[00:00:02] Speaker 00:
Case number 18-1292 at L, the NASDAQ stock market LLC petitioner versus Securities and Exchange Commission.

[00:00:11] Speaker 00:
Ms.

[00:00:12] Speaker 00:
Omar for petitioner, the NASDAQ stock market LLC.

[00:00:16] Speaker 00:
Mr. Henkin for petitioner.

[00:00:18] Speaker 00:
NYRC, ARCA, Inc.

[00:00:20] Speaker 00:
Mr. Frieda for respondent, and Mr. Phillips for the interviewee.

[00:00:30] Speaker 04:
Thank you, Your Honor, and may it please the Court.

[00:00:32] Speaker 04:
I'd like to reserve two minutes for rebuttal.

[00:00:36] Speaker 04:
The Commission's attempt to shoehorn fee rule challenges into Section 19D is irreconcilable with the text and structure of the Exchange Act.

[00:00:43] Speaker 09:
Your Honor, I'm going to interrupt you very early here.

[00:00:47] Speaker 09:
This case is all about Section 19D.

[00:00:51] Speaker 09:
Each of you, though each of the appellate side business, filed a supplemental appendix.

[00:00:58] Speaker 09:
The government filed no supplemental appendix.

[00:01:00] Speaker 09:
Your supplemental appendix doesn't have 19D in it either.

[00:01:03] Speaker 09:
It has four-digit citations with subsections and substations.

[00:01:07] Speaker 09:
So the court reads your brief, and I'm speaking not just for myself, and we find references to 19D and other sections of the public law.

[00:01:16] Speaker 09:
Rarely is there even a parallel citation to the system you use in your supplemental appendix.

[00:01:22] Speaker 09:
Were you all trying to keep us from finding the law?

[00:01:25] Speaker 04:
No, Your Honor, and I apologize for the confusion.

[00:01:27] Speaker 09:
So why don't you put either

[00:01:29] Speaker 09:
public law stations consistently in the brief and the supplemental and then the special appendix or put statutory citations so that the court can find it without spending hours and I mean that literally sometimes figuring out what it is you're talking about.

[00:01:46] Speaker 04:
Yes, Your Honor, and I apologize.

[00:01:47] Speaker 04:
19D is in the statutory appendix at pages A19 through A20.

[00:01:54] Speaker 04:
It's 15 USC 78S.

[00:01:56] Speaker 08:
Is it cited as 19D at that point in the supplemental appendix?

[00:02:02] Speaker 04:
In our appendix, it's from the United States Code, so it's 78S.

[00:02:04] Speaker 09:
That's exactly the point, Counsel.

[00:02:07] Speaker 09:
Everything in the appendices is United States Code.

[00:02:11] Speaker 09:
Everything in the briefs is public law.

[00:02:14] Speaker 09:
Thank you, Your Honor.

[00:02:14] Speaker 09:
That may be fine for those of you who spend your entire life on one set of acts.

[00:02:20] Speaker 09:
This Court hears petitions regarding all the government agencies and all the acts.

[00:02:26] Speaker 09:
So we need to have citations to what we can find easily.

[00:02:31] Speaker 09:
Then we have to find it without it being easy.

[00:02:35] Speaker 09:
We're putting your brief down to look somewhere else.

[00:02:37] Speaker 09:
You're really not helping your argument any by making it interrupt that many times.

[00:02:43] Speaker 09:
We've raised this before.

[00:02:44] Speaker 09:
You might spread this around your law firm and your friends at the government table that it helps if you help us find the law.

[00:02:52] Speaker 09:
Thank you, Your Honor.

[00:02:53] Speaker 04:
I understand and I will definitely spread this around.

[00:02:56] Speaker 04:
Thank you, sir.

[00:02:59] Speaker 04:
For five principal reasons, the Commission's interpretation is irreconcilable with the Act.

[00:03:04] Speaker 04:
First, the Commission's interpretation rips the phrase prohibits or limits from its statutory context, which makes clear that as used in Section 19D, this phrase refers to quasi-adjudicative SRO actions, just like all the other types of actions that appear in the same list, and not to generalized rules.

[00:03:24] Speaker 03:
which are instead covered expressly by Section 19B and C. Before we get into this statutory construction point, we have to grapple with our prior decision in Net Coalition 2.

[00:03:39] Speaker 04:
Your Honor, Net Coalition 2, I think expressly, as the Commission conceded in its ruling, did not resolve this question.

[00:03:46] Speaker 04:
Instead, after going through this... Well, the Commission might say that.

[00:03:49] Speaker 03:
I guess we have a panel member here who can speak.

[00:03:52] Speaker 03:
more authoritatively than I can.

[00:03:55] Speaker 03:
And I know you all are quoting the language on page 353, but I want to know what do I do with the language on 352 that introduces this whole discussion that says, although the text of section 19B3C is clear, our view is bolstered by the availability of judicial review down the road.

[00:04:16] Speaker 03:
Consistent with presumption of judicial review of agency action, we have long allowed the availability of other avenues of review to affect our assessment of our jurisdiction.

[00:04:28] Speaker 03:
How is that not make it part of the analysis critical to the outcome of the case?

[00:04:35] Speaker 04:
For two reasons.

[00:04:36] Speaker 04:
First of all, in the immediately prior paragraph and prior discussion to that, the court had already applied the governing test for determining

[00:04:44] Speaker 04:
whether Congress has precluded judicial review, which is whether Congress has spoken clearly and unambiguously to the question, essentially the plain statement rule, and the court had clearly concluded that the answer to that question was yes.

[00:04:56] Speaker 04:
The court said, and I quote, the language is not ambiguous in any sense relevant here, and the court simply is not at liberty to displace it or improve upon the jurisdictional choice of Congress.

[00:05:10] Speaker 04:
That's at page 352 in the paragraph immediately prior to the one

[00:05:13] Speaker 04:
You quoted, so the court had made perfectly clear that under the governing test for preclusion of judicial review, the test was satisfied.

[00:05:19] Speaker 04:
This was simply a further discussion.

[00:05:21] Speaker 04:
And then if you look at the further discussion.

[00:05:23] Speaker 03:
Well, holding it includes analysis necessary to the decision.

[00:05:27] Speaker 03:
And again, I wasn't on the panel, but I have a duty bound.

[00:05:31] Speaker 03:
This is the opinion of our court now, and I'm duty to be bound to respect it as fully as possible.

[00:05:36] Speaker 03:
And so I'm just trying to make

[00:05:38] Speaker 03:
clear here how this isn't analysis.

[00:05:41] Speaker 03:
That introductory language to me sounds like analysis that was necessary to the decision because they're coming in and saying, look, and to the extent there's this presumption, if there were any ambiguity and you'd have this presumption, here is the answer.

[00:05:58] Speaker 04:
Well, if you read past the point that you

[00:06:01] Speaker 04:
So if you read past the point that you quoted, you then get into the discussion of this particular issue.

[00:06:05] Speaker 04:
And what the court says repeatedly is the commission contends.

[00:06:09] Speaker 04:
The commission contends.

[00:06:10] Speaker 04:
And then when it gets to the conclusion, it says if.

[00:06:12] Speaker 03:
I get that language.

[00:06:14] Speaker 03:
I'm just worried about the introductory language.

[00:06:17] Speaker 04:
But this is the working out of that introductory language in the court's opinion.

[00:06:21] Speaker 04:
And the court never says we therefore hold.

[00:06:24] Speaker 04:
It says if the commission is correct.

[00:06:26] Speaker 03:
That's not necessary.

[00:06:27] Speaker 03:
We have to stay there for a hold.

[00:06:29] Speaker 04:
I think, well, yes, but it is necessary for the court to make clear, if it is a holding, that it is a holding.

[00:06:34] Speaker 04:
It doesn't have to use those magic words.

[00:06:35] Speaker 04:
But when a court says, if x is true, then y follows, that can't be a holding.

[00:06:40] Speaker 04:
Because the court hasn't decided whether x is true.

[00:06:42] Speaker 04:
And it would have been quite inappropriate for the court in that case to decide whether x is true.

[00:06:46] Speaker 04:
That is, whether 19D applies in this circumstance.

[00:06:49] Speaker 04:
Because it had not been litigated.

[00:06:51] Speaker 04:
It had not been disputed.

[00:06:52] Speaker 04:
It was not the question before the court.

[00:06:53] Speaker 02:
It was briefed.

[00:06:55] Speaker 04:
Only by the commission, Your Honor.

[00:06:56] Speaker 04:
The other parties didn't even address it.

[00:06:58] Speaker 03:
Right.

[00:06:59] Speaker 03:
But there was some discussion at oral argument.

[00:07:03] Speaker 04:
It was discussed at oral argument.

[00:07:04] Speaker 04:
And again, other than the commission, which was offering this up as an alternative, the parties didn't address it.

[00:07:11] Speaker 04:
And the court clearly did not resolve it, because it said, if this is true.

[00:07:14] Speaker 04:
It was quite clearly saying, if the commission is right, then this is true.

[00:07:17] Speaker 04:
And it's also true, Your Honor, that judicial review is available even if 19D doesn't apply, which we submit it doesn't, because judicial review is available under 19B

[00:07:26] Speaker 04:
and 19C, which are the provisions that Congress actually enacted to give the Commission the authority to review SRO rules, which is what we're talking about.

[00:07:34] Speaker 10:
So just so that I'm clear, your position of how review is supposed to work, if you get past the initial stage where the Commission can come in and suspend the rule, you're saying that

[00:07:51] Speaker 10:
After that stage, the commission could commence a rulemaking pursuant to 19C and say, you know, we propose that this fee be changed and do it by a rule, commission rule.

[00:08:05] Speaker 10:
There would be a notice and comment rulemaking.

[00:08:08] Speaker 10:
Yes, Your Honor.

[00:08:10] Speaker 10:
the outcome of that rulemaking could be reviewed in this court by whoever traditionally would have standing to challenge a commission rule.

[00:08:20] Speaker 10:
Correct.

[00:08:20] Speaker 10:
But if the commission didn't do that, CFMA or others could petition the commission and ask them to commence a rulemaking.

[00:08:31] Speaker 10:
And if they refused to commence a rulemaking,

[00:08:35] Speaker 10:
those parties could seek review in this court of that denial of their petition to commence the rulemaking, but that of course would be reviewed very deferentially by us, but there would be review.

[00:08:48] Speaker 04:
That's what you say should happen.

[00:08:49] Speaker 04:
Yes, Your Honor.

[00:08:50] Speaker 04:
And that's clear because the alternative interpretation that the Commission has posited

[00:08:56] Speaker 04:
essentially nullifies what Congress did in 1975 and then with respect to these kinds of rules in particular in 2010 in the Dodd-Frank Act because what Congress said is for immediately effective rules

[00:09:09] Speaker 04:
under which are governed by Section 19B, the Commission has only 60 days upon submission to summarily suspend the rules and a maximum of 240 days to disapprove them if it chooses to proceed under that heading to disapprove them by order.

[00:09:25] Speaker 04:
Otherwise, it's relegated to 19C to its notice and comment rulemaking process.

[00:09:29] Speaker 04:
But if the Commission were correct that 19D gives them an end run around that 19B and C structure,

[00:09:35] Speaker 04:
the 60-day summary suspension period is out the window because on the 61st day, all they have to do is say, oh, well, we can't use 19B anymore, but thankfully, 19D gives us exactly the same power with no time limits.

[00:09:47] Speaker 04:
And likewise, once we've stayed the effectiveness of the rule, we also have no 240-day time limit on our time to issue an order invalidating the rule.

[00:09:56] Speaker 04:
So what Congress did in 1975 and then again in 2010 is completely out the window because the Commission has found

[00:10:02] Speaker 04:
a way to evade it by using a statute that very clearly on its face and in context is addressed to adjudicative proceedings, not rules.

[00:10:09] Speaker 03:
And of course, as this court has made clear in many contexts... Sorry, I want to back up.

[00:10:14] Speaker 03:
Why is it so clearly adjudicative?

[00:10:19] Speaker 04:
For a couple of reasons.

[00:10:20] Speaker 04:
First of all, if you look at the other types of activity, actions that are subject to review under 19D, it's things like disciplinary actions, decisions denying membership to particular individuals.

[00:10:33] Speaker 04:
They're all focused on individualized determinations involving particular entities or individuals on specific grounds applicable to that person.

[00:10:42] Speaker 04:
And then if you look at section 6D2, which involves the same precise list of actions by the SROs, it specifically talks about the procedures that must be provided in those adjudicative proceedings.

[00:10:55] Speaker 04:
And it says the SRO when it's going to limit someone's access.

[00:10:58] Speaker 03:
They have to be adjudicative.

[00:10:59] Speaker 03:
I mean, why couldn't it be the question of whether it's more targeted rather than adjudicative?

[00:11:07] Speaker 03:
So if you had a fee and they had a tiered fee scheme,

[00:11:12] Speaker 03:
And it was sort of based on here you have, we call it digital, non-digital, whatever you have, all the different forms you have here and different entities.

[00:11:20] Speaker 03:
And then the fourth category of fee was it will be a million dollars for new pop-up investors because for some reason they don't like pop-up investors, newcomers to the market, single actors.

[00:11:38] Speaker 03:
trying to come in here and mess with the market.

[00:11:40] Speaker 03:
They define the category in more sophisticated terms than I just did.

[00:11:44] Speaker 03:
But they want to keep them out.

[00:11:46] Speaker 03:
And so they have a $5 million fee for them, way over what everyone else is being charged.

[00:11:51] Speaker 03:
Why couldn't that be addressed under 19-D, even though that wouldn't be a disciplinary action or product of a quasi-adjudicated procedure?

[00:12:01] Speaker 04:
Well, again, under a just and generous and not sort of an asocius, you normally construe terms in the list to be part of the same context, which here, since the other terms are clearly quasi-judicative, that you would get to the same conclusion about meditation.

[00:12:15] Speaker 03:
Not necessarily.

[00:12:16] Speaker 03:
They're also just individualized.

[00:12:17] Speaker 03:
You keep talking about it.

[00:12:18] Speaker 03:
was done to such person or other person.

[00:12:21] Speaker 04:
Well, again, okay, let me go to section 6D2, as I was starting to.

[00:12:24] Speaker 04:
6D2 governs the process by which you limit access to services or engage in these other quasi-adjudicative actions.

[00:12:33] Speaker 04:
And it says that when the SRO is considering whether to impose one of those restrictions on a party, it must give that party notice and an opportunity to be heard

[00:12:45] Speaker 04:
when it is considering whether to do it.

[00:12:47] Speaker 03:
I'm just saying the rule and even the rules that the commission has to go with 6D recognize that you could have a limitation by some, something could be limited if they refuse to pay a fee and then are limited in or prohibited in access.

[00:13:05] Speaker 03:
I don't know why you have to have a categorical rule that says fees could never be

[00:13:11] Speaker 03:
imposed in a way by an exchange that would be targeted, or someone could allege they're targeted, and bring a challenge under 6D.

[00:13:18] Speaker 03:
And it can't be that the SRO's inability to provide notice keeps someone out of court.

[00:13:24] Speaker 04:
Well, even if the court were to conclude that an individualized rule, if you will, that a rule that targets a particular person in a manner similar, even if the court were to conclude that that were to be treated differently, that wouldn't mean that the commission properly exercised jurisdiction in this case with respect to a generalized fee rule.

[00:13:46] Speaker 03:
I understand, but you are arguing for

[00:13:52] Speaker 03:
a rule that you have to have sort of either disciplinary sanction or some sort of quasi adjudicatory proceeding to be limited within, prohibited or limited within the terms of this statute.

[00:14:07] Speaker 03:
And I just don't, that's not consistent with their rules.

[00:14:11] Speaker 03:
And I'm not sure it's consistent with the text, which seems to be focused less on procedures, which it doesn't really talk about, but instead talks about something that's being done to such person.

[00:14:21] Speaker 04:
Well, with respect to their rule, which of course to the extent it's inconsistent with the statute is invalid, but the rule actually makes clear that it is talking about adjudicative proceedings.

