supervisory authority the SEC had and then other areas like Ware, like Silver but in that case analyzed that there should be a repealer when we are talking about an area over which the Commission has direct supervisory jurisdiction which we think is this case.

Now, yesterday, a question was asked by Mr. Justice White about the Commission's authority to take action against a member of an exchange for violating an exchange rule and that -- and the question to that -- and the answer to that question is that there are four parts to it.

The Commission does have authority to take action directly against a member if the member violates the Exchange Act or an SEC rule or regulation.

It doesn't specifically refer to exchange rules.

The SEC does have specific power under Section 15 (b) of the Exchange Act to revoke the authority of a member to do business in the security's industry if it violates certain conduct in that fashion but again it doesn't specifically refer to exchange rules.

Thirdly, if that conduct in violating an exchange rule, also violated another rule of the Commission or of the statute then the Commission has direct authority under Section 21 to bring an injunctive action against that member for violating a statute or a rule and regulation of the Commission.

And then lastly, of course, the commission has the authority under 19 (a) (1) to withdraw the registration of that exchange for failure to comply, or forced compliance by its members of its own rules which the Commission did in 1966 revoke in the registration of San Francisco Mining Exchange for among other things just that, failing to require compliance by exchange members.

The question was also asked yesterday and Mr. Jackson came back to it today and I think the Commission would like to make its position clear on the question of what happens after May 1, 1975 when we have said there shall be no practice of fixed rates.

We --

Justice Potter Stewart: What happens if two or more members of the exchange agreed together to have a raise?

Mr. Lawrence E. Nerheim: Precisely, we were a little bit puzzled yesterday by Mr. Jackson's comment but today we agree completely that after May 1st, if we have adopted a rule as we have that there shall be no -- that the exchanges shall have not rules requiring their members to fixed rates and if the members thereafter do agreed to fix their rates, high or low or wherever, we do not claim that the existence of the Exchange Act, the presence of the SEC repeals or exempts antitrust application of that situation, nor indeed would we if members did something like that today even in a fixed rate environment because members can charge more than the minimum commission rate.

Justice Potter Stewart: That is today if members -- couple of members of the exchange agreed to divide their markets or --

Mr. Lawrence E. Nerheim: Exactly, it's another example Mr. Justice Stewart.

Justice Potter Stewart: That would be clearly amenable of the antitrust laws in your suit.

Mr. Lawrence E. Nerheim: And we agree and we would not claim any repealer of that kind of anti-competitive conduct.

Justice Byron R. White: Would you claim -- let's assume that the claim was that the exchange was conniving with those conspirators, how about the liability of the exchange?

Mr. Lawrence E. Nerheim: We -- if there was an allegation of conniving or conspiracy by the exchange of its members, we would say the mere presence of the SEC or its jurisdiction would not exempt the antitrust application.

Justice Byron R. White: And so today, -- so today, if there were some -- if two or three of the -- any kind of the conspiracy then among the members today under the present, even under the rule that did set minimum rates, if members conspired either to charge higher or lower prices than then, you wouldn't think -- you would say that the antitrust liability.

Mr. Lawrence E. Nerheim: Yes, we would Your Honor.

There would be antitrust liability there because we do not believe that application of the antitrust laws collides or conflict with our jurisdiction in that case, but we believe that supplementary and complementary toward jurisdiction.

We are concerned about those acts and practices and rules which exchanges and their members operate under which are consistent with our jurisdiction and consistent with our policies, not inconsistent.

Now, the second aspect of our presentation is to just describe how this process under this regulatory scheme works in practice.

Our brief in our documentary appendix go into detail to describe the steps taken by the SEC over the last 41 years, most particularly the last 15 years in reviewing, proving, modifying, changing and finally eliminating the practice of fixed rates.

These studies contained in practically the entire documentary appendix and indeed most of the appendix of the petitioner, these studies, hearings, investigations, 19 (b) letter, demand letters have resulted 1968 in the introduction of a volume discount by exchanges.

They resulted in the introduction of a non-member discount in 1971, permitting persons who are not members of the exchange to get a 40% discount from the public rate.

The exchanges in that situation that come in with a rule proposing a 30% non-member discount and we said no.

It had to be 40% and the exchange adopted a 40% discount.

That's how this process works.

