(5) Third Market Quotations on NASDAQ.-The Subcommittee's case study of the NASD's decision to include third market securities in NASDAQ indicates that the fear of antitrust action in the event such stocks were excluded played an important part in the decision to include such securities.89 (6) The NYSE Public Ownership Rules.-On September 8, 1969, the New York Stock Exchange gave notice to the SEC that it proposed to alter its rules to permit member firms to "go public". The original proposal contained numerous restrictions.90 At the urging of the Department of Justice, the SEC concluded that certain of those restrictions were not "supported by a showing of self-regulatory purpose sufficient to out-weigh their anti-competitive impact and should not be sanctioned under the Securities Exchange Act." 92 As a result, the NYSE eliminated the restrictions in question.93 Thus, the antitrust laws have had a salutary effect in controlling anti-competitive conduct by self-regulatory bodies which could not meet the Silver test. The benefits provided to date are, nonetheless, not susceptible to definitive enumeration: It has always been one of the strengths of antitrust that b. An Analysis of the Proposals for Immunity The application of the antitrust laws to the self-regulatory organizations in the securities industry has raised fears, first, that the courts will somehow impinge upon the role of the SEC and disrupt the regulatory structure; 95 and second, that exposure to treble damages as a result of regulatory actions taken in good faith will inhibit the selfregulatory bodies in fulfilling their statutory mandate.96 In order to meet these suggested problems, of which there is as yet no tangible evidence, several proposals have been advanced. 97 William McChesney Martin favors a complete antitrust exemption for actions taken by self-regulatory organizations on the grounds that: The Court decisions to date leave the question of antitrust exemption for exchanges far from clear. Consequently, 693 Study Hearings, supra note 4, at 11-13. 90 SEC Sec. Ex. Act Rel. No. 8717 (October 8, 1969). 91 Comments of the United States Department of Justice to SEC Sec. Ex. Act Rel. No. 8717 (undated). 92 SEC Sec. Ex. Act Rel. No. 8831 (Feb. 26, 1970). 93 The history of the adoption of these rules is set forth at some length in Securities Industry Study, Report of the Subcomm. on Securities of the Senate Comm. on Banking, Housing and Urban Affairs for the Period Ended February 4, 1972, 92d Cong. 2nd Sess. (1972) at 61-63. 94 R. Hofstadter, What Happened to the Antitrust Movement?, (1964), reprinted in BLAKE & PITOFSKY, CASES AND MATERIALS ON ANTITRUST LAW, 1323-24, (1967). 95 See Testimony of William Casey, 1 Study Hearings, supra note 4, at 100; Memorandum of the Securities and Exchange Commission, supra note 56, at pp. 8-13. 96 Martin, The Securities Markets: A Report, With Recommendations, 20 (1971). 97 No examples have been brought to the Subcommittee's attention of self-regulatory organizations refraining from taking action they deemed desirable in the public interest because of a fear of antitrust liability. The Pacific Coast Stock Exchange and the Midwest Stock Exchange have expressed concern that they might be subject to antitrust liability if they undertook to implement the SEC's proposals to prohibit institutional membership without being ordered to do so by the SEC. See Chapter I.C. 3.b., supra for a full discussion of this matter. exchanges face the choice of either regulating at their peril or The SEC has taken the position that it should have the power to resolve antitrust questions and to confer immunity: [T]he intent of Congress was that the Commission resolve In support of this position, Chairman Casey has suggested that the SEC already has preclusive primary jurisdiction, and that the SEO determination of antitrust questions should be binding on the courts, at least so long as the SEC determination is not found to have been unreasonable or not properly supported.100 However, in light of the court decisions rejecting this position, with respect both to the securities industry 101 and other regulated industries,102 the SEC's position must be treated as, in fact, a proposal for legislation implementing its view of what the law should properly be in this area.1 These suggestions have met with strong resistance in Congress and from the Department of Justice. In its recent report, the Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce concluded unanimously that the present judicial reconciliation of the antitrust and securities laws is "clear and correct" and that no legislative grant of immunity would be appropriate.104 The Department of Justice, in a letter to the Chairman of this Subcommittee, expressed its opposition to suggestions for new statutory immunity: The overriding question is whether in the long run our securities markets will rely primarily on competition to insure efficiency, or whether we shall turn increasingly to public utility regulation. We think that competition offers by far the better course 105 We further believe that some recent recommendations to exempt national securities exchanges from the anti-trust laws are both unnecessary and unwise." One Congressman described the scope of the Martin and SEC proposals as follows: What you [the advocates of the Martin Report position] are asking is that any action taken by the SEC within the 95 Martin, supra note 96, at 20. 99 Memorandum of the Securities and Exchange Commission, supra note 60, at 16. 100 1 Study Hearings, supra note 4, at 97. The type of judicial review suggested by Chairman Casey is rather limited and differs substantially from the de novo review which the courts customarily employ in antitrust matters. 