[00:14:30] Speaker 04:
Because if you're talking about rule 19D1, it actually talks about the fact that no disposition of a matter should be considered final pursuant to this paragraph, which dictates when you give notice to the commission that invokes the 19D process, if it results merely from a failure

[00:14:50] Speaker 04:
from a failure of the person affected to comply with the rule if they haven't sought an adjudication, including a hearing, or otherwise exhausted the administrator's remedies before the SRO.

[00:14:59] Speaker 04:
So the commission's rules themselves make clear that this is about adjudicative proceedings.

[00:15:03] Speaker 03:
The legislative history says the same thing.

[00:15:05] Speaker 03:
E3 comply with any final, the actions all applies to failure to pay entry or other dues or fees or to file prescribed forms or reports.

[00:15:17] Speaker 04:
But I'm not sure which rule you're referring to.

[00:15:20] Speaker 04:
I'm referring to rule 19D-1.

[00:15:21] Speaker 03:
I'm at 19D-1, and I believe it's E3.

[00:15:25] Speaker 04:
Yes.

[00:15:25] Speaker 04:
But if you read on to the end of that rule, you'll see that that doesn't become reviewable under the commission's view, which, of course, we don't agree with here.

[00:15:34] Speaker 04:
But even if you accept their view for purposes of this discussion,

[00:15:38] Speaker 04:
It goes on to say, no disposition of a matter shall be considered final pursuant to this matter.

[00:15:43] Speaker 03:
Which part are you reading from?

[00:15:45] Speaker 03:
Sorry.

[00:15:45] Speaker 04:
So after the provided clause, this is in E3, which talks about final.

[00:15:52] Speaker 04:
So E starts by saying final action of an SRO.

[00:15:57] Speaker 04:
Then the SRO is supposed to give notice.

[00:15:59] Speaker 04:
It is this type of action to the commission, which triggers the 19D process.

[00:16:03] Speaker 04:
But in E3, after the provided clause, it says no disposition of a matter shall be considered final.

[00:16:08] Speaker 04:
which results merely from a notice of such failure to the person affected.

[00:16:11] Speaker 04:
That is, a failure to comply with the rule.

[00:16:13] Speaker 03:
Or otherwise exhausted administrative remedies, which sounds like there may be things other than a hearing.

[00:16:18] Speaker 04:
Well, if such person has not sought an adjudication, including a hearing, or otherwise exhausted administrative remedies, there's no administrative remedy other than going to the SRO and saying, please.

[00:16:28] Speaker 04:
I mean, again, these are individualized determinations.

[00:16:30] Speaker 03:
I got to your argument about

[00:16:32] Speaker 03:
That's what I was pointing out.

[00:16:34] Speaker 03:
Language needs to be focused on targeted things.

[00:16:36] Speaker 04:
So it's an adjudication or a quasi adjudication.

[00:16:39] Speaker 04:
None of this procedure was followed here because this isn't a 19D process.

[00:16:43] Speaker 04:
And again, we think Congress clearly drew a line between rules, which are expressly covered by B and C. Congress set out a very careful mechanism to alternative mechanisms for challenging or reviewing these rules.

[00:16:55] Speaker 04:
And it set out a different mechanism that clearly, because of the 6D process,

[00:16:59] Speaker 04:
notice an opportunity to be heard on a record and so forth on an individualized basis.

[00:17:04] Speaker 04:
In fact, rule 19D1F, the next subsection of that,

[00:17:08] Speaker 04:
also confirms this point, because it says that once you've gone through this process in a true quasi-adjudicative proceeding, the notice under 19D that the SRO must give to the Commission must specify the name of the person to whom the limitation has been applied.

[00:17:23] Speaker 04:
Of course, that's nonsensical, and when you're talking about a generalized fee rule, they have no idea who might be subjecting themselves.

[00:17:27] Speaker 03:
I'm just asking about if you had a sort of, by terms, discriminatory fee as part of a general fee schedule, whether

[00:17:37] Speaker 03:
We wouldn't have to decide in this case whether that could constitute a limitation or prohibition under the statute.

[00:17:43] Speaker 04:
You certainly do not have to decide in this case whether that would be reviewable.

[00:17:46] Speaker 03:
There's no argument like that in this case.

[00:17:48] Speaker 04:
I'm sorry?

[00:17:49] Speaker 03:
There's no argument like that in this case.

[00:17:51] Speaker 04:
Yeah, that question is not an issue here and I think the court could leave that open for another day.

[00:17:55] Speaker 10:
I guess a similar question is how are we to treat

[00:17:58] Speaker 10:
the National Association of Securities Dealers case from our court in 1986 that involved Instanet.

[00:18:07] Speaker 10:
Yes, Your Honor.

[00:18:08] Speaker 04:
That involved, of course.

[00:18:09] Speaker 10:
I mean, I understand that it was under Section 11 AB 5, but

[00:18:15] Speaker 10:
The language there is similar, if not identical, at least the operative language to section 19D here.

[00:18:22] Speaker 10:
The question was, they filed a petition saying that this fee was excessive or discriminatory.

[00:18:30] Speaker 10:
The court heard that.

[00:18:31] Speaker 10:
It appears that there was no argument made before the commission.

[00:18:35] Speaker 10:
that the Commission shouldn't act under that statute.

[00:18:39] Speaker 10:
So when it came to us, it was too late to make such an argument.

[00:18:45] Speaker 10:
But nonetheless, they proceeded under that statute.

[00:18:49] Speaker 10:
They got a ruling.

[00:18:51] Speaker 10:
the world didn't end, the markets didn't crash.

[00:18:54] Speaker 10:
So what do we need to do with that case?

[00:18:58] Speaker 04:
So two things.

[00:18:59] Speaker 04:
First of all, as you know, it wasn't disputed either before the commission or before this court.

[00:19:04] Speaker 04:
And this court didn't, therefore, purport to resolve it.

[00:19:08] Speaker 04:
It referred to it in addressing the merits.

[00:19:11] Speaker 04:
But it clearly was not articulating a ruling on the question, does 11A apply here?

[00:19:15] Speaker 04:
Because that hadn't been disputed.

[00:19:17] Speaker 04:
It was simply saying, under these circumstances, that is.

[00:19:19] Speaker 04:
where the parties weren't disputing the applicability of that review process and were only fighting about the merits, and the court had just explained why DNSE lost on the merits, and they said, therefore, under these circumstances, relief is appropriate.

[00:19:30] Speaker 04:
That's not a ruling on the threshold question of the Commission's jurisdiction.

[00:19:34] Speaker 04:
And of course, the Supreme Court has made clear that drive-by jurisdictional rulings, even if they were a ruling, are not binding precedent.

[00:19:41] Speaker 04:
And so again,

[00:19:42] Speaker 04:
And moreover, I mean, even the Commission's articulation of that position in that case involved, in person at the judgment of that question, an individualized application of a rule.

[00:19:54] Speaker 04:
It was basically a rule for one party.

[00:19:55] Speaker 04:
So whatever the answer to that question is would not be dispositive in this case.

[00:20:02] Speaker 04:
So in addition to the structure of the statute and the principles of statutory construction, the legislative history, which expressly and repeatedly says that these are quasi-adjudicative actions and distinguishes them from rules which are subject to the 19 B and C process, and the fact that the time requirements that Congress imposed for review of these generalized fee rules would be eviscerated under the commission's interpretation.

[00:20:23] Speaker 03:
Are you relying on the headings?

[00:20:25] Speaker 04:
No, Your Honor.

[00:20:26] Speaker 03:
OK.

[00:20:26] Speaker 03:
I thought you briefly relied on the headings.

[00:20:29] Speaker 04:
There's also the fact that in 19F, the Congress explicitly distinguished between limitations on services and rules by requiring that the limitations on services be judged against the rules, which makes no sense if limitations are rules.

[00:20:45] Speaker 04:
And finally, the point made in our brief that the remedy

[00:20:48] Speaker 04:
that the commission ordered is inconsistent with 19F because they didn't actually order access to the services, which is what 19F would require.

[00:20:56] Speaker 03:
On page 49 of your brief, and maybe I just read the blue brief, you said, customers can, quote, discipline data pricing through litigation, end quote, and, quote, regulatory influence, end quote.

[00:21:09] Speaker 03:
What did you mean by that?

[00:21:13] Speaker 03:
You talked about other avenues for judicial review, but I was trying to understand, and maybe I just totally misread it, what you meant by what customers can do to discipline pricing through litigation.

[00:21:26] Speaker 04:
I mean, I think that's a reference properly understood to their options to participate in the 19B and 19C process.

[00:21:38] Speaker 03:
That's not litigation.

[00:21:41] Speaker 04:
Well, I mean, those ultimately result in judicial review, which is litigation.

[00:21:45] Speaker 04:
Maybe I'm, I'm sorry, where on the page is that?

[00:21:49] Speaker 03:
Okay, it's on 49, so the paragraph beginning, if 10 years, and then about five of these lines down.

[00:21:57] Speaker 03:
So if you mean, so if you meant they can protect their rights by this type of litigation that you want to say,

[00:22:05] Speaker 03:
by being an intervener in these cases?

[00:22:08] Speaker 03:
That didn't seem to prove much to me, but I thought I misunderstood it, perhaps.

[00:22:12] Speaker 04:
I mean, I think the point there was simply that they have many ways to proceed to challenge fees that they don't like.

[00:22:21] Speaker 03:
That's okay.

[00:22:21] Speaker 03:
Are there many ways through litigation?

[00:22:24] Speaker 03:
I thought you had referenced some administrative processes.

[00:22:27] Speaker 04:
Well, again, I think the litigation

[00:22:29] Speaker 04:
litigation regulatory influence meaning they can go to the commission and ultimately they can go to court.

[00:22:33] Speaker 04:
I think is what we're trying to say.

[00:22:34] Speaker 03:
Okay, so that doesn't add anything to your 19B and 19C.

[00:22:37] Speaker 03:
Correct.

[00:22:39] Speaker 03:
Okay.

[00:22:39] Speaker 03:
And then when, just on this 19D issue, when the SROs are conducting these processes for someone who claims they've been limited or prohibited,

[00:22:56] Speaker 03:
from access to services.

[00:22:58] Speaker 03:
Are those always done through hearings or do they sometimes have paper filings?

[00:23:03] Speaker 03:
Is it always before like an ALJ or whatever that you're not governmental, whatever your own internal equipment?

[00:23:09] Speaker 03:
What do those processes look like and what is the range?

[00:23:12] Speaker 03:
I've got to figure sometimes you get things that are just pretty easily disposed of.

[00:23:17] Speaker 03:
through letters or something, but I just don't know what your processes look like.

[00:23:21] Speaker 04:
I don't know.

[00:23:21] Speaker 04:
The record doesn't reflect, and I don't know the answer to that, Your Honor.

[00:23:24] Speaker 04:
But again, the way the statute works is the party, again, it's not that

[00:23:31] Speaker 04:
The way it normally works, it's not that some party comes to the SRO and says, please determine whether you're going to limit me.

[00:23:37] Speaker 04:
It's that the SRO determines to institute a proceeding to limit or deny membership to or whatever it may be.

[00:23:43] Speaker 04:
And then at that point under 6D2, because it's an quasi adjudicated proceeding, they have to give notice and an opportunity for a hearing.

[00:23:51] Speaker 04:
So by statute, if the person to whom the limitation is proposed to be applied,

[00:23:58] Speaker 04:
says, well, give me a hearing.

[00:24:00] Speaker 04:
You have to give them a hearing because the statute requires it.

[00:24:02] Speaker 03:
Now what that looks like obviously... Right, that's what I'm trying to figure out.

[00:24:06] Speaker 03:
What that looks like.

[00:24:07] Speaker 09:
Yeah, I don't know the answer to the question, I'm sorry.

[00:24:09] Speaker 09:
It's going to take a bit of a second, but to take you back to the beginning, make sure I understand your answer.

[00:24:15] Speaker 09:
Given your position that fees could never be a limitation or prohibition of access for purposes of the will.

[00:24:23] Speaker 04:
No, that is not our position.

[00:24:24] Speaker 04:
Our position is that rules are distinct from limitations.

[00:24:27] Speaker 09:
No, I'm talking about the 19-D availability as to whether... We started out with a proposition about whether, and I think still are at the proposition, whether these fees could be within the term limitations or prohibitions to access.

[00:24:43] Speaker 09:
Yes.

[00:24:43] Speaker 09:
Is it your position that fees could never be within that meaning?

[00:24:49] Speaker 04:
No, Your Honor, because the distinction that we think the statute draws is between review of fees or challenges to fees and challenges to limitations and other quasi-judicative actions.

[00:24:58] Speaker 04:
So you can, I don't know if this ever actually happens, but let's say in a disciplinary proceeding or a limitation proceeding that the yes or no... I thought I was asking the yes or no question.

[00:25:06] Speaker 09:
You say no, it is not your position that fees can't ever be a 19D limitation or prohibition.

[00:25:15] Speaker 09:
Correct.

[00:25:16] Speaker 03:
I apologize, there were too many negatives in that.

[00:25:21] Speaker 09:
So fees can sometimes be within the meaning of limitations or prohibitions of access.

[00:25:31] Speaker 04:
It is possible to hypothesize a situation in which I think it would be yes, and that was what I was trying to address.

[00:25:37] Speaker 09:
What would distinguish those fees from the fees here that you say cannot be or are not within that

[00:25:43] Speaker 04:
because in this hypothetical that I was going to articulate, they wouldn't be imposed by a rule.

[00:25:48] Speaker 04:
If the challenge is to a rule, 19B and C provide the mechanism that Congress expressly created for such challenges.

[00:25:54] Speaker 04:
If the challenge is to an equations adjudicative determination, let's say in a disciplinary action, the SRO says, because you did X, Y, and Z, we're disciplining you, and you can't come back to the

[00:26:05] Speaker 04:
to the exchange unless you pay a million dollars.

[00:26:08] Speaker 04:
Well, or a fee of a million dollars, that would be challenging.

[00:26:11] Speaker 10:
I'm confused because I thought you answered Judge Millett's question earlier.

[00:26:15] Speaker 10:
Let's suppose the rule said that the fee for everyone is $10 a month except for, you know, Joe Schmoe, and the fee for him is a million dollars a month.

[00:26:31] Speaker 10:
And that's the rule.

[00:26:34] Speaker 10:
I thought I heard you say earlier that of course that's not this case, but that that could perhaps be dealt with under 19D.

[00:26:45] Speaker 10:
Are you now saying that it can't ever be subject to 19D?

[00:26:52] Speaker 04:
So let me be clear.

[00:26:54] Speaker 04:
Our view of the proper interpretation of the statute is that that hypothetical and the individualized hypothetical the judge was positing, if it's a challenge to a rule, even though it's an individualized rule,

[00:27:05] Speaker 04:
the rule of provisions governing.

[00:27:07] Speaker 04:
But I also said, if you don't agree with that, for purposes of this case, that's not the question presented.

[00:27:13] Speaker 04:
You can still rule for us on the generalized fee rule issue and leave for another day the question of whether there might be a different answer in what's an individualized, if you will, an individualized fee like the NASD case.

[00:27:25] Speaker 09:
So I suppose it's not an individualized winnowing out, but rather it would say CFMA or

[00:27:33] Speaker 09:
similar entities have to pay a million-dollar fee.

[00:27:37] Speaker 09:
Would that not then be a limitation or prohibition?

[00:27:41] Speaker 04:
If it's a rule, we would say not, Your Honor.

[00:27:43] Speaker 04:
But again, this case, my question involves it generally happening.

[00:27:48] Speaker 03:
I just don't get textually why rules can't be limiting or prohibiting.

[00:27:51] Speaker 03:
If the rule said had three or four tiers of fees and the fourth tier was pick your

[00:28:02] Speaker 03:
Wall Street Company Acts or Bank Acts is prohibited from purchasing this product.

[00:28:09] Speaker 03:
No fee is high enough.

[00:28:12] Speaker 03:
And your position is that they could not then seek a proceeding under 19D?

[00:28:19] Speaker 03:
That would, or that wouldn't even, the commission couldn't decide that you have to give notice and process that under 19D?

[00:28:25] Speaker 04:
Well, again, because if it's a rule, there's a different process for promulgating and reviewing rules than for adjudications.

[00:28:30] Speaker 03:
And if it's a rule... I just don't see anything in the text about limit or prohibit that excludes the terms of a rule that do that.