These studies and these letters also resulted in the elimination of the give up practice in 1968 at the SEC insistence.

These policies and these procedures resulted in the elimination of fixed rates for under $2,000.00 and for over $500,000.00 and then for over $300,000.00 all of which came at the insistence of the SEC through these informal procedures, 19 (b) letters if you will.

Now, we heard yesterday that the Commission should act by order and that the antitrust laws would not apply if the Commission ordered these things.

I suppose we could issue orders on every single rule but that isn't the way the Exchange Act intended us to operate.

The --

Justice Byron R. White: Suppose the -- suppose an exchange files a rule with you and you look at over and you don't think it requires any approval or disapproval or you just don't take any action?

You say that's tantamount to an approval.

Mr. Lawrence E. Nerheim: Yes, we --

Justice Byron R. White: Even though you issued an order.

Is that -- how can anybody get review of that?

Mr. Lawrence E. Nerheim: Well, let me -- may I first answer the first part Mr. Justice by saying, we simply don't file these rule changes in a drawer and forget them.

Justice Byron R. White: I get that and I understand.

You've already answered that I think earlier.

Mr. Lawrence E. Nerheim: Alright, so that when there is this procedure by the SEC, do not disapprove because we believe that the rule change is consistent with the Act.

That we believe is agency action and as the --

Justice Byron R. White: As long as it's consistent with the Act, do you say that --

Mr. Lawrence E. Nerheim: No.

Justice Byron R. White: As long as it's consistent with the Act do you think that it's -- that it ought to be?

Mr. Lawrence E. Nerheim: We say that it ought to be but we believe that that is agency action and is reviewable under the Administrative Procedure Act and the circuit court --

Justice Byron R. White: How do you ever know when that happened?

Mr. Lawrence E. Nerheim: When the agency took the action.

Well, if you're following the developments of exchanges with respect to rule changes, you would know when they put into effect the rule change.

Justice Byron R. White: And how do we -- how would you know when you decided not to do anything about it?

Mr. Lawrence E. Nerheim: Well, it would be -- it would be at that point because if a rule change comes in, and we have a reason to question it, we would then notify the exchange and we suggest you not adopt that rule or you drop another rule.

Justice Byron R. White: When -- are there administrative agencies when they have some authority to take any consideration, competitive considerations, you have a hearing and you get the -- somebody has a chance to present the agency some of the competitive considerations.

None here, zero and you say it's not reviewable, would it be reviewable on administrative record or get at a new lawsuit or what?

Mr. Lawrence E. Nerheim: It would be reviewable under District Court, Your Honor.

Justice Byron R. White: Who would you sue?

Mr. Lawrence E. Nerheim: We wouldn't sue anyone but Mr. Bader would sue as he has before testing our jurisdiction.

Justice Byron R. White: Well, as I understood in the -- with all about six times and it wasn't reviewable.

Mr. Lawrence E. Nerheim: Well, it isn't quite that bad, Mr. Justice.

The last time --

Justice Byron R. White: -- give me some advice here.

Mr. Lawrence E. Nerheim: Yes I'd like to.

Justice Byron R. White: Right now.

Mr. Lawrence E. Nerheim: I've gave him the same advice we gave him in the Second Circuit Court of Appeals in 1974, the last time he sued.

Well, he brought just such an action, attesting the agency's non-disapproval of an exchange rule and he brought a direct appeal on the Second Circuit under Section 25 (a) of the Exchange Act which calls for direct appeal in the circuit courts for --

Justice Byron R. White: Is that a de novo thing?

Can you make a new record there?

Or do you -- are you stuck with your record?

Mr. Lawrence E. Nerheim: You're stuck with record.

But the --

Justice Byron R. White: Which is only the rule here, a letter a came in and gave you the rule and that's it.

Mr. Lawrence E. Nerheim: Well, but the point Mr. Justice is this that in that case, we suggested to the Second Circuit that this was not an order just as the Third Circuit find in the PBW case that our rule was not an order within the meaning of Section 25 of the Exchange Act.

We suggested to the Court that Mr. Bader had an action in the District Court on the basis of agency action which he did not pursue.

He did not then go to the District Court.

Justice Byron R. White: In your view, could he present evidence?

Could there be an evidentiary hearing in the District Court or not?