101 See text supra at footnotes 60-64. 102 See text supra at footnotes 65-67. 103 Understandably, since it does not want to abandon its defense in the Thill case and 15 other actions currently pending against it under the antitrust laws, the NYSE takes the position that the decisions in that case are erroneous and will be reversed on appeal. Therefore the NYSE does not suggest new legislation "at this time," reserving the possibility of doing so in the event the Thill decisions are sustained. See 7 House Hearings, supra note 1, at 3751. 104 Securities Industry Study, Report of the Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce, 92d Cong. 2d Session, at 155-168 (Subcommittee print 1972). 105 Letter from Richard McLaren to Senator Williams, Dec. 3, 1971 in Study Hearings, supra note 4, at 6. entire scope and range of its authority under Congressional So you are in effect giving the SEC. . . authority to But, personally, I would not be willing as a Congressman to submit to the SEC the final determination of what Congress intended to exempt from antitrust action.106 Congress' refusal to grant immunity in this area is not new. In 1965 the Chairman of the SEC suggested legislation to increase the SEC's authority over stock exchange self-regulation. He also suggested that antitrust immunity might be advisable for all exchange action subject to SEC review.107 Both Congressman Celler, Chairman of the House Judiciary Committee, and Senator Hart, Chairman of the Antitrust and Monopoly Subcommittee of the Senate Judiciary Committee, rejected this suggestion.108 The Bank Merger Act Amendment of 1966 109 provides another illustration of Congress' wise reluctance to grant antitrust immunity or limit the scope of judicial consideration of antitrust questions. In the Philadelphia National Bank case, noted above,110 the Supreme Court had upheld the power of the courts to determine the antitrust consequences of a merger which had been approved by the appropriate bank regulatory agency under the Bank Merger Act of 1960. In 1966, in response to criticisms of that decision, Congress amended the Bank Merger Act. In the amended Act the bank regulatory agency, in passing on the merger, is instructed to weigh the affirmative benefits of the merger against its anticompetitive effects. Congress also expressly provided, however, that the merger could subsequently be challenged by the Justice Department in the courts, in which case the court was to make the same determination de novo, that is, the court was to reach its own independent conclusions on the question. The wisdom of the Congress in resisting past requests for antitrust exemption is reinforced by close analysis of the arguments offered by the advocates of an exemption. The Silver case 112 and its progeny do not leave the question as uncertain as is sometimes suggested. The question of whether a particular anti-competitive self-regulatory action is required to achieve the purposes of the 1934 Act is subject to rational analysis by the self-regulatory body considering the action. Such analysis would include an evaluation of the danger which the rule or conduct in question is designed to meet and consideration of whether the proposals for meeting the danger do so with the minimum anti-competitive effect. The extent to which the self-regulatory bodies have failed to conduct this kind of analysis in some instances is illustrated by the 106 6 House Hearings, supra note 1, at 3111. 107 Letter from SEC Chairman Cohen to Congressman Celler, Sept. 22, 1965 cited in 5 Loss, SECURITIES REGULATION 3470. 108 See 5 Loss, supra note 107 at 3171-3172; see also Comment, An Approach for Reconciling Antitrust Law. and Securities Law: The Antitrust Immunity of the Securities Industry Reconsidered 65 NW. U.L. REV. 260, 291 fn. 139 (1907) ("There has been no visible inclination to enlarge the antitrust immunity of the exchanges. This fact is all the more significant, since it is despite efforts of the Commission to accomplish this result") 109 Pub. L. 89-356 (12 U.S.C. § 1828). 110 374 U.S.321 (1963), discussed supra in text at footnotes 44-46. 111 12 U.S.C. § 1828(C) (7); United States v. First National City Bank of Houston, 386 U.S. 361 (1967). 112 Silver v. New York Stock Exchange, 373 U.S. 341 (1963). NYSE-SEC dialogue in connection with the adoption of the rules governing public ownership of member firms.113 There has also been no evidence of self-regulatory bodies failing to! meet their statutory responsibility to protect investors because of the fear of antitrust liability. While some uncertainty inevitably surrounds any decision involving the balancing of competing objectives, the Subcommittee does not believe it appropriate to attempt to eliminate this uncertainty by means of exempting the self-regulatory bodies from the application of laws which the Supreme Court recently described as "the Magna Carta of free enterprise." 