[00:28:38] Speaker 03:
Well, how about the fact... As long as it's showing... I'm sorry, just so I can lay it on the table and then I will... I promise to be quiet.

[00:28:43] Speaker 03:
If they come forward and show, you have prohibited me from access to your services.

[00:28:50] Speaker 04:
Again, if you read those words in the abstract without any context or structure around them, it would be possible to give them a broader meeting.

[00:28:57] Speaker 04:
But when you look at the list of other things they're in, when you look at the procedures that Congress contemplated, when you look even at the commission's rules recognizing that these are adjudicative, when you look at the legislative history, which it says over and over again, limitations like denials of membership, like discipline, are adjudicative and separately discusses the processes for rules, it's all over the statute and the legislative history, Congress

[00:29:20] Speaker 04:
created different mechanisms for challenging and reviewing rules on the one hand, and for challenging and reviewing individualized adjudicative determinations on the other hand.

[00:29:28] Speaker 03:
And that is hardly surprising, that's commonplace in the APA.

[00:29:36] Speaker 03:
Same process?

[00:29:38] Speaker 03:
I'm sorry.

[00:29:38] Speaker 03:
I'm not 19C.

[00:29:40] Speaker 03:
I'm in what you all call 6Ds.

[00:29:42] Speaker 03:
I'm in 78F.

[00:29:47] Speaker 03:
That's your 6D one, right?

[00:29:50] Speaker 03:
Yes.

[00:29:52] Speaker 04:
It's all up.

[00:29:53] Speaker 04:
So if you look at D2, Your Honor, it's about denial of membership barring from becoming associated with a member or prohibited or limited with respect to access.

[00:30:08] Speaker 04:
And it's all the same individualized determination by the agency in a quasi-judicative proceeding.

[00:30:13] Speaker 03:
That's a denial of membership.

[00:30:15] Speaker 04:
And the other textual point, Your Honor, is the point that if the Commission were correct,

[00:30:20] Speaker 04:
What was the point of Congress imposing these strict 60-day time limit and 240-day time limit on the commission and expanding that requirement in the Dodd-Frank Act because they said the commission's proceeding too slowly and we want to streamline and expedite this process?

[00:30:34] Speaker 04:
That totally goes out the window because on the 61st day or the 601st day or at any point in between or thereafter without any limitation at all, the commission has precisely the same power that Congress gave it under 19B except without the time limit.

[00:30:46] Speaker 03:
It's going to be nonsensical.

[00:30:49] Speaker 03:
As a consequence of your misbehavior in past trades last year, Company X is forbidden from paying, from having access to the service.

[00:31:01] Speaker 03:
No fee is high enough, or sets the million dollar fee, whatever.

[00:31:05] Speaker 04:
So effectively it's an evasion by the SRO of the rules about the procedural protections for disciplinary actions.

[00:31:12] Speaker 04:
I mean, again,

[00:31:15] Speaker 03:
I think we would take the position that a rule is a rule and an adjudication is an adjudication, but if the court were to conclude that when an entity is... This poor entity that has no access to the service has to ask the commission to go through notice and comment rulemaking about that prohibition and then ask the commission to amend the rule which cannot be a fast process.

[00:31:44] Speaker 04:
The court have the authority to conclude that when a, first of all, of course, the commission would never allow such a rule to take effect, but if you hypothesize- They're busy, they might not notice.

[00:31:55] Speaker 04:
Hypothesize that they did.

[00:31:57] Speaker 04:
Certainly there would be an argument- Or maybe you're not providing the law like you do here.

[00:32:00] Speaker 04:
Certainly there would be an argument in that circumstance that the commission, excuse me, that the SRO is evading its statutory obligations to provide notice and comment for a disciplinary action.

[00:32:08] Speaker 03:
But that's not the categorical- But that's not this case.

[00:32:12] Speaker 04:
Or for a litigation, yes.

[00:32:15] Speaker 04:
Same obligations.

[00:32:16] Speaker 03:
And then I know you have a, we've kept you over, but you've probably noticed that we do that anyhow.

[00:32:20] Speaker 03:
The burden of proof issue?

[00:32:22] Speaker 04:
Yes, Your Honor.

[00:32:24] Speaker 03:
So who normally has the burden of proof if we're in 19D land, who normally has that burden of proof in one of your traditional

[00:32:36] Speaker 03:
You say quasi-adjudicated proceedings or targeted individualized proceedings.

[00:32:41] Speaker 04:
Yes.

[00:32:41] Speaker 04:
If this were a true adjudicative proceeding, a disciplinary action or denial of membership action instituted by the SRO, bringing charges essentially against a particular person and giving them notice and opportunity to be heard, the SRO would bear the burden in that circumstance.

[00:32:55] Speaker 03:
In your own internal proceeding?

[00:32:57] Speaker 04:
In its own internal proceeding, yes.

[00:32:58] Speaker 03:
I believe that's correct.

[00:32:59] Speaker 03:
If that person seeks review by the commission, if the

[00:33:03] Speaker 03:
individual who has been disciplined, they can seek review from the Commission.

[00:33:07] Speaker 03:
Yes.

[00:33:07] Speaker 03:
Because that's sort of the parallel to what we had here in the Commission decision.

[00:33:12] Speaker 03:
So who has the burden of proof before the Commission?

[00:33:17] Speaker 04:
I don't think there is a, I mean, it's an appellate proceeding.

[00:33:19] Speaker 04:
I don't think there is a burden of proof.

[00:33:20] Speaker 04:
The commission simply has to make specified findings.

[00:33:22] Speaker 03:
We have all kinds of burdens of proof in our appellate proceedings.

[00:33:25] Speaker 04:
Well, they may, but the burden of proof is not on the Court of Appeals.

[00:33:28] Speaker 04:
It was the burden of proof on a party in the lower court.

[00:33:31] Speaker 04:
But the problem here is there was no proceeding in front of the SRO because this wasn't an SRO.

[00:33:37] Speaker 03:
No, I understand that.

[00:33:37] Speaker 03:
I'm just trying to find a parallel.

[00:33:39] Speaker 03:
So if someone is challenging to the commission, the disciplinary saying the SRO

[00:33:45] Speaker 03:
had its proceeding, it bore the burden of proof there, and the disciplinary sanction was imposed or the prohibition on membership was imposed.

[00:33:54] Speaker 03:
And they, I'm putting it through my own lens, appeal or seek review by the commission.

[00:34:02] Speaker 03:
Someone has to demonstrate that this sanction or prohibition meets the statutory terms as consistent with

[00:34:14] Speaker 03:
the interests of the statute and the commission seek to enforce the non-discrimination, the promotion of fair competition, reasonableness, all that.

[00:34:24] Speaker 03:
Who has that?

[00:34:25] Speaker 03:
It's shocking to me that we don't know whether the person who's challenging the SRO decision has the burden of showing that it's not consistent or the SRO even in that situation now has to prove

[00:34:39] Speaker 03:
to the commission that it is.

[00:34:40] Speaker 03:
I'm just trying to figure out.

[00:34:42] Speaker 03:
That seems like the most obvious analogy to burden of proof that was imposed here.

[00:34:46] Speaker 04:
I'm not aware that the Commission has spoken to that question.

[00:34:49] Speaker 04:
Neither we or the Commission have identified and recited to the court authorities that speak to that question.

[00:34:53] Speaker 04:
And again, I think it's because the Commission's process is essentially an appellate process.

[00:34:59] Speaker 03:
But the important point here is... I'm sorry, just time out.

[00:35:03] Speaker 03:
I assume that you all have been before the Commission in proceedings like this in disciplinary situations.

[00:35:09] Speaker 03:
Is that not true?

[00:35:11] Speaker 04:
in the disciplinary context?

[00:35:14] Speaker 04:
I would imagine so, but I don't know.

[00:35:17] Speaker 03:
But no one figured out who had the burden of proof.

[00:35:20] Speaker 03:
Maybe it's not your fault, maybe it's their fault.

[00:35:22] Speaker 03:
That's shocking.

[00:35:24] Speaker 04:
But whatever the rule might be in that circumstance, whether it's just an appellate matter where the burden of proof is not on the parties in the appellate tribunal in any event, or whatever the answer might be, this case is different because

[00:35:40] Speaker 04:
Remember, there was no proceeding before the SRO.

[00:35:43] Speaker 04:
The Commission has created this mechanism for purposes of these two cases that's completely inconsistent with the statute, which envisions a proceeding before the SRO that the SRO initiated.

[00:35:53] Speaker 04:
Instead, they've allowed SIFMA to initiate the proceeding in the Commission.

[00:35:58] Speaker 04:
And then SIFMA is therefore the moving party that initiated this proceeding.

[00:36:02] Speaker 04:
And under ordinary principles of statutory construction, as the Supreme Court has said, when the statute doesn't specify who bears the burden, as is admittedly the case here, the moving party bears the burden.

[00:36:12] Speaker 04:
And that's exactly the error of the commission.

[00:36:14] Speaker 03:
On the other hand, if they were proceeding under 19B the way that you say they should,

[00:36:20] Speaker 03:
The SROs would have the burden of demonstrating that the rule complies with, again, there's sort of list of statutory factors and concerns and considerations.

[00:36:32] Speaker 03:
And so, and that's the same type of finding that the commission would have to make in its own 19D slash F proceeding.

[00:36:42] Speaker 03:
They have to make that same positive determination that what the SRO has done is consistent with,

[00:36:49] Speaker 03:
the statutory purposes and concerns and interests that are outlined.

[00:36:54] Speaker 03:
So why would it make any sense to change it?

[00:36:57] Speaker 03:
We're assuming now that, to talk about burden of proof, that you've lost your first argument and that you now have to fight this stuff under 19D.

[00:37:04] Speaker 03:
You're just having to show the same thing you would under 19B.

[00:37:07] Speaker 03:
Why would the burden of proof change?

[00:37:08] Speaker 03:
Because you are really trying to clear.

[00:37:10] Speaker 04:
Because the Supreme Court has made clear that the burden of proof

[00:37:14] Speaker 04:
absent specific statutory determination goes with the moving party.

[00:37:18] Speaker 04:
And in the 19B proceeding, the exchange is the moving party.

[00:37:22] Speaker 03:
Well, are you moving to have your rule approved?

[00:37:24] Speaker 03:
I'm sorry?

[00:37:25] Speaker 03:
Aren't you seeking to have your rule found to be consistent with the statute?

[00:37:30] Speaker 04:
In the 19D proceeding, yes, which is why the burden is on the exchange.

[00:37:33] Speaker 04:
In 19D, it's already taken effect.

[00:37:38] Speaker 04:
The process that Congress created for review of the rule where the burden is on the party seeking to adopt the rule is 19B.

[00:37:46] Speaker 04:
And so in 19B, where the moving party is exchanged saying, please let us adopt this rule, the exchange bears the burden.

[00:37:52] Speaker 04:
But in 19D, if it applies in this context, which obviously we say it doesn't, and if

[00:37:57] Speaker 04:
as the commission has said here, SIFMA can initiate a proceeding by coming to the commission and saying, please strike down this rule under 19D since we don't have time to do it under 19B anymore.

[00:38:06] Speaker 04:
If that's valid, which of course we don't think it is, then SIFMA is the moving party under Supreme Court precedent.

[00:38:13] Speaker 04:
SIFMA as the moving party bears the burden of proof unless the statute says otherwise, which it doesn't.

[00:38:17] Speaker 03:
I'm just curious why you didn't give that same answer when I asked you who normally has the burden of proof under 19D review by the commission.

[00:38:27] Speaker 04:
You weren't saying that they were the... Well, because, again, in the process where 19B really applies, there has been a proceeding.

[00:38:34] Speaker 04:
It's like, you know, it's an appellate proceeding where you don't ask the question, who has the burden of proof on appeal?

[00:38:40] Speaker 04:
You ask, who has the burden of proof at the commencement of the proceeding?

[00:38:43] Speaker 04:
Who is the moving party to commence the adjudication?

[00:38:46] Speaker 04:
And in a normal 19D case, the SRO is the moving party.

[00:38:50] Speaker 04:
But in this case, CFMA is the moving party.

[00:38:53] Speaker 03:
Do you, which I think has a related question,

[00:38:56] Speaker 03:
Under the commission's regime now, do you know when this, I'm just going to call it your 19-D process happens in relationship to the 19-B?

[00:39:10] Speaker 03:
Are you supposed to do this before you do your 19-B filing with the commission?

[00:39:17] Speaker 03:
Do you do it on a parallel track or during the 60-day period while you're doing UC suspension?

[00:39:25] Speaker 03:
Do you just do 19B and wait and see if someone, I just don't have any sense of when, because if you did 19B first where, you know, and it wasn't suspended, one can almost argue whether you sort of have like, for want of a better word, a presumption that it's valid and someone would have to, would have the burden of attacking that under 19D.

[00:39:47] Speaker 03:
But if you have to do it beforehand, it's hard for me to even know on this burden of proof.

[00:39:50] Speaker 03:
I don't know when you do this proceeding.

[00:39:53] Speaker 04:
Well, that's a great question, and the Commission, I think, has actually given, seems to have given inconsistent answers, although I don't think it's clearly addressed any of it.

[00:40:00] Speaker 04:
So in this case, where the two fee rules that issue here, that the Commission adjudicated without any SRO proceeding at all, what they said is, in answer to our arguments about how this makes no sense, it's inconsistent, among other things, with the 6D2 notice and opportunity to be heard before deprivation requirement, the Commission said, and I think it's that 96A of the Joint Appendix,

[00:40:22] Speaker 04:
Well, the 19B filing with the commission, which makes the rule immediately effective, that suffices as notice both to the commission, which is supposed to come after the limitation has been imposed, and also as notice to the parties, which is supposed to come before the limitation has been imposed.

[00:40:39] Speaker 04:
So the commission, in this case said, the submission of the immediately effective rule, which takes effect immediately upon submission, that's notice to the parties, so you know, don't need to worry about 6D2, and that's notice to the commission, so you don't need to worry about 19D,

[00:40:51] Speaker 04:
It's like everything magically happens at the same time, even though you can't, by definition, give pre-deprivation notice and hearing by giving it at the moment that you've imposed the deprivation.

[00:41:01] Speaker 04:
So that's what they said in this case.

[00:41:02] Speaker 04:
But then in the remand order case, which you'll be hearing next, they've sent everything back to the exchanges.

[00:41:09] Speaker 04:
So I mean, I don't know what their answer is.

[00:41:10] Speaker 03:
But when they sent back, was that for fees that had already been through the 16B process, the 19B process?

[00:41:16] Speaker 03:
Yes, Your Honor.

[00:41:17] Speaker 03:
Yes, Your Honor.

[00:41:18] Speaker 03:
And then when you file,

[00:41:21] Speaker 03:
It's a notice under 19B.

[00:41:26] Speaker 03:
How does everybody know about that?

[00:41:29] Speaker 03:
How would parties know about that?

[00:41:31] Speaker 03:
Do you serve it on other people or is it just that it's on a website?

[00:41:34] Speaker 04:
It's on the website and it's published in the Federal Register.

[00:41:37] Speaker 03:
They're published right away in the Federal Register?

[00:41:40] Speaker 04:
They're supposed to, yes.

[00:41:42] Speaker 04:
It's actually addressed.

[00:41:42] Speaker 03:
There's got to be some time delay, right?

[00:41:44] Speaker 04:
Yes, but it's also supposed to be published on the website.

[00:41:47] Speaker 04:
Okay, but then... But it doesn't certainly have pre deprivation notice.

[00:41:50] Speaker 03:
No, I get that, but so there is sort of notice to the world through the Federal Register in that sense.

[00:41:54] Speaker 03:
Okay.

[00:41:57] Speaker 03:
Did you want to address briefly your arbitrary and capricious arguments?

[00:42:01] Speaker 04:
I see it to Mr. Hank, that opportunity.

[00:42:04] Speaker 04:
Okay.

[00:42:05] Speaker 04:
Thank you.

[00:42:14] Speaker 05:
Good afternoon.

[00:42:14] Speaker 05:
May it please the court, Douglas Hankin for ARCA.

[00:42:18] Speaker 05:
I'd like to begin by trying to address directly some of the questions that Judge Millett asked about how these proceedings typically work within the SROs, because that leads us into the standing question, and it leads us into what the process really is in what a real Section 19D proceeding ought to be.