Mr. Lawrence E. Nerheim: Under that circumstance, I would say yes

Justice William H. Rehnquist: Well, the Administrative Procedure Act provides, doesn't it that if there has been no record made in the agency, you're permitted to make one in the District Court?

Mr. Lawrence E. Nerheim: I believe it does Mr. Justice and of course if the record consisted of a rule proposal in a non-disapproval, there wouldn't be much of a record and I think in that case, there would have to be a record and I'm sure that the Department of Justice would be an active participant in a hearing.

Justice Byron R. White: Well, you have instructed us with the record before you.

Mr. Lawrence E. Nerheim: No, I would not believe so in that case.

I just wanted to conclude that part of my remarks by saying that in the PBW case in the Third Circuit 1973, in an independent broker-dealer case in 1971 in the Circuit Court of Appeals for the District of Columbia, those two circuits analyzed exactly how this regulatory scheme works, talking about the jurisdiction, how this informal assortment of regulatory tools are intended to operate and both concluded that is the way the Exchange Act is intended to work and the agency should not be required to resort to formal hearings, mandates and orders unless the exchange refuses to cooperate.

And that we believe is what happened in this case and that's what we have before us.

I'd also like to say that we believe that the record in this case is replete with example after example, of what the SEC has been doing in this situation and the Department of Justice's reply brief at page 6 which was filed on a Saturday but suggests that the SEC has done nothing with respect to the practice fixed commission rates until September 1973 but merely tolerated the practice is we believe shockingly disingenuous.

The last point gets to the issue of plain repugnancy and as I've indicated, this Court had that question before it in Silver, and analyzed the commission's regulatory jurisdiction again more thoroughly in Ware where there, Mr. Justice Blackmun speaking for a unanimous court said that these kinds of measures and rules by exchanges authorized by the commission are designed to ensure fair dealing and to protect investors and are the kind directly related to the Act's purposes.

And we believe that we are talking about it in essential ingredient in the Exchange Act in this case and in Silver which was a particular enforcement of an exchange rule, this Court spent five pages of its opinion reciting rule after rule after rule over the exchange everyone of which was anti-competitive and then said that those rules were designed to meet the standards of the Act but that there will be no repealer in that case because the SEC didn't have jurisdiction over the particular enforcement of that situation.

But that a different case would be presented when this Court was faced with a rule over which the SEC does have jurisdiction and if there was ever a classic different case, we believe that this is that case.

Justice Potter Stewart: Your brothers on the other side of the rostrum take a good deal of comfort from the Ricci case saying that that answered the question left unanswered in Silver.

What do you have to say with that?

Mr. Lawrence E. Nerheim: Yes, they do and we think that they have misread Ricci, Mr. Justice.

Ricci involved a withdrawal of a membership on the Chicago Mercantile Exchange and this Court's opinion said that there were facts that had to be resolved in that dispute, had Ricci voluntarily given up his membership?

Did Segal have a lien of shares?

Did Ricci owe Segal brokerage fees and was the withdrawal of the membership or the taking away of the membership consistent with a valid rule of the exchange?

Said this is something that should be sent to the Commodity Exchange Authority for decision on the facts.

And after the facts are in, we will decide if there is an implied repealer because if the membership was taken away pursuant to an invalid rule or taken away improperly, then the implied repealer question goes away.

The antitrust case should proceed but if it was taken away from him --

Justice Potter Stewart: Stay away contrary to a valid rule, say.

Mr. Lawrence E. Nerheim: Then the antitrust court action proceeds.

Justice Potter Stewart: Right.

Mr. Lawrence E. Nerheim: And as the Chief Justice indicated in that case, the Silver case was clearly not before it in Ricci and we agree.

We think this is -- we believe this is a situation where the District Court properly applied Silver.

We believe that the Second Circuit properly applied Silver and we respectfully urged this Court to affirm the lower court.

Chief Justice Warren E. Burger: Thank you, Mr. Nerheim.

Mr. Bader.

Argument of I. Walton Bader

Mr. I. Walton Bader: May it please, Your Honor.

May I first point out to the Court that based upon everything that has been said here, it is my feeling and belief that in fact, the record in this case before this Court is completely inadequate to make a proper determination and I think that really what should be done in this case is to send this back to the District Court for a full and complete trial.

They could erase the question of the antitrust immunity involved, the position of the stock exchange, the position of the SEC are completely different.

Interestingly enough, Mr. Nerheim now tells me that if I started a District Court action against the SEC in connection with the stock exchange rules that that District Court action would not have been subject to a motion to dismiss but we did start such an action and with Civil Action 1984-71 of the United States District Court for the District of Columbia and as pointed out on page 6 of my brief, the SEC did make a motion to dismiss on the ground that the District Court had no jurisdiction, that motion was granted.

Now, perhaps the SEC has taken a different view at this point but I don't think that a plaintiff in this should have to come all the way up to the Supreme Court to obtain a change in the rule.

The fact remains that the procedures that the SEC has for the review of their so-called non-objection to stock exchange rules are now, are basically not reviewable by any court and if you try the circuit court, you're dismissed on the ground that it's not an order.

If you tried at District Court, you're dismissed on the ground that there are other considerations involved which make that inappropriate.

And I submit that without a consistent means for the public to proceed in any of these agency determinations that as a practical matter, such an agency determination could not repeal the antitrust laws and as matter of fact, there might be some serious due process violations involved as well.

Now, basically, as far as this Court has determined under the Silver case, it seems that the exemption in each case has to be considered under the facts that are involved in the particular case and under the facts that are involved in this particular case, I submit to the Court that if the record is considered by the Court to be complete that there is no such implied exemption of the antitrust laws.

I point out for example that let us assume that the stock exchange provided for a rule which similar to it, I believe Mr. Justice Stewart mentioned, that let us say the rule provided for a division of markets and we'll assume that the SEC does not object to that rule for one reason or another.

Is the position of the defendant now in this case that such a clear violation of the antitrust laws would now be insulated?

Or let us go to something else.

Let us suppose that the SEC has a rule now abolishing fixed commission rates as they do.

Two exchange members get together now and go ahead and determine that they are going to fixed commission rates regardless.

Mr. Nerheim has said and Mr. Jackson has said quite correctly that that would not be exempt from the antitrust laws.

However, since this is now a violation of the SEC Act, we are now met with a situation where there are a number of cases holding that if you sue under antitrust counts for a violation of the anti -- of the SEC Act, that at that point, you're only entitled to single damages and not triple damages.

So that what I'm pointing out to the Court is that you're ending up into a plethora of problems.

The proper regulatory scheme as the plaintiff submits and I so believe justice submits is that any particular regulatory scheme which is tended to be a claim exemption from the antitrust laws must be considered in each individual case.

Now, what actually happens that in so far as fixed commission rights, there has been no significant agency action taken in this case except now after some 41 years.

Now, furthermore, the SEC grants any of their requests that it may -- of files a Rule 19 (b) request, there is no public participation in such request.

Now, to say that that can now be reviewed by a member of the public now coming in and bringing a suit in the District Court and getting into a full dress trial would belie the entire administrative process.

This means now that there is no way to come before the SEC first and say to the SEC gentlemen, this rule that is being proposed has serious anti-competitive effects.

The normal rule of exhaustion of administrative remedies, it would seem to me, would be completely violated by permitting such a procedure and since there is no mechanism for public participation in connection with such a rule, it seems to me that such a statutory scheme cannot be held to be regulatory authority and violated and not immune from the antitrust laws.

As a matter of fact, this is precisely what ought to tell held.

And it seems to me that this case is almost directly analogous to ought to tell.

Also, I point out to the Court that there has been never any SEC order of any kind ordering any fixed commission rates.

The only SEC order that has been imposed, has been made has been the order now that fixed commission rates shall be phased out.

Now, let us suppose that the SEC now determines after let us say the 1st of June and the 1st of July, that fixed unblocked rates have not worked out and the stock exchange now presents a proposal for fixed rates, the SEC now goes ahead and permits that fixed rate order to go in without any review, without any hearing, without anything of that sort going on.

Now, I as a member of the public do not have any right to make my views know to the SEC.

I must now go ahead to the District Court of the District of Columbia, bring an action with respect to this and I have the entire burden on myself of a full-dress trial with the SEC no longer in a position where I am attempting to convince a regulatory agency to take certain action but as an adversary to the regulatory agency and I submit that that is not the proper regulatory practice.

I thank the Court for its consideration.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.