114 As one court has said, in a case involving the actions of a shipping conference, the risk of incorrectly analyzing one's exposure to antitrust liability: [i]s a risk that any person in business affecting commerce The argument is equally applicable to the securities industry, which eagerly sought and steadfastly defends its unique statutory power to regulate itself. The SEC's argument in favor of vesting some form of primary jurisdiction in the SEC is premised upon the notion of agency expertise and the traditional purported advantages of agency determination-that the agency is better able to receive and analyse the masses of evidence involved in antitrust proceedings, that its expertise makes it better able to analyze economic data, and that the entire regulatory structure is subject to dislocation by ad hoc judicial intervention.116 However, these arguments must be balanced against that fact that the SEC does not have antitrust expertise.117 as well as the evidence that agencies tend to give insufficient weight to the national policy of competition and, indeed, tend to be too concerned about the economic. welfare of the industry in their charge.118 While the SEC is correct in asserting that it was given a Congressional mandate to regulate and supervise the securities industry, the SEC's assertion that it! should also have the authority to immunize self-regulatory conduct from the antitrust laws is anomalous in the light of the Congressional treatment of other analogous regulated industries.119 The SEC suggests, without citing specific examples, that the complexity of the regulatory process is such that no question can be considered out of the context of the remainder of the regulatory structure. While this may well be true in part, no substantial case has been made to the effect that the courts are incapable of dealing with 113 This dialogue is discussed supra in footnote 81. 114 United States v. Topco Associates, 405 U.S. 596, 610 (1972). 115 Sabre Shipping Corp. v. American President Lines, 285 F. Supp. 949, (S.D.N.Y. 1968). 116 See Memorandum of the Securities and Exchange Commission, supra note 60; Testimony of William Casey, 1 Study Hearings supra note 4, at 99-100: Note, Primary Jurisdiction in Antitrust Action Against the New York Stock Exchange: Immunization and Expertise, 1970 ILL. LAW FORUM 544. 117 See Thill Securities Corp. v. New York Stock Exchange, 433 F.2d 264, 273 (7th Cir. 1970) cert. denied 401 U.S. 994 (1971). 118 See Ibid. and sources cited therein; Bad Trade-the Martin Report Would Swap Regulation for Competition, BARRONS, Aug. 30, 1971, reprinted in 1 Study Hearings, supra note 4 at 94, 96. 119 See text supra at footnotes 44-45. these issues with the guidance of the SEC as an intervenor. This is now the way in which the Thill 120 case is proceeding. The experience with this case should, at least, be awaited before any changes are made in this area. Finally, if a court abrogates a self-regulatory rule as unreasonably anticompetitive, the SEC will, under the statutory amendments proposed elsewhere in this report concerning SEC authority over self-regulatory bodies,121 have residual power to deal with the question by promulgating a rule of its own. As noted above, no antitrust liability would be placed upon the self-regulatory body as a result of adhering to an SEC-imposed rule.122 One who is aggrieved by such a rule would have recourse to the courts to review the agency action under the usual criteria for such review. In evaluating the large number of antitrust cases brought against self-regulatory organizations in recent years, one must not lose sight of the fact that many of the cases arose out of situations in which effective review of action of a disciplinary nature was not available through other channels. Most of the others involved major economic issuesprimarily fixed commissions and the ancillary limitations on nonmember access.123 The elimination of uneconomical fixed commission rates and the resolution of the so-called institutional membership question as recommended elsewhere in this Report,124 should eliminate these major causes of litigation. Similarly, our proposals to provide aggrieved persons with a more direct avenue of review by the SEC and in the courts of all disciplinary and similar actions should reduce the number of antitrust cases, such as Silver and Harwell, which are essentially based on allegations of improper procedures.125 Finally, it is important to bear in mind the fact that fearful predictions, however genuinely believed, of the consequences of the application of our antitrust laws are not new and have not generally come to pass. As the Supreme Court said almost seventy years ago in a leading case applying the antitrust laws to an attempt to bring two competing railroads under common control: Many suggestions were made in argument based upon the thought that the Anti-Trust Act would, in the end, prove to be mischievous in its consequences. Disaster to business and widespread financial ruin, it has been intimated, 120 Thill Securities Corp. v. New York Stock Exchange, supra note 64. 121 See Chapter III. C., supra. 122 See text supra at footnote 43. 123 A summary of the complaints in all antitrust actions against principal self-regulatory organizations as of March, 1972 may be found in 7 House Hearings, supra note 1, at 3756-64. By letters to the Subcommittee's staff, the information in 7 House Hearings has been updated by the self-regulatory organizations through October 1972. The pending cases fall into the following categories: Midwest Stock Exchange: Disciplinary proceedings. American Stock Exchange: Exclusion of listed securities from NASDAQ.. New York Stock Exchange: 1 case. 1 case. 1 case. 5 cases. 4 cases. Fixed commissions and non-member access. 2 cases. Rules governing compensation transfer of registered representatives.. Regulation of odd-lot charges before 1966.. 2 cases. Delisting.. Exclusion of listed securities from NASDAQ. 1 case. NASD: Elimination of unlimited in and out privileges for mutual fund shareholders. Exclusion of listed securities from NASDAQ and alleged domination of NASDAQ 1 case. 1 case. There are no cases pending against the PBW Stock Exchange or the Pacific Coast Stock Exchange. 124 Chapter I.B. and I.C., supra. 125 Chapter III. D., supra. |