[00:42:40] Speaker 05:
And the example that I'm going to give you is of a delisting of a company.

[00:42:43] Speaker 05:
And so, for example, when a company is delisted by one of the NYSC exchanges, that company is given notice, it's given an opportunity to object, it's given an opportunity to have a hearing at which witnesses can be called, for example, and a record can be created.

[00:43:02] Speaker 05:
And it's then given, and then there's a hearing about that.

[00:43:08] Speaker 05:
There's a determination issued.

[00:43:12] Speaker 05:
And assuming that the determination is that the company is delisted, then that notice, that becomes a notice that's provided to the SEC under Section 19D.

[00:43:24] Speaker 05:
And the company that is delisted then has the ability to take a 19D proceeding, effectively appealing that delisting to the SEC.

[00:43:36] Speaker 05:
And what they do is they then, and this gets us into standing, they say, we have been deprived of our listing.

[00:43:45] Speaker 05:
That goes to the SEC, and under those circumstances, the SEC essentially functions in an appellate capacity and reviews on a de novo basis whether the rules, and this is where some of the discussions in the various briefs about have the rules been complied with and so on and so forth come from.

[00:44:04] Speaker 05:
It reviews whether the rules have been applied consistently with the SRO's rules, whether they've been applied consistently with the Exchange Act,

[00:44:14] Speaker 05:
and whether the answer... Who has that burden of proof?

[00:44:17] Speaker 05:
And the burden of proof under those circumstances is with the SRO.

[00:44:20] Speaker 05:
I can give you a citation... Before the Commission.

[00:44:22] Speaker 05:
Before the Commission in the context of that sort of a proceeding.

[00:44:26] Speaker 03:
So I'm posing the burden of proof here.

[00:44:28] Speaker 03:
Right.

[00:44:29] Speaker 03:
If you lose your 19-D argument and we're in that world, then I guess you would have to agree that the burden would remain on you just as it does another 19-D proceedings.

[00:44:39] Speaker 05:
If this is a proper 19D proceeding, but there is something that comes first.

[00:44:44] Speaker 03:
Okay, I thought your burden of proof argument was distinct, but even if you're in 19D, you shouldn't have the burden of proof, the CFMA, I guess.

[00:44:52] Speaker 03:
but that's not true.

[00:44:54] Speaker 05:
Which is where it becomes a standing question.

[00:44:56] Speaker 03:
So the first part... So the first question is... You're talking about CFMA standing?

[00:45:03] Speaker 05:
I'm talking about anybody under section 19.

[00:45:05] Speaker 03:
I don't want to get there yet without making crystal clear what I thought you just said, and that is that whenever... If 19D slash F process properly applies in this context, then when whoever

[00:45:23] Speaker 03:
the poor targeted individual in our hypotheticals or CIFMA brings the case up to the commission, you have the burden, the SRO has the burden of proof.

[00:45:35] Speaker 05:
The answer is yes.

[00:45:36] Speaker 03:
If it is appropriately... Can you point me to something that says that?

[00:45:40] Speaker 03:
Is there a regulation, a rule, a handbook, a statute, something that says that?

[00:45:45] Speaker 05:
I can't point you directly to that.

[00:45:47] Speaker 05:
I mean, what the... And the only thing that the SEC points to

[00:45:51] Speaker 05:
is its own rule 700B3, which only applies to Section 19B proceedings.

[00:45:57] Speaker 05:
Which is why I'm curious as to the basis of your presentation.

[00:46:01] Speaker 05:
I can give you a citation to something that's not in the record that will perhaps assist.

[00:46:07] Speaker 05:
It's a case called Navistar, N-A-V-I-S-T-A-R.

[00:46:12] Speaker 05:
It's actually one of the delisting proceedings that I was referring to earlier.

[00:46:17] Speaker 05:
And that addresses what the burden of proof is in what is properly deemed a section 19D proceeding.

[00:46:24] Speaker 03:
The burden of proof before the commission?

[00:46:25] Speaker 03:
Before the commission, correct.

[00:46:26] Speaker 03:
Do you have a set for Navistar?

[00:46:27] Speaker 05:
I don't unfortunately have it in front of me.

[00:46:29] Speaker 03:
Can you send it to the court in a letter, please?

[00:46:31] Speaker 05:
Yes, we can.

[00:46:35] Speaker 05:
But that all assumes that it's a proper 19D program.

[00:46:38] Speaker 03:
I get that.

[00:46:39] Speaker 03:
I had thought you were making an argument from the briefs that even if it's

[00:46:43] Speaker 05:
even if 19D applies, the burden of proof should not be on... The argument that we've made is that the burden of proof ought not be here because these are not appropriately 19D proceedings.

[00:46:55] Speaker 05:
Essentially that they've jumped over B and C and created a 19D proceeding regarding the existence of a generally applicable fee, whereas what is really at issue in a proper 19D proceeding

[00:47:10] Speaker 05:
and where the burden of proof does lie with an SRO when that comes before the SEC is the application of a rule, not the rule itself.

[00:47:22] Speaker 05:
So that's the argument.

[00:47:26] Speaker 10:
Let me just, if then, so if we agreed with you that this was a rule and then the way for a party to challenge it would be to petition

[00:47:39] Speaker 10:
the commission to commence a rulemaking under 19C.

[00:47:44] Speaker 10:
And the commission did so.

[00:47:47] Speaker 10:
And the commission in that rulemaking said, you know, we think that this petitioner, CIFMA, makes a good point.

[00:47:54] Speaker 10:
These rules are too high.

[00:47:57] Speaker 10:
And so our proposed rule is that we should, you know, all the rules should be decreased by 20%.

[00:48:09] Speaker 10:
In the course of that rule making, does the SRO kind of have the burden of proof to justify its original fee?

[00:48:21] Speaker 10:
How would the burden of proof work in that context?

[00:48:25] Speaker 05:
It's not clear because, Your Honor, I don't think there's ever been such a proceeding, but what would typically happen in circumstances like that is that it would be done by submissions to the SEC in connection with that rulemaking proceeding.

[00:48:42] Speaker 05:
The SRO would obviously try to justify its fees and say, no, you're wrong, Commission.

[00:48:50] Speaker 05:
It shouldn't be a 20 percent drop.

[00:48:52] Speaker 05:
You should leave it where it is or maybe have a 10 percent drop.

[00:48:55] Speaker 05:
But there would be, and obviously other interested parties would be permitted to address that issue as you framed it, Your Honor.

[00:49:06] Speaker 05:
There is, it's not clear that there is something that's directly akin to a burden of proof under those circumstances.

[00:49:15] Speaker 05:
But again, you know, that is the way that we believe it ought to happen once fee filing has happened.

[00:49:22] Speaker 05:
And here what you've got is something where SIFMA, we're standing and whether this is really a true Section 19D proceeding.

[00:49:32] Speaker 05:
is important because SIFMA wasn't denied access to anything and the record, and I specifically direct you to the jurisdictional declarations, just by way of example, page 170 of the Joint Appendix, the jurisdictional declarations that were submitted to justify SIFMA's standing here pretty clearly demonstrate that no one has been denied access to anything.

[00:49:58] Speaker 03:
That's why we go back.

[00:50:01] Speaker 03:
rise or fall with your 19D argument, if all it requires to trigger the 19D process is that you adopt a general fee and fees by their nature are limiting access, then that's all they would need to show that they're injured.

[00:50:19] Speaker 03:
On the other hand, if you actually have to show some sort of individualized limitation,

[00:50:25] Speaker 03:
You wouldn't be in this 19D.

[00:50:27] Speaker 03:
That would be rejecting the Commission's view of 19D's application to general fees.

[00:50:31] Speaker 03:
So I don't see how this argument advances at all.

[00:50:35] Speaker 03:
It seems to me to rise.

[00:50:36] Speaker 03:
what they have to show depends on what the nature of the proceeding is.

[00:50:39] Speaker 05:
It's a narrower argument.

[00:50:40] Speaker 05:
Essentially the argument is that even if the court were to find that generally applicable fees could be challenged via a 19D proceeding, SIFMA would not be a party that would be able to effect such a challenge because SIFMA itself

[00:50:58] Speaker 05:
was not injured or was not aggrieved because SIFMA doesn't purchase market data.

[00:51:05] Speaker 05:
SIFMA couldn't be aggrieved by any of the fees.

[00:51:08] Speaker 05:
The proceeding would have to be brought by the particular person.

[00:51:13] Speaker 09:
Realizing that this is not an article freestanding question, but it is somewhat similar,

[00:51:18] Speaker 09:
SIFMA reports to act as a party has an associational standing, does it not?

[00:51:25] Speaker 09:
That is to say, if its members or one of its members would have standing here every evening, then it would be able to assert that agreement.

[00:51:35] Speaker 09:
Is that not a fair statement?

[00:51:37] Speaker 05:
That's effectively what they're trying to say, Judge Santel.

[00:51:40] Speaker 09:
I understand that.

[00:51:41] Speaker 09:
And why haven't they said it?

[00:51:42] Speaker 09:
What's wrong with that proposition?

[00:51:44] Speaker 05:
Well, what's wrong with it is two things.

[00:51:45] Speaker 05:
One is, even if you had

[00:51:49] Speaker 05:
engage in the associational standing analysis, it has to be done statute by statute.

[00:51:56] Speaker 05:
So this is a different situation than Section 25A.

[00:52:00] Speaker 05:
So you've got to look again at the structure of Section 19D and see how would that inform that sort of an argument.

[00:52:07] Speaker 05:
And here what it would require is that

[00:52:12] Speaker 05:
Assuming you were going down that road, which we don't agree that you can for the reasons that we've set forth in our briefs.

[00:52:17] Speaker 05:
But assuming that you were going down that road, you would have to look at, has SIFMA demonstrated that, in fact, some of its members were denied access?

[00:52:28] Speaker 05:
And that's why I directed the court's attention to the jurisdictional declarations.

[00:52:33] Speaker 05:
Because none of them.

[00:52:35] Speaker 05:
What?

[00:52:36] Speaker 05:
Denied or limited.

[00:52:37] Speaker 05:
Denied or limited.

[00:52:38] Speaker 05:
And in fact, none of those declarations demonstrate either denied or limited.

[00:52:43] Speaker 03:
Well, if under the Commission's view, fees are inherently limiting.

[00:52:48] Speaker 03:
They're just a barrier to getting to these services.

[00:52:52] Speaker 03:
They're a barrier that can be surmounted, but they're a barrier that you've got to deal with.

[00:52:58] Speaker 03:
then they've made sufficient showing.

[00:53:00] Speaker 03:
I don't understand how your argument isn't just the same, it's just the 19-D argument repackaged.

[00:53:06] Speaker 05:
But that's not an argument, I think, Your Honor, that the Commission has made.

[00:53:10] Speaker 05:
The Commission has made the argument that these proceedings are generally available, but not that any fee can be, if so fact-based.

[00:53:21] Speaker 03:
They've found sufficient

[00:53:23] Speaker 03:
declarations here by the individual members based on the fact that they said they paid the fee.

[00:53:30] Speaker 03:
So I don't know how we can say that doesn't mean the Commission thinks that having to pay a fee is a limitation.

[00:53:37] Speaker 05:
Although if you compare what they said in the procedural order, which said there needs to be, and that kind of gets the difference in what Judge Santel was asking, in the procedural order they said there has to be more evidence, there has to be evidence from members that members were denied or limited access.

[00:53:55] Speaker 05:
And specifically what the commission said in that context was, and it can't be just that they think the fees are too high.

[00:54:05] Speaker 05:
That's what the commission's own procedural order said.

[00:54:08] Speaker 05:
But if you look at the jurisdictional declarations that were actually submitted, for example, the one from LiquidNet on page 170, that's all it actually says.

[00:54:19] Speaker 05:
And so in fact, there wasn't enough, the only things that are in the record from actual members

[00:54:25] Speaker 05:
are inconsistent with what the commission itself said in the procedural order and don't demonstrate a denial or limitation of access at all.

[00:54:36] Speaker 05:
I'd like to reserve the balance of my time.

[00:54:38] Speaker 03:
I wanted to ask you on, I guess I was supposed to ask you on arbitrary and capricious.

[00:54:45] Speaker 03:
On the arbitrary and capricious argument, do you have to show that the commission was wrong on both?

[00:54:54] Speaker 03:
Substitutability as to the non, I'm just going to call them the 100, the non-100 folks.

[00:55:04] Speaker 03:
And order flow as to the 100.

[00:55:08] Speaker 03:
You have to get past both those hurdles to prevail.

[00:55:11] Speaker 03:
Am I right in thinking that?

[00:55:12] Speaker 03:
You have to show the arbitrary capricious in both of those determinations.

[00:55:15] Speaker 03:
One won't work?

[00:55:17] Speaker 05:
So I think the answer to that is you need to look at what the evidence was and whether it was contested.

[00:55:23] Speaker 05:
And the circumstances as it relates not only to the example that Your Honor gave about the 100,

[00:55:30] Speaker 05:
but also to all the other evidence that ARCA and NASDAQ submitted, is that it was uncontested.

[00:55:37] Speaker 05:
SIFMA was in the best position to put in.

[00:55:40] Speaker 03:
I'm sorry, I'm going to try this.

[00:55:41] Speaker 03:
I'm asking to win your arbitrary and capricious challenge.

[00:55:46] Speaker 03:
Do you win if you show that they were arbitrary and capricious in their analysis of substitutability?

[00:55:54] Speaker 03:
Or do you have to show they were arbitrary and capricious in their analysis of both substitutability and order flow?

[00:56:00] Speaker 05:
We went on either because those were alternative under net coalition one.

[00:56:07] Speaker 05:
Those were alternative bases on which competition can be shown.

[00:56:11] Speaker 05:
And in addition to that, we would win if we showed that they were arbitrary and capricious by ignoring the DOJ's conclusion that there's actual competition.

[00:56:19] Speaker 03:
I've got your arguments on that.

[00:56:20] Speaker 03:
I'm just trying to understand this.

[00:56:21] Speaker 03:
Wouldn't they still find that your fees were not competitive as to

[00:56:28] Speaker 03:
If you found that they were wrong on substitutability but not on order flow, wouldn't that mean your fees are still not competitive at least as, I'm confused here because I don't even know which market we're talking about when we look at substitutability and order flow because it changes.

[00:56:47] Speaker 05:
So, you still would not be competitive.

[00:56:50] Speaker 05:
When you say which market, do you mean as between ARCA and NASDAQ?

[00:56:53] Speaker 03:
So, no, I'm talking about the arguments here that were,

[00:56:56] Speaker 03:
The substitutability, the argument there was that they apply to folks who are not in that sort of prime elite.

[00:57:03] Speaker 03:
I thought it was a group of like roughly 100 folks.

[00:57:05] Speaker 02:
No, you're right.

[00:57:05] Speaker 03:
Right.

[00:57:06] Speaker 03:
So I call them the 100.

[00:57:08] Speaker 02:
Yeah.

[00:57:08] Speaker 02:
I'll go with the 100.

[00:57:09] Speaker 02:
I'm simple about these.

[00:57:10] Speaker 02:
I'll go with the 100.

[00:57:10] Speaker 03:
All right.

[00:57:11] Speaker 03:
So as to them, there's not a substitutability because they have to have all the depth of data books, right?

[00:57:18] Speaker 03:
That's what the commission found.

[00:57:20] Speaker 03:
As to those 100, they buy them all.

[00:57:23] Speaker 03:
But as to the rest of the world,

[00:57:26] Speaker 03:
They may have one or two.

[00:57:28] Speaker 03:
And so as to them, if they were wrong in the analysis or they were arbitrary and capricious or lacked substantial evidence in their analysis of the substitutability issue, wouldn't we still have to find, how would you win there because there still would be the problem as to the 100 that your prices would not be competitive

[00:57:50] Speaker 03:
Because there, that's an order flow argument.

[00:57:52] Speaker 05:
So with respect to the 100, we actually disagree that they have to buy them.

[00:57:58] Speaker 03:
I get that.

[00:57:59] Speaker 03:
I'm just trying to answer what to do.

[00:58:00] Speaker 03:
Do you have to?

[00:58:02] Speaker 03:
Do you have to cover the board here to win?

[00:58:05] Speaker 03:
Because it seems to be two different markets we're looking at competitiveness in.

[00:58:08] Speaker 05:
I don't think it's that there's two different markets.

[00:58:10] Speaker 05:
I think it's that there are different business model choices.

[00:58:15] Speaker 05:
And there was nothing in that coalition one that said that all business model choices have to have perfect substitutability demonstrated for them.

[00:58:25] Speaker 05:
That, I think, was one of the SEC's errors.

[00:58:27] Speaker 05:
that it required perfect substitutability.

[00:58:32] Speaker 05:
That was something that the commission held against us that we weren't able to demonstrate.

[00:58:36] Speaker 05:
And one of the reasons we weren't able to demonstrate is because it's not evidence that the exchanges have with respect to what the business models are of these entities.

[00:58:46] Speaker 03:
Remember that a lot of the... My question, I'm sorry, I'm just not being clear at all.

[00:58:51] Speaker 03:
In my question, I'm assuming you win every one of your substitutability arguments.

[00:58:56] Speaker 03:
So I'm giving you that you've won all of those.

[00:58:59] Speaker 03:
And I'm hypothesizing that their decision was either lack substantial evidence or for some other reason was arbitrary and capricious on that issue.

[00:59:08] Speaker 03:
What happens to the case if we at the same time say that they were spot on on the order flow argument?

[00:59:15] Speaker 03:
I know you have disagreements with that.

[00:59:17] Speaker 03:
I'm just asking you what happens if that's the outcome.

[00:59:21] Speaker 05:
With respect to the order, if you find that... Commission wins on order flow, you win on substitutability.

[00:59:28] Speaker 05:
But the commission wins on order flow only with respect to those 100, to your 100?

[00:59:33] Speaker 05:
Is that the question?

[00:59:35] Speaker 05:
Yes.

[00:59:35] Speaker 05:
I still think we win there because you've got to remember that a lot of those 100, in fact probably most of them, are actually the ARCA's and NASDAQ's competitors.

[00:59:45] Speaker 05:
So you have to take that into account as well.

[00:59:49] Speaker 05:
That's something that we've talked about in the briefs fairly significantly, that these are

[00:59:53] Speaker 05:
entities that in many instances are using, maybe a better way to answer this is that I don't think they can win on order flow with respect to that because in most instances, the 100 are actually using our market data to compete with us for order flow by running dark pools, for example.

[01:00:15] Speaker 05:
So I'm not sure that that hypothetical is even possible.

[01:00:21] Speaker 05:
and I'd like to reserve.

[01:00:23] Speaker 05:
Thank you.

[01:00:29] Speaker 06:
I want to make sure you can hear me.

[01:00:46] Speaker 06:
May it please the Court, Dominic Frida on behalf of the Securities and Exchange Commission.

[01:00:51] Speaker 06:
In 2007, the NASDAQ stock market filed a petition with the Commission alleging that it was denied access to the services of petitioner CTA in the second case by means of an unreasonable fee.

[01:01:07] Speaker 06:
This was no accident.

[01:01:09] Speaker 06:
It was no anomaly.

[01:01:11] Speaker 06:
Indeed, both the Commission and this Court

[01:01:13] Speaker 06:
had already recognized that allegedly unreasonable fee could be reviewed as a prohibition or limitation of access to services.

[01:01:21] Speaker 03:
I'm sorry, you said NASDAQ filed that?

[01:01:23] Speaker 06:
Yes, they did.

[01:01:24] Speaker 03:
Where's that citation?

[01:01:25] Speaker 06:
It's on page 40 of our remand brief.

[01:01:28] Speaker 01:
We're not on there, okay.

[01:01:29] Speaker 06:
Yeah, I know, but I'll give you the site.

[01:01:32] Speaker 06:
It's at 2007 Westlaw 1725775.

[01:01:40] Speaker 06:
And that is from June 14, 2007.

[01:01:45] Speaker 06:
And that is, as I said, on page 40 of our remand brief.

[01:01:49] Speaker 06:
Now, that concededly was brought under 11CAPA of the Exchange Act.

[01:01:56] Speaker 06:
But it's undisputed in this case that Congress used exactly the same language in 11CAPA and in Section 19, 19D.

[01:02:05] Speaker 06:
So the only thing that's changed is where NASDAQ sits today.

[01:02:10] Speaker 03:
And I submit to you that... Well, I think one other thing has changed, and that this court now has to read a statute and interpret it.

[01:02:16] Speaker 03:
And it doesn't always mean parties either way get it right.

[01:02:19] Speaker 06:
That is absolutely true.

[01:02:21] Speaker 06:
But this commission, this court in NASD in 1986, has consistently held that an unreasonable fee can act as a limitation to access to services.

[01:02:32] Speaker 03:
We have consistently held that there's one case.

[01:02:34] Speaker 06:
One case, the NASD case, right?

[01:02:37] Speaker 06:
And then the suggestion from Net Coalition 2 that the availability of 19D review before the Commission supported the jurisdictional holding in that case.

[01:02:54] Speaker 06:
What we were arguing and the reason why we were putting that forward as an alternative is because we were aware that the court would have to follow a presumption against non-reviewability of agency action.

[01:03:07] Speaker 06:
And essentially that decision was that the commission's non-decision to suspend an immediately effective rule would be unreviewable.

[01:03:16] Speaker 06:
So Judge Santel was on the panel.

[01:03:20] Speaker 06:
So we offered that.

[01:03:21] Speaker 09:
But I don't remember anything about it.

[01:03:24] Speaker 03:
Well, there's nothing in the NET Coalition opinion, as I read it, that makes clear when they were saying that there could be 19D processes, were they talking about, for fees, this sort of categorical use

[01:03:40] Speaker 03:
of across the board general fees here as opposed to some of the hypotheticals we were posing or NASD where there is for some reason an individualized showing or targeting of a fee.

[01:03:53] Speaker 03:
That could be what was addressed in that coalition two, correct?

[01:03:59] Speaker 03:
There's nothing from that coalition two that I see but please explain to me and maybe Judge Santel will explain to me later if I'm missing it

[01:04:06] Speaker 03:
made clear that we were saying there that across the board fees, general fees like this can be run through the 19-D process.

[01:04:16] Speaker 06:
Well, I think the context of Net Coalition 2 would suggest that.

[01:04:21] Speaker 06:
Before the court in Net Coalition 2 was a challenge brought by CFMA and Net Coalition,

[01:04:27] Speaker 06:
a now-defunct industry group.

[01:04:29] Speaker 06:
The challenge was to the same exact archi-book fees that are before the Court today.

[01:04:34] Speaker 06:
After Net Coalition 1, in which this Court found that there was a lack of evidence to demonstrate either the connection between order flow and competition that constrained the pricing of depth of book data or the substitutability point,

[01:04:50] Speaker 06:
Congress changed the law in Dodd-Frank and it said that you can file immediately effective rules the next month.

[01:04:59] Speaker 06:
NICI ARCA filed the same rule, same fees.

[01:05:02] Speaker 06:
And so the issue before the court was when the commission passed on that and did not suspend the rule, whether that was reviewable.

[01:05:09] Speaker 06:
And then the case was brought by CIFMA and that coalition.

[01:05:13] Speaker 06:
And this court said, no, it was not reviewable, but we could review somewhere down the line.

[01:05:18] Speaker 03:
But we also pointed to NASD in that case, which that was not, that did not involve a general fee, did it, NASD versus?

[01:05:25] Speaker 06:
It was, NASD, I mean, I think the difference between a general and a specific fee, I mean, it wasn't, it was a vendor fee.

[01:05:33] Speaker 06:
So, yes, there was one vendor in that case that was affected by the fee, but I don't believe it was written in a way that would only be if there were other vendors.

[01:05:42] Speaker 03:
Well, the facts of that case were that it wasn't a general fee and there was a particularized showing by, I guess it was NASD there, that the nature of the fee

[01:05:54] Speaker 03:
which is anti-competitive, they couldn't pay it.

[01:05:57] Speaker 03:
It would not make economic sense to pay it, so they demonstrated individualized limitation, actual real-world limitation in that case, correct?

[01:06:07] Speaker 06:
Well, it wasn't NSD that was paying the fee.

[01:06:10] Speaker 03:
NSD was imposing the fee, but... Yes, it was the vendor in that case.

[01:06:14] Speaker 06:
It was the vendor who was the one who was arguing that there was limitation.

[01:06:17] Speaker 06:
I forgot the name of the vendor, I'm sorry.

[01:06:20] Speaker 03:
As do I. I should know that.

[01:06:21] Speaker 06:
Yes, that's right.

[01:06:24] Speaker 06:
But to back up for a minute, I mean, that is really a distinction without a difference for these cases.

[01:06:30] Speaker 06:
What you have is a requirement in the Exchange Act that all rules, even immediately effective rules, can be enforced only to the extent that they're not inconsistent with the Act.

[01:06:42] Speaker 06:
And that comes from 19B3, it comes from 19D, and then in 19F, it requires the Commission, when considering one of these review proceedings,

[01:06:52] Speaker 06:
whether or not the action taken was consistent with the rules of the exchange, so they always do need a rule to apply when you're talking about this, and that the rule was applied in a manner consistent, and the rule was consistent with the exchange act.

[01:07:07] Speaker 06:
And so Congress built in this type of fallback so that when you have a

[01:07:14] Speaker 06:
a person aggrieved by an unreasonable fee, and as this court said in net coalition one and said in no collusion two, that we are not disrupting the standard we established in net coalition one.

[01:07:27] Speaker 06:
Fees cannot be unreasonable, they cannot be unreasonable discriminatory.

[01:07:31] Speaker 06:
And so that process requires the commission to consider and to determine whether or not a fee is reasonable.

[01:07:40] Speaker 06:
And that does not make a distinction between a fee of general applicability or a fee that is directed at one individual person.

[01:07:47] Speaker 06:
Otherwise, you wouldn't have the even reasonably discriminatory language in addition to the unreasonable.

[01:07:53] Speaker 03:
How does this process work, as you envision now?

[01:07:57] Speaker 03:
You have a general fee.

[01:07:59] Speaker 03:
When people come in and say, I have to pay the fee, I therefore feel limited.

[01:08:04] Speaker 03:
Because life would be easier if I didn't have, I'd have more access if I didn't have to pay the fee, I suppose.

[01:08:09] Speaker 03:
First of all, when does this process happen?

[01:08:17] Speaker 03:
Are they supposed to, because they're supposed to give notice before they impose the limitation.

[01:08:28] Speaker 03:
And so they, and I guess anybody who has to buy it, I guess including me if I wanted to buy one of these books, would be limited.

[01:08:38] Speaker 03:
the second they impose that fee.

[01:08:40] Speaker 03:
So before they impose the fee, they have to give notice to the world that they're going to impose the fee?

[01:08:45] Speaker 06:
As the Commission said, that their immediately effective filing can be construed as the notice to the world.

[01:08:51] Speaker 06:
It's publicly available.

[01:08:53] Speaker 03:
That's when the fee takes immediate effect.

[01:08:58] Speaker 03:
Otherwise, there would be nothing to suspend.

[01:09:01] Speaker 06:
Right, exactly, but it's the filing of that.

[01:09:04] Speaker 06:
It happens coterminously.

[01:09:05] Speaker 03:
But then that's notice, as Mr. Hunter pointed out, that's notice simultaneously with imposition of the fee, not before.

[01:09:12] Speaker 06:
This is true, yes.

[01:09:13] Speaker 03:
Well, the statute requires it before.

[01:09:15] Speaker 06:
Right, but the commission said that it's not, its review of a limitation of access challenge is not dependent on the SROs giving notice ahead of time or in compiling the correct record.

[01:09:29] Speaker 06:
When the Commission, for example, in the 2014 procedural order, when it sent it back to an ALJ to open the record and give the exchanges the opportunity to fill the evidentiary holes from Net Coalition 1,

[01:09:44] Speaker 06:
It noted that its normal process would allow for a remand and it's in Rule 452.

[01:09:51] Speaker 06:
So there are processes set in place for the commission to correct situations in which say there is a notice problem or to disregard it because its review function is dependent on it.

[01:10:02] Speaker 03:
So there may be, you may be able to address when an SRO disregards a statutory and regulatory obligation, but the issue here is whether you can interpret

[01:10:13] Speaker 03:
19D and 6D in a way that's contrary to their statutory tax.

[01:10:21] Speaker 03:
That seems to be very different.

[01:10:22] Speaker 03:
And so in saying that adopting this view of general fees that says you just, you will give notice when you do your 19B filing, which is not before you impose the limitation, it's now it's the commission's problem.

[01:10:41] Speaker 03:
that's ignoring statute.

[01:10:43] Speaker 03:
It's not the fact that the SRO didn't ignore the statute and be given text.

[01:10:46] Speaker 03:
Now it's yours because they're incapable of providing advance notice, aren't they?

[01:10:51] Speaker 06:
But the advance notice isn't going to be a trigger for the review process because it's no different in the targeted fee example that you were giving to counsel.

[01:11:04] Speaker 06:
It's the same thing.

[01:11:05] Speaker 06:
It would still be an immediately effective rule, and the result would be an unreviewable agency action if the commission doesn't suspend the rule within 60 days.

[01:11:14] Speaker 09:
If they don't suspend within 60 days, during that 60-day period, can somebody like SIFMA come in and petition for a rulemaking, or it wouldn't be a rulemaking?

[01:11:25] Speaker 09:
Can they file something that triggers the commission taking action to determine the reasonableness or legality of the

[01:11:33] Speaker 06:
They could file something with the commission during that period, but it still leads to the same problem that you had in that coalition too, which is that if the commission doesn't act on it, it's unreviewable agency action or inaction.

[01:11:46] Speaker 10:
And if they wait until after that and they file a petition for asking the commission to institute the rulemaking under 19C,

[01:11:56] Speaker 10:
That's what your friends on the other side say should be the procedure.

[01:12:01] Speaker 10:
Then the commission could open up a rulemaking at that point.

[01:12:07] Speaker 10:
And if the commission didn't, then that would be reviewable, right?

[01:12:11] Speaker 06:
And they're very, as you noted, very deferential review.

[01:12:15] Speaker 10:
I mean, it is... I've never known the Commission to turn its nose up against very deferential regulations.

[01:12:24] Speaker 06:
Right, but what I'm trying to offer here, what the Commission has adopted, is what is a sensible construction of the statute.

[01:12:30] Speaker 06:
I mean, this is exactly what we did in that coalition, too.

[01:12:33] Speaker 10:
So on that point, if the SROs say the fee is a penny a year,

[01:12:41] Speaker 10:
Is that a limitation on access that would subject them to a 19-D proceeding?

[01:12:47] Speaker 06:
Well, I'm glad you asked that.

[01:12:50] Speaker 06:
In the procedural order, the Commission set forth a three-part test that a petitioner would have to meet in order to have a reviewable limitation of access.

[01:12:59] Speaker 06:
And under that, it would have to allege that there was a limitation here would be an unreasonable fee.

[01:13:05] Speaker 06:
It would have to show the basis for why it believed the fee to be unreasonable.

[01:13:08] Speaker 06:
And it would have to show more importantly, or most importantly, that the fee went to some sort of substantial or fundamental service of the exchange.

[01:13:18] Speaker 06:
And so I think that would be the limit that would possibly prevent your hypothetical from being a valid limitation.

[01:13:26] Speaker 03:
Where do they have to make that showing?

[01:13:28] Speaker 06:
have they made that certainness they have?

[01:13:29] Speaker 03:
Where to?

[01:13:31] Speaker 03:
In the 19D proceeding itself?

[01:13:34] Speaker 06:
Yes, in the petition for limitation of access.

[01:13:38] Speaker 06:
That's where, and in the procedural order, remember, this was all happening kind of in motion, right, in the middle.

[01:13:46] Speaker 06:
The commission, when, after net coalition two, and the commission said it would open the door to these proceedings, CFMA filed a limitation of access challenge to the same exact fee, and the commission sent

[01:13:57] Speaker 06:
that challenge to an ALJ to give them an opportunity to provide the evidence that had been lacking from that coalition one.

[01:14:04] Speaker 06:
And so that is when that showing, and it required the ALJ to make those findings that it was a reviewable limitation of taxes.

[01:14:10] Speaker 06:
And the ALJ made that finding before issuing an initial decision.

[01:14:15] Speaker 06:
I want to back you up and ask you a very tricky question.

[01:14:18] Speaker 09:
We get to do that.

[01:14:19] Speaker 09:
You refer to the defensible interpretation of the statute.

[01:14:23] Speaker 09:
Now, the commission does not claim Chevron deference in briefing the arguments about the interpretation of the statute.

[01:14:30] Speaker 09:
Am I correct if you're not claiming Chevron standard of review for that legal question?

[01:14:35] Speaker 06:
I apologize because I do speak quickly sometimes.

[01:14:39] Speaker 06:
I said a sensible, not defensible.

[01:14:42] Speaker 06:
And I think there's a difference.

[01:14:44] Speaker 09:
I think our construction of the statute is correct.

[01:14:47] Speaker 09:
Don't we have to believe, to a degree, that this is the correct interpretation?

[01:14:51] Speaker 06:
I think it is the correct interpretation.

[01:14:53] Speaker 09:
Well, since you are not claiming Chevron Deference, that would be the... I'm sorry, I apologize.

[01:14:59] Speaker 09:
That would be the standard we would be applying, would not be whether it's a sensible one or whether it is the correct one, would it not?

[01:15:06] Speaker 06:
Yes, you're right.

[01:15:08] Speaker 06:
It is, and we believe it's the correct one, but we do, we invoke Chevron deference.

[01:15:13] Speaker 06:
We think it's appropriate.

[01:15:14] Speaker 06:
I don't think you even cited Chevron in your reading.

[01:15:17] Speaker 06:
We did.

[01:15:17] Speaker 06:
We did.

[01:15:18] Speaker 06:
We cited, well, actually we cited Monford, Your Honor, which was a case that you, you and I believe Judge Millett were both on, in which you deferred to our interpretation of a provision of the exchange act.

[01:15:29] Speaker 03:
Chevron, definitely not in here.

[01:15:31] Speaker 06:
Yeah, it was through Monford.

[01:15:34] Speaker 06:
Monford was a Chevron case.

[01:15:36] Speaker 03:
And multiple agencies are involved.

[01:15:42] Speaker 03:
There's not just one regulatory agency that's involved in the 19D process, correct?

[01:15:47] Speaker 06:
Not as to these petitioners.

[01:15:50] Speaker 06:
So they would not be subject to any sort of inconsistent standards that would be deferred to.

[01:15:56] Speaker 03:
I just didn't see this argument fleshed out in your brief as to why, because this isn't your normal position.

[01:16:00] Speaker 06:
It was raised in the reply.

[01:16:02] Speaker 03:
So we didn't get an opportunity to... I'm sorry, I thought you just said you were asserting deference in your brief.

[01:16:07] Speaker 03:
We did, but they didn't... Well, surely, you're the expert here.

[01:16:10] Speaker 03:
You've read the statute.

[01:16:11] Speaker 03:
You're aware that it applies to multiple regulatory agencies, so you realize your burden's different if you're going to invoke Chevron slash Mumford in your brief to show why it applies here.

[01:16:23] Speaker 03:
Don't you... You knew that, right?

[01:16:25] Speaker 06:
Yes.

[01:16:25] Speaker 03:
But you didn't do it.

[01:16:26] Speaker 06:
No, we did not anticipate that argument here.

[01:16:29] Speaker 06:
It's not a statute that is often construed by anyone but the commission.

[01:16:34] Speaker 06:
And as I said, these petitioners are not subject to any sort of conflicting interpretations because they are only... It talks about the regulatory entity.

[01:16:43] Speaker 06:
We are the regulatory entity for these petitioners.

[01:16:45] Speaker 03:
I know, but for these petitioners, but what about the banks and stuff that might be members of CFMA?

[01:16:51] Speaker 03:
Are they not subject to regulation also by Federal Reserve Board or other entities?

[01:16:57] Speaker 06:
I can't speak to, I don't know.

[01:16:59] Speaker 03:
So you're not sure whether all the parties involved here are subject to your exclusive jurisdiction?

[01:17:04] Speaker 06:
I, as, in terms of, as the broker dealers, they are.

[01:17:10] Speaker 06:
Whether or not SIPMA members include investment banks, I mean, I imagine it may be so, I don't know.

[01:17:16] Speaker 03:
And they might be subject to other regulatory agencies then as well.

[01:17:20] Speaker 06:
I'm sorry?

[01:17:20] Speaker 03:
So they could be subject to other regulatory agencies under 19D as well?

[01:17:25] Speaker 06:
I imagine if they are a clearing company, but I don't think they are because they wouldn't be a broker dealer.

[01:17:32] Speaker 03:
I guess I'm trying to figure out how you were asserting Chevron then without making that determination and showing it.

[01:17:37] Speaker 06:
As I said, for these petitioners, which is how I understand the standards of work, they're not... I think we have to do it for all the parties involved.

[01:17:43] Speaker 06:
They are not, no one has raised an objection that has pointed to any inconsistency in our interpretation as to any other regulatory agency.

[01:17:55] Speaker 03:
I thought your argument for why, how you were trying to reconcile the 19B process, which is meant to allow these fees to become effective promptly.

[01:18:06] Speaker 03:
That's the point of the Dodd-Frank Act.

[01:18:09] Speaker 03:
what would now happen under 19D is I understand that your argument is, well, they can become effective, they just can't be enforced.

[01:18:18] Speaker 03:
So for fees, what's the difference between effective and enforced?

[01:18:25] Speaker 03:
When I'm handed a menu at a restaurant with prices listed on there, they're certainly effective.

[01:18:34] Speaker 03:
And if all people had to say in their declarations to have standing here was that,

[01:18:39] Speaker 03:
Well, I have to pay the fee.

[01:18:40] Speaker 03:
That's the enforcement.

[01:18:41] Speaker 03:
Do I have to pay?

[01:18:42] Speaker 03:
Do I want to pay at the restaurant?

[01:18:44] Speaker 03:
The fee has been enforced.

[01:18:46] Speaker 06:
When you are charged, yes.

[01:18:49] Speaker 03:
What's the value of being effective under 19B?

[01:18:52] Speaker 06:
They can charge that fee the minute it is effective, and they continue to charge those fees.

[01:18:57] Speaker 03:
But as soon as they charge it, they're enforcing it as well.

[01:19:00] Speaker 06:
But that is why the limitation of access challenge is available.

[01:19:04] Speaker 06:
I mean, without it, again, Congress wouldn't.

[01:19:06] Speaker 03:
Normally, you have things that, you know, rules can take effect.

[01:19:11] Speaker 03:
And then under 19D processes, they might be enforced in individualized cases to such person as 19D talks about.

[01:19:21] Speaker 03:
But not, you know, here's a rule that if you violate this rule, we're kicking you out.

[01:19:27] Speaker 03:
Or we're suspending you for 60 days.

[01:19:30] Speaker 03:
Right?

[01:19:31] Speaker 03:
That's the enforcement action.

[01:19:32] Speaker 03:
It's different from the rule taking effect that says don't cheat or you'll be kicked out or suspended.

[01:19:38] Speaker 03:
Right?

[01:19:38] Speaker 03:
The rule takes effect.

[01:19:40] Speaker 03:
And then you wait until someone violates it and then you have an enforcement action.

[01:19:43] Speaker 03:
But it sounds like here you're saying you're somehow protecting the effectiveness under 19B by saying, yes, they'll take effect.

[01:19:53] Speaker 03:
But as soon as they're enforced, you're subject to 19D.

[01:19:57] Speaker 03:
But the nature of a fee,

[01:20:02] Speaker 03:
is that that's what we're charging.

[01:20:05] Speaker 03:
That's what it means to take effect.

[01:20:07] Speaker 03:
It's inherently effective and enforced at the same moment, isn't it?

[01:20:12] Speaker 06:
I believe that may be correct.

[01:20:13] Speaker 03:
So then you haven't reconciled 19B and 19D at all.

[01:20:16] Speaker 06:
But it starts to overlap.

[01:20:18] Speaker 06:
That's all.

[01:20:19] Speaker 06:
I mean, Lorenzo teaches us that overlap within the securities laws is a feature, not a bug.

[01:20:25] Speaker 06:
Again, Congress was careful.

[01:20:27] Speaker 03:
But the bug that Congress wanted to get rid of was we don't want

[01:20:31] Speaker 03:
these fees to have to go through lengthy processes before they can be charged.

[01:20:37] Speaker 03:
That was the whole reason you, Dodd-Frank, put in this immediate effectiveness provision.

[01:20:43] Speaker 03:
And if the commission has now interpreted 19D to say, either before you do your 19B filing or the second you do your 19B filing, you can get stopped by a 19D complaint

[01:21:01] Speaker 03:
which I think is probably always going to happen now.

[01:21:03] Speaker 06:
But it doesn't stay the fee.

[01:21:06] Speaker 06:
It continues to be charged unless the commission either stays it directly or finds that it's a limitation of access and sets it aside pursuant to 19F.

[01:21:18] Speaker 06:
That's the difference.

[01:21:20] Speaker 06:
So that's what Congress got in dot 3.

[01:21:24] Speaker 03:
So 19D process doesn't have to be done before they file under 19B, even though they're supposed

[01:21:30] Speaker 03:
Right.

[01:21:31] Speaker 03:
Do all that before they impose it?

[01:21:33] Speaker 03:
Don't you normally have to go through that process before you impose the limitation?

[01:21:37] Speaker 06:
It depends on the limitation.

[01:21:39] Speaker 06:
There are certain circumstances in which the exchanges have not gone through a process and yet there was a challenge of limitation of access.

[01:21:46] Speaker 06:
The few examples that were given were exactly such.

[01:21:48] Speaker 03:
Can you give me examples of where I would like to know if it's common that this happens that they impose limitations

[01:21:57] Speaker 03:
before going through the 19D process, other than in this fee context, that might be helpful.

[01:22:02] Speaker 03:
When else do they do that?

[01:22:04] Speaker 06:
I'm speaking to the fee context.

[01:22:07] Speaker 03:
Okay, other than the fee context, do they?

[01:22:09] Speaker 06:
I'd have to look into it.

[01:22:11] Speaker 03:
You're not aware then, the commission doesn't, I didn't see anything in this decision that suggested that the way 19D works is sometimes you do it before the limitation and sometimes you do it after.

[01:22:22] Speaker 06:
Well, I can speak to the fact that the commission has those cases in which it says that it's not

[01:22:26] Speaker 06:
conditioning its review power on whether or not the SRO has given the... Sure, I get it.

[01:22:32] Speaker 03:
They violated the statute of regulations.

[01:22:34] Speaker 03:
That's a different thing altogether.

[01:22:35] Speaker 06:
I don't know the answer.

[01:22:36] Speaker 03:
But what you're now saying, what you're now seem to be saying is never mind that advance notice in the statute.

[01:22:43] Speaker 03:
When we call general fees a limitation on access, you don't have to do it.

[01:22:51] Speaker 03:
You don't have to go through the 19D process before you impose them.

[01:22:55] Speaker 06:
What I'm saying is the Commission pointed out that the 19D process could be satisfied both with the filing with the Commission, which provides the public notice that the statute envisions.

[01:23:05] Speaker 03:
It's not before, though, the limitation.

[01:23:07] Speaker 03:
And then you just said the limitation can sit hanging out there while we go through the whole 19D process.

[01:23:12] Speaker 06:
That is the way Congress wrote the statute, Your Honor.

[01:23:15] Speaker 03:
I thought Congress wrote the statute to say they had to go through the 19D process before they impose the limitation.

[01:23:21] Speaker 03:
Where in the statute does it say they can do it after?

[01:23:24] Speaker 03:
The SRO.

[01:23:26] Speaker 03:
Yes sir.

[01:23:30] Speaker 03:
It's a big statute so I must have missed something.

[01:23:37] Speaker 06:
It would be under section 6.

[01:23:41] Speaker 06:
Correct.

[01:23:45] Speaker 03:
That's 78F.

[01:23:47] Speaker 06:
Yep.

[01:23:57] Speaker 10:
I'm sorry, you're in 70, S or S?

[01:23:59] Speaker 06:
S, as in Frank.

[01:24:02] Speaker 06:
It says that the exchange shall notify such person of and give an opportunity to be heard upon on specific grounds for, and that's a denial bar, prohibition or limitation under consideration and keep a record.

[01:24:14] Speaker 03:
Right, this is to determine whether we're going to impose a limitation.

[01:24:17] Speaker 03:
It's not the, it's not a, I didn't read this as a post-doc process.

[01:24:21] Speaker 03:
Are there examples you can give me

[01:24:24] Speaker 03:
where it's a post-tax process, assuming the SRO is following the law, am I just ignoring it other than fees for the deed afterwards?

[01:24:31] Speaker 06:
As I said, I'd be happy to send a letter, but I think... Well, you could send a letter, but there's nothing in the Commission decision that explains that.

[01:24:40] Speaker 06:
Okay.

[01:24:41] Speaker 06:
But I think that as written, the statute does not foreclose, and does not foreclose, as the Commission pointed out, that the filing itself can serve as the notice.

[01:24:52] Speaker 06:
It does not have a tort temporal limit explicitly or expressly stated.

[01:24:59] Speaker 06:
And as the Commission said, I believe it is a more than reasonable interpretation that this could double as both the notice and as the immediately effective rule filing.

[01:25:12] Speaker 03:
If someone files a petition for rulemaking on your 19C, does the Commission have the ability to

[01:25:18] Speaker 03:
ask the SROs for more information before it initiates the rulemaking process, just to go, huh, let me see if there's any legitimacy to this, because rulemaking, hmm, sounds like there might be something there, but before I start the whole big notice and comment process, can I get some information from the SROs about how they came about setting these fees?

[01:25:39] Speaker 03:
Is that possible, or do you just have to do everything from notice and comment?

[01:25:44] Speaker 06:
Under 19C, I'm not aware of an extra process.

[01:25:48] Speaker 03:
Does the Commission have the authority just generally to require information from SROs about their fees even outside of a formal 19C process?

[01:25:58] Speaker 06:
I mean, there are ways that the Commission can engage, but I don't know as an industry.

[01:26:03] Speaker 06:
I suppose if it's an individual exchange, the Commission has the ability to ask for information through its normal inspection processes.

[01:26:13] Speaker 06:
But I think it would be a somewhat cumbersome way to go about this.

[01:26:17] Speaker 06:
And I don't know that it's exactly envisioned to be that way.

[01:26:21] Speaker 06:
However, I think when you're talking about a rulemaking under 19C, I mean, it isn't the alternative that the exchanges want you to believe it is.

[01:26:31] Speaker 06:
I mean, if they think that hundreds of limitations of access challenges being remanded to them is cumbersome, imagine the hundreds

[01:26:42] Speaker 06:
rule-makings that the Commission would be required under their interpretation to engage in in order to reach whether or not any of these fees that they challenge are actually reviewable limitations of access.

[01:26:57] Speaker 10:
How would it give me a practical example of how that would be any more burdensome or

[01:27:05] Speaker 10:
or less desirable than doing hundreds of hearings?

[01:27:14] Speaker 06:
Under the Change Act, the SROs don't have to engage

[01:27:20] Speaker 06:
in a lengthy adjudicative process.

[01:27:23] Speaker 06:
It can be done on the papers.

[01:27:24] Speaker 06:
It is done on the papers often.

[01:27:26] Speaker 06:
Sometimes, as I said, the records that come up are deficient, so the commission either can send it to an ALJ or can send it back to the SRO to compile the records.

[01:27:37] Speaker 06:
But these cases, and I don't want to get ahead of us with the remand question, but these cases, all that the commission said in that order was,

[01:27:48] Speaker 06:
we remand for you to consider in light of our decision in SIFMA.

[01:27:51] Speaker 06:
And so we're going to give you the first opportunity to apply the standards we set forth in the procedural order and the legal determinations we made in the SIFMA case.

[01:28:01] Speaker 06:
And that's all they are required to do.

[01:28:03] Speaker 06:
It did not make any finding as to whether these were reviewable limitations of access.

[01:28:13] Speaker 10:
You're saying that the outcome could

[01:28:16] Speaker 10:
could be that kind of like as a threshold matter, even though technically the petitions would fall within 19D, the commission wouldn't really kind of dig into all of the merits.

[01:28:31] Speaker 10:
That's one way that that could get resolved.

[01:28:34] Speaker 06:
That's true.

[01:28:35] Speaker 06:
The SROs, if it finds that those are not proper limitations of access petitions, could deny them, get appealed to the commission, the commission could agree.

[01:28:47] Speaker 06:
And then there is no further action required.

[01:28:50] Speaker 10:
I mean, why wouldn't you have the same result with the rulemaking?

[01:28:54] Speaker 10:
I mean, everybody can ask for rulemaking.

[01:28:57] Speaker 10:
The commission doesn't have to commence one.

[01:29:01] Speaker 10:
And to the extent that the commission commences one, it can be the gatekeeper as to which fees are going to be subject to the rule and how to define the scope of the rulemaking and the procedures, et cetera.

[01:29:17] Speaker 10:
So why isn't that just as quarterly of a process?

[01:29:21] Speaker 06:
Well, it's not when you're talking about the extent and to the sometimes narrowness of the fee filings at issue.

[01:29:30] Speaker 06:
They're somewhat of a moving target.

[01:29:34] Speaker 06:
There's a constant process of back and forth in which

[01:29:38] Speaker 06:
the exchanges submit a rule filing.

[01:29:41] Speaker 06:
It goes through the 60-day period.

[01:29:43] Speaker 06:
If there's a suspension, they pull the rule filing, and then they resubmit it, and then they go through the process yet again.

[01:29:49] Speaker 06:
And so I think it's, I don't believe that the most efficient way would be for the commission to attempt to address each one of those with a notice of comment rulemaking, putting in effect all of the requirements that this court knows that it has to go through when

[01:30:07] Speaker 06:
engaged in rulemaking, particularly when you're talking about a fee that may be pretty specific as to whom it's directed.

[01:30:18] Speaker 06:
For example, in this case, these depth of book data products are the fees that have gone up, are the fees that are targeted at the non-displayed users.

[01:30:29] Speaker 06:
over the last decade and it would be, I think, for the Commission to engage in rulemaking to try to address that aspect and then all the other aspects of all the other types of fees that we're talking about, the distribution fees.

[01:30:45] Speaker 06:
It is better spent and more efficient to allow for someone to come in to challenge if they can make the showing

[01:30:52] Speaker 06:
and then the Commission determined each case on its own facts.

[01:30:56] Speaker 10:
Just so that I'm clear, if there were a petition for rulemaking under 19C and someone said this fee is unreasonable,

[01:31:12] Speaker 10:
Once that petition is filed, is there a mechanism for the commission to seek further information from the SRO to just kind of at least assist in making a determination as to whether or not to commit such a rulemaking?

[01:31:33] Speaker 06:
Pursuant to the petitioning process?

[01:31:37] Speaker 10:
Just, you know, a petition is filed and they say, under 19C, we want you to commence a rulemaking, except from a file set with respect to rule X. The commission gets that petition.

[01:31:56] Speaker 10:
I'm assuming the commission could call for some sort of response.

[01:32:01] Speaker 10:
from the SRO and ask it for certain information about the fee, et cetera, and what the basis for it is, et cetera, to determine whether the commission really thinks it's worthy of a rulemaking.

[01:32:20] Speaker 10:
Am I right about that, or how would that work?

[01:32:23] Speaker 06:
Well, that sounds exactly like the limitation of access process in that regard, but it doesn't give

[01:32:31] Speaker 06:
It doesn't fit into the scheme in the way that historically challenges to unreasonable fees have been dealt with since under 11CAPA.

[01:32:43] Speaker 06:
It may be an avenue, but it doesn't provide the same judicial review.

[01:32:48] Speaker 06:
It doesn't provide the same standards for the SROs.

[01:32:50] Speaker 06:
They're the quasi-governmental entities here.

[01:32:54] Speaker 06:
They're charging fees without some sort of review process.

[01:32:59] Speaker 06:
That would be unchecked.

[01:33:00] Speaker 06:
Unless the commission engages in rulemaking, which is not a very streamlined process, requires much in regards under the APA, and it's all fine.

[01:33:12] Speaker 06:
The commission is proposing a rule to do certain actions, to take certain actions within this realm, but it cannot cover the ever-changing, quickly evolving securities markets.

[01:33:26] Speaker 06:
And that is why Congress put this in as a

[01:33:30] Speaker 06:
backdrop or backstop to and in the legislative history from 1975 was concerned that was creating monopolies of securities information processing and because of that it said that a fee could be unreasonable and therefore has to be has to be reviewable and that was within its mind and that's never Dodd-Frank did not amend that language not amend 19D and 19F

[01:33:57] Speaker 03:
I think we've been trying this question a couple different ways.

[01:34:01] Speaker 03:
Does the Commission not have general regulatory authority over what you now call these crazy governmental SROs?

[01:34:08] Speaker 03:
When it comes to your attention, whether through a petition for rulemaking or an article in the New York Times, that this, hang on, something looks wrong with this fee now to write a letter or to request information from the SROs to a response.

[01:34:26] Speaker 03:
to information that has come to your attention in whatever form.

[01:34:29] Speaker 03:
Do you have that ability?

[01:34:30] Speaker 06:
Yes, we do.

[01:34:31] Speaker 03:
Absolutely.

[01:34:31] Speaker 03:
And where is the source?

[01:34:32] Speaker 03:
Where is that?

[01:34:33] Speaker 03:
Is that in the rules or statute?

[01:34:34] Speaker 06:
It's in the statute.

[01:34:35] Speaker 03:
Where in the statute?

[01:34:37] Speaker 03:
I would have to go... Who's in your letter, please?

[01:34:40] Speaker 06:
Sure.

[01:34:41] Speaker 03:
So you can do exactly what... We can ask for general information.

[01:34:44] Speaker 06:
We could also bring enforcement actions if we believe that they're not enforcing the act.

[01:34:47] Speaker 03:
You're just trying to get the information about what to do.

[01:34:50] Speaker 03:
This looks like it might be a problem, but I don't want to start the...

[01:34:53] Speaker 03:
ponderous notice and comment rulemaking process without getting some more information.

[01:34:58] Speaker 03:
And you can get information.

[01:35:01] Speaker 06:
As to all, yes.

[01:35:03] Speaker 03:
From the SROs.

[01:35:04] Speaker 03:
And then you can make a judgment whether you need to start the petition for rulemaking process.

[01:35:09] Speaker 06:
Right.

[01:35:09] Speaker 06:
With all due respect, that is much less of an efficient process than the one that Congress set forth in Section 19 and in 11 Cap A.

[01:35:22] Speaker 03:
What are you doing during the 60-day suspension period review?

[01:35:27] Speaker 03:
The 19B, the 60-day, they file, I think it's 60 days, right?

[01:35:30] Speaker 03:
They file a fee and it will take effect unless you have 60 days to make a suspension decision.

[01:35:36] Speaker 03:
What kind of review do you do then?

[01:35:39] Speaker 06:
Well, it goes to the staff of the Division of Trading and Markets, which makes an initial determination if sometimes the commission could issue its own order

[01:35:50] Speaker 06:
suspending and then it sets it for.

[01:35:55] Speaker 03:
You're making a decision whether to suspend or not.

[01:35:58] Speaker 02:
Right.

[01:35:58] Speaker 03:
At that point, can you ask the SRO?

[01:36:00] Speaker 03:
Because they do a little brief filing with their 19B fee notice.

[01:36:06] Speaker 03:
And do you have the authority during that six-day period to go, hang on, something looks fishy here?

[01:36:10] Speaker 03:
Not certain yet.

[01:36:11] Speaker 03:
I'm not going to suspend it just yet, but I need some more explaining from you.

[01:36:14] Speaker 03:
Can you do that?

[01:36:15] Speaker 06:
I believe so, yes.

[01:36:17] Speaker 06:
We could also remand it.

[01:36:20] Speaker 06:
Suspending essentially restarts the process for them because then they will pull it and refile.

[01:36:26] Speaker 03:
How often do you suspend?

[01:36:29] Speaker 06:
I don't know the exact number.

[01:36:30] Speaker 06:
I know we do suspend immediately effective rule fee filings with

[01:36:36] Speaker 06:
Some frequencies.

[01:36:37] Speaker 03:
Some frequencies.

[01:36:38] Speaker 06:
Although the filings have been less in the last couple of years.

[01:36:43] Speaker 10:
So if we were to agree with you and say these petitions have to be brought under 19D and

[01:36:58] Speaker 10:
What you're saying is that, in essence, the SRO, since you can't have the fox guarding the hen house, so to speak, they have some independent hearing officers.

[01:37:10] Speaker 10:
There's some sort of mechanism whose name escapes me, right?

[01:37:14] Speaker 06:
They have hearing officers.

[01:37:16] Speaker 10:
But their hearing officers would develop a record and kind of make findings and then

[01:37:21] Speaker 10:
if one party or the other didn't like that finding, then they would seek review before the commission, right?

[01:37:29] Speaker 10:
That's correct.

[01:37:33] Speaker 10:
It seems to me that part of what's going on here is that, and I'm not saying that there's anything wrong with this, but it's that the commission would rather have

[01:37:46] Speaker 10:
the SROs have to do all of that legwork, then it has to do all of that legwork with any such petitions.

[01:37:55] Speaker 10:
Am I, you know, craven to think that that's kind of what's going on here?

[01:38:03] Speaker 06:
I mean, we're talking about, yes.

[01:38:05] Speaker 06:
I think that

[01:38:06] Speaker 06:
As the statute provides, the SROs have the first opportunity to develop a record.

[01:38:12] Speaker 06:
And as I said, the commission can, under its rules, remand if it finds that the record is insufficient.

[01:38:19] Speaker 06:
It could also, as it did in the procedural order, send it to an ALJ for record development.

[01:38:26] Speaker 06:
So it has that option as well.

[01:38:28] Speaker 06:
But yes, it is helpful to have the SROs determine these things in the first instance.

[01:38:34] Speaker 06:
Sometimes the records

[01:38:36] Speaker 06:
that are part of these fee filings are not the most developed.

[01:38:44] Speaker 03:
When they give this 19B slash 19D simultaneous notice of their, here's our fee and it's also a limitation versus 19D, does that immediately start the 19D process or does someone have to come in and say I feel limited?

[01:39:01] Speaker 06:
Somebody has to challenge it or the commission has to challenge it.

[01:39:04] Speaker 03:
So they give notice of this limitation that we're imposing and everyone says fine.

[01:39:08] Speaker 06:
They have 30 days.

[01:39:09] Speaker 03:
Right.

[01:39:10] Speaker 06:
And if nobody comes in, then it's, and if the commission does not suspend, then the rule is in effect.

[01:39:15] Speaker 03:
And then, so yeah, I'm assuming this commission hasn't suspended because that would change, scramble everything.

[01:39:20] Speaker 03:
So, and someone comes in during that 30 day period and says, I'm feeling very limited.

[01:39:27] Speaker 03:
What happens then?

[01:39:29] Speaker 03:
At that point, the commission doesn't still get to decide whether to remand or anything like that.

[01:39:36] Speaker 03:
At that point, the SRO has to go through its full-fledged 19-D process?

[01:39:40] Speaker 03:
It could go through another process, but it also has to rely on the... Does it have to do when someone comes in and says, given the notice, and someone comes in and says, yes, I object to being limited, then they have to go through their hearing process?

[01:39:57] Speaker 06:
If they file it with the commission,

[01:39:59] Speaker 06:
then they do not have to go through the process.

[01:40:01] Speaker 06:
Because as the commission pointed out in its order, it envisions that the filing itself could double as the record from the limitation of access process.

[01:40:13] Speaker 06:
All that it requires, for example, again, I don't want to get ahead of myself with the remand order, but the remand order, all it required was for the SROs to decide the cases that have to be remanded to it.

[01:40:23] Speaker 06:
And the process just has to be fair.

[01:40:26] Speaker 06:
So in those cases,

[01:40:28] Speaker 06:
because there hasn't, because the commission would like to have the SRS decide what it thinks of these, whether these are reviewable limitations of access in light of this decision that's before the court now.

[01:40:43] Speaker 06:
But as it said, if the exchanges wanted to, they could just certify and send it back up and say we think it's fine.

[01:40:52] Speaker 03:
And since you're, so I know that at the time of your decision here, there were like 400 challenges to fees.

[01:40:58] Speaker 03:
Since your decision in that case, have a lot more challenges to face come in?

[01:41:02] Speaker 06:
No.

[01:41:03] Speaker 06:
I think there's one.

[01:41:05] Speaker 03:
OK.

[01:41:07] Speaker 03:
Any questions?

[01:41:08] Speaker 03:
OK.

[01:41:08] Speaker 03:
Thank you.

[01:41:08] Speaker 03:
I think we'll hear from Sifma now.

[01:41:28] Speaker 07:
Good afternoon, your honor.

[01:41:29] Speaker 07:
It may please the court.

[01:41:31] Speaker 07:
If I knew how to loop this up, I would do that.

[01:41:33] Speaker 07:
But I guess I'll just bend down and speak loudly if that works for you.

[01:41:37] Speaker 07:
It will come up.

[01:41:38] Speaker 07:
Yeah, I know it will.

[01:41:39] Speaker 07:
I just don't know how to do it.

[01:41:44] Speaker 07:
Oh, look at that.

[01:41:46] Speaker 07:
You probably don't need to use it as much as I do.

[01:41:49] Speaker 07:
I've made it a habit of not touching podiums in my career, so I didn't want to deviate from that practice.

[01:41:57] Speaker 07:
I suppose as the one person in this room who's been with us since the very beginning, I should at least start off by saying that no matter how you look at this, the reality could not have been what Congress intended, which is that the exchanges have been allowed to file unreasonable and unfair fees and charge them for more than 10 years

[01:42:19] Speaker 07:
without any reasonable opportunity for review.

[01:42:23] Speaker 07:
And what we know from the decision of the Commission in this case is that the grounds upon which they originally asserted that these fees would be fair and reasonable, which is a core mandate of the Securities Exchange Act, is that there would be real competition.

[01:42:41] Speaker 07:
And the one thing we know is

[01:42:42] Speaker 07:
There is no real competition that constrains the fees that the exchanges charge.

[01:42:49] Speaker 07:
And the reason we're in this awkward situation is because Congress in the middle throws in the monkey wrench of eliminating judicial review in the 19B process.

[01:43:02] Speaker 07:
This court upheld that against the backdrop of the commission saying explicitly not to worry, there's a 19D process that's available.

[01:43:11] Speaker 07:
And not surprisingly, my clients consistently relied on that and said, fine, if the 19B doesn't work, then the 19D does.

[01:43:23] Speaker 07:
It wasn't crazy.

[01:43:24] Speaker 07:
It wasn't a crazy idea.

[01:43:25] Speaker 07:
NASD upheld that theory of limiting access.

[01:43:29] Speaker 07:
If you charge fees, you inherently limit access.

[01:43:32] Speaker 07:
That's a reasonable approach, and therefore when they... NASD didn't go that far.

[01:43:37] Speaker 03:
I'm sorry?

[01:43:37] Speaker 03:
NASD didn't go that far.

[01:43:39] Speaker 03:
That fee in that case, which was to a particular vendor.

[01:43:42] Speaker 07:
I mean, on the facts in that case, that's true, but all the opinion says basically is that if you increase, in that case, a fee by $150, that that limits the access within the meaning of Section 11.

[01:43:56] Speaker 03:
In a case where they went through and explained how it was, I mean, they factually described how it was a limitation in that case because it was just non, they couldn't pay it economically.

[01:44:07] Speaker 03:
It made no economic sense to pay it.

[01:44:09] Speaker 07:
Right, but I still think from a reliance standpoint as a regulated entity being told by the commission that if you are in fact charged an exorbitant fee, one that cannot be justified as reasonable and fair, that you are entitled to bring an action under 19D and they then will have to demonstrate, I think that part's been established, the burden is on them to show that this complies with

[01:44:39] Speaker 07:
with the fair and reasonableness standard.

[01:44:41] Speaker 07:
To me, when Congress took away the 19B, it didn't amend 19D, notwithstanding this Court's previous recognition that that limitation of access can be used to challenge fees.

[01:44:56] Speaker 07:
It didn't change 19F.

[01:44:58] Speaker 07:
It didn't change, and it said explicitly, at least for those who believe in legislative history, that nothing in Dodd-Frank diminishes the SEC's authority to disapprove a rule that is not consistent with the Exchange Act.

[01:45:11] Speaker 03:
That could have equally applied to the suspension or the 19C process, right?

[01:45:16] Speaker 03:
That language?

[01:45:18] Speaker 07:
Well, I don't think, I mean, the notion that suspension or 19C would be a complete

[01:45:26] Speaker 07:
protection is obviously hard to square with reality because we're sitting here with 400 fee increase requests that have been in effect and charged and paid without any evidence whatsoever at this point that any of those are in fact fair and reasonable.

[01:45:46] Speaker 03:
Well, and have your clients challenged the commission's odd view here that unlike most limitations under 19D, they're not supposed to take effect until you go through the process?

[01:45:57] Speaker 07:
Well, I mean, we can ask them.

[01:45:59] Speaker 03:
No, they've adopted it.

[01:46:01] Speaker 03:
You're not here challenging their decision in any way, even though it allows fees to stay in effect, which is, at least as I understand, I could be wrong, not normally how the 19D process works.

[01:46:13] Speaker 03:
It has some limitations on access.

[01:46:14] Speaker 03:
You normally have to go through the process before you get to enforce the limitation.

[01:46:18] Speaker 07:
Right, although I don't read section six as saying at least,

[01:46:22] Speaker 07:
necessarily that's pre-deprivation.

[01:46:26] Speaker 07:
I mean, that language just says, in connection with making a decision, you have to give notice and an opportunity to be heard.

[01:46:32] Speaker 07:
It doesn't say exactly when the notice and opportunity have to be.

[01:46:35] Speaker 03:
Are you aware of any other?

[01:46:36] Speaker 07:
No, but I'm not aware of any other situation where you wouldn't instinctively think you would probably want to provide that kind of notice.

[01:46:46] Speaker 07:
And the commission has looked at us.

[01:46:48] Speaker 03:
I'm just trying to understand how this world works that I'm not that familiar with.

[01:46:51] Speaker 03:
Are you aware of any other action, whether it's disciplinary action or any other limitation, denial of membership, suspension, exclusion, that's traditionally processed under the 6D process and then you can end up going through either, I guess, 11A or 19T, but any of those where it's not dealt with as a pre-infiltration process?

[01:47:16] Speaker 07:
I don't know of any that fall into that category.

[01:47:19] Speaker 07:
On the other hand, the statute doesn't talk about pre-imposed.

[01:47:23] Speaker 03:
You're complaining about the fees being allowed to stay in effect even though they've been challenged to this process as a limitation on access.

[01:47:30] Speaker 03:
And I'm just curious that, and you're complaining about that and I can understand why your clients want to do that.

[01:47:38] Speaker 03:
But it's been curious to me that you have, your clients have made no effort to say, look, commission, here's how this has always worked as far as we can tell.

[01:47:46] Speaker 03:
And so you can actually not let them charge these, once they're challenged as a limitation on access.

[01:47:51] Speaker 07:
I mean, we could make that argument, but at the end of the day, first of all,

[01:47:56] Speaker 07:
The reason why we don't go to the exchanges and ask them for relief is because that's unrealistic.

[01:48:03] Speaker 07:
They are the ones who have created these fees.

[01:48:05] Speaker 07:
They have created this revenue flow.

[01:48:07] Speaker 07:
The idea that we would go to them and ask them for a hearing on this, and I realize this gets to the re-management, we are no big fans of that, but we understand the Commission has the authority to do that.

[01:48:17] Speaker 07:
But we would never do that.

[01:48:18] Speaker 07:
We would have no reason to encourage another round of proceedings that would frankly be a shame.

[01:48:24] Speaker 03:
I encourage the commission to explain that once a challenge is filed that this is a limitation.

[01:48:29] Speaker 03:
I've been notified and I'm triggering, whether 19D or 11A, I'm triggering that process because it's a limitation on my access to services.

[01:48:38] Speaker 03:
Right.

[01:48:39] Speaker 03:
That the consequence of that should be to stop the fee because that's what happens everywhere else.

[01:48:43] Speaker 03:
You can't enforce the fee once I do that.

[01:48:46] Speaker 03:
I'm just curious.

[01:48:49] Speaker 03:
I couldn't understand it.

[01:48:50] Speaker 07:
But that's because the statute itself, 19B, says the fees don't go into effect immediately.

[01:48:55] Speaker 03:
It doesn't say that with respect to all the rules.

[01:48:59] Speaker 03:
Yes, but rules normally operate until someone comes in and objects to being limited.

[01:49:05] Speaker 03:
They don't get to enforce it anymore.

[01:49:06] Speaker 07:
Well, except that I actually think the way 19 BC and D operated is not as adjudicatory versus rulemaking versus some other versus disciplinary.

[01:49:16] Speaker 07:
I think it's pre-enforcement generally, rulemaking in general, and then post-enforcement and how you deal with it.

[01:49:23] Speaker 07:
So to answer your question, so they execute it, they're charging us, presumably if we decided at some point if one of our members said, I'm not paying that anymore.

[01:49:31] Speaker 07:
and I still want to have access, they could bring that as an enforcement action and say it's unjustified.

[01:49:37] Speaker 07:
The question is, is that the only way you can get at that, that you have to in fact deprive yourself of access to a market that's extraordinarily important as a condition for being able to bring a challenge to what is, as we look at it right now, rates that are demonstrably unfair and unreasonable and unjustifiable.

[01:50:00] Speaker 07:
And I'd say to you, I don't think that's the way it has to be.

[01:50:03] Speaker 07:
I think it's quite reasonable when Congress cut off 19B, said that you're entitled to have your full protections otherwise, doesn't change 19D, then we ought to be allowed to bring our action under those circumstances exactly the way it happened here.

[01:50:20] Speaker 03:
Do you ever file 19C petitions for rulemaking?

[01:50:24] Speaker 07:
As against fees?

[01:50:25] Speaker 03:
for generally and then as against?

[01:50:27] Speaker 07:
I'm sure that I'm sure SIFMA has filed petitions for rulemaking.

[01:50:30] Speaker 03:
Have you done any as to fees?

[01:50:32] Speaker 07:
Not against, not that I know of.

[01:50:34] Speaker 07:
I don't think we've ever challenged the fees on that basis because our working assumption is that 19D is the legitimate method by which to do that and that we think that's a reasonable construction.

[01:50:45] Speaker 07:
I don't know whether that's a matter that you would defer to as a Chevron matter but I do think it's something that the court ought to defer to the expertise and experience of the Commission.

[01:50:54] Speaker 07:
And it certainly ought to do it as an interpretation of what is a reasonable presumption of what Congress would have wanted under these circumstances.

[01:51:04] Speaker 03:
Are any of your members subject to another regulatory authority under these same provisions?

[01:51:08] Speaker 03:
No.

[01:51:09] Speaker 07:
I did ask that question.

[01:51:11] Speaker 07:
As I understand it, no.

[01:51:13] Speaker 07:
The commission has the exclusive authority to regulate us under these provisions.

[01:51:19] Speaker 10:
I'm trying to remember where I read this.

[01:51:24] Speaker 10:
I thought that the way that this was handled in this case, or maybe it was in the National Association of Securities Dealers case, was that the fee wasn't adjusted during the 19D proceeding, or in that instance, the 11 cap A proceeding.

[01:51:41] Speaker 10:
But the fees were kind of placed in escrow, or there was an understanding that if the fee was set aside as unreasonable, there would be refunds.

[01:51:53] Speaker 10:
At least that was my understanding.

[01:51:56] Speaker 10:
So am I correct with that, that at the end of all of this, if there is a 19D proceeding, et cetera, that the commission could essentially order refunds?

[01:52:15] Speaker 07:
Well, they couldn't do it from an escrow account because I don't believe that the exchanges have held any money in escrow during the pendency of these proceedings.

[01:52:23] Speaker 10:
But they could give refunds, right?

[01:52:26] Speaker 07:
I would like to think that they can give refunds.

[01:52:29] Speaker 07:
I can't point you to a specific provision that gives them the authority.

[01:52:34] Speaker 07:
I do know under 19D they can remit sanctions.

[01:52:38] Speaker 07:
So the notion of some form of relief retrospective under those circumstances is certainly available under 19D.

[01:52:45] Speaker 07:
And I think the commission could conclude.

[01:52:47] Speaker 01:
You thought 19F was only prospective, set aside the action that required grant access.

[01:52:54] Speaker 07:
Right.

[01:52:54] Speaker 07:
19F is, 19D though, in dealing at least with a true sanction situation, does talk about remitting

[01:53:02] Speaker 07:
any kind of a penalty.

[01:53:03] Speaker 07:
So all I'm suggesting is that the question is, you know, within the broad expanse of the Commission's authority to regulate here and to do, and frankly to hopefully do justice, does it have that authority?

[01:53:18] Speaker 07:
I would argue it does, whether it would exercise it in a particular case and under what circumstances, I suspect I would probably be here again in another five to seven years to fight over that one in front of you.

[01:53:28] Speaker 10:
What about if there were rulemaking under 19C in the Commission, you know, set aside the fees at the end of that rulemaking,

[01:53:41] Speaker 10:
and said the fee should be 20% less than what they are.

[01:53:46] Speaker 10:
I'm just making up a number.

[01:53:48] Speaker 10:
And anyone who's been paying the higher fee gets a refund.

[01:53:55] Speaker 10:
Couldn't they do that by rule?

[01:53:57] Speaker 07:
I'm not sure they can do that retroactively.

[01:53:58] Speaker 07:
I mean, usually if you're going to apply a rule retroactively, you have to have express authority in the statute.

[01:54:04] Speaker 07:
to do that, and I don't think 19C necessarily gives them the authority to achieve that, whereas in the kind of quasi adjudicatory, quasi whatever proceeding we're talking about here under 19D, I think it would be perfectly acceptable for the Commission to say, look, these fees have never been determined, and frankly we don't believe they are,

[01:54:29] Speaker 07:
fair and reasonable, and therefore they should never have been charged.

[01:54:35] Speaker 07:
And the right answer is they should in fact be remitted to my clients.

[01:54:41] Speaker 10:
So just as a practical matter and as an efficiency matter, why is a 19D proceeding preferable to a rulemaking proceeding to resolve this sort of a dispute?

[01:54:59] Speaker 07:
First of all, I think of rulemaking proceedings in general as sort of dealing with broader problems than would arise in connection with a single fee dispute.

[01:55:09] Speaker 07:
So the idea that the Commission would be asked in response to, we say this is a bad, there's a new charge that's been implemented on a particular device.

[01:55:20] Speaker 07:
We think it's unfair and unreasonable.

[01:55:23] Speaker 07:
We want you to adopt a rule making that says it's unfair and unreasonable.

[01:55:27] Speaker 07:
If you go through that whole rigmarole and then they conclude, well, we don't see anything that constrains your ability to do this by competition.

[01:55:35] Speaker 07:
And so therefore, that rule is no longer valid going forward.

[01:55:39] Speaker 07:
I mean, that's a much more cumbersome mechanism for getting at the decision.

[01:55:44] Speaker 07:
than I think where we are now.

[01:55:46] Speaker 07:
And it does go to kind of Judge Millett's question about, you know, are we seeing a lot more filings?

[01:55:50] Speaker 07:
No.

[01:55:51] Speaker 07:
Why?

[01:55:51] Speaker 07:
Because now the Commission suspends all of them, because none of these charges has been supported by the demonstration that they're fair and reasonable.

[01:56:00] Speaker 03:
And so what happens is they file.

[01:56:03] Speaker 07:
Right.

[01:56:03] Speaker 07:
They file.

[01:56:04] Speaker 07:
They get suspended.

[01:56:05] Speaker 07:
They withdraw it.

[01:56:07] Speaker 03:
They start over again.

[01:56:09] Speaker 07:
You know, two weeks later they come back with the same thing.

[01:56:11] Speaker 07:
I mean, it's not unlike what happened in this specific case.

[01:56:14] Speaker 07:
This court decided that there was no proof that these were fair and reasonable, and that coalition won.

[01:56:20] Speaker 07:
And as soon as the rehearing petition was denied, they filed a brand new petition of new fee and made it implementable immediately.

[01:56:31] Speaker 07:
That's just sort of what they're doing.

[01:56:33] Speaker 07:
So they can keep fees coming on a regular basis.

[01:56:36] Speaker 07:
My clients have to pay them.

[01:56:38] Speaker 07:
And the only recourse, candidly, the only realistic recourse at this point, given how much this problem has candidly ballooned since I started it way back when, is to give the 19D relief that's available.

[01:56:50] Speaker 07:
It's a reasonable interpretation of the statute.

[01:56:52] Speaker 03:
The 19D filing is made.

[01:56:53] Speaker 03:
Do you, your clients, the SHFMA, or your members,

[01:56:59] Speaker 03:
During that 60-day period, weigh in and go to the commission, do you have a capacity?

[01:57:03] Speaker 03:
I guess you can just write in or call in and say, stop, stop this fee.

[01:57:06] Speaker 03:
Can you do that?

[01:57:07] Speaker 03:
Oh, sure.

[01:57:08] Speaker 08:
Of course.

[01:57:09] Speaker 03:
And now you said they're routinely getting suspended, and they're making them do a much more comprehensive.

[01:57:14] Speaker 03:
showing or justification.

[01:57:15] Speaker 07:
Right, well they know that the exchanges are not going to do that, at least in the short run, whether they'll eventually get around to it.

[01:57:22] Speaker 03:
Who needs 19D?

[01:57:23] Speaker 03:
They just have the Commission be more active under 19D.

[01:57:25] Speaker 07:
Right, but if we didn't have the 19D mechanism to allow the Commission at this point to have reached the ruling that's really at stake here, which is that there is no competition that constrains the fees that the exchange has set,

[01:57:41] Speaker 07:
the commission would continue to assume, as it did at the very outset, before it undertook this kind of an inquiry, that competition probably does constrain those fees.

[01:57:51] Speaker 07:
It now knows that at least that they haven't been able to prove it.

[01:57:56] Speaker 07:
And the truth is, if you put this in context and you think about it, they've had fee increases for more than a decade, dozens of them, and they can find one instance of one

[01:58:09] Speaker 07:
company that said, I'm going to change order flow.

[01:58:13] Speaker 07:
One, and even there, it didn't affect the fees.

[01:58:16] Speaker 07:
And two, every time in the two fee increases that we know about, the decrease in the utilization

[01:58:24] Speaker 07:
That's 2%, even though in the one instance, it was an infinite increase in the fees because it went from zero to a positive number.

[01:58:31] Speaker 07:
And it was a huge increase.

[01:58:33] Speaker 07:
Both of them have been huge increases.

[01:58:35] Speaker 07:
No evidence whatsoever of substitutability.

[01:58:39] Speaker 07:
And we know there are exchanges out there that give this information for free.

[01:58:44] Speaker 07:
If that constrained them, every one of my members would be there.

[01:58:49] Speaker 03:
I think arbitrary and capricious challenges here

[01:58:55] Speaker 03:
to succeed would they have to invalidate both the substitutability and the order flow?

[01:59:02] Speaker 03:
I don't think so.

[01:59:02] Speaker 07:
I think if they could prove that there is in fact substitutability, if they could say that they somehow erred in how they analyze substitutability and so therefore... As to everybody but the, what I call the 100 that buy all the books.

[01:59:16] Speaker 03:
That's why they divided it up and that's why it's very... Yeah, they didn't argue it that way.

[01:59:20] Speaker 07:
So I don't think that's the way you could carve this up.

[01:59:23] Speaker 03:
But that's why they decided it.

[01:59:24] Speaker 07:
I'm sorry?

[01:59:25] Speaker 03:
That's how they decided it.

[01:59:26] Speaker 03:
They said as to, look, there's the 100 folks that buy all the books.

[01:59:30] Speaker 03:
Loosely calling the 100 folks that buy all the books.

[01:59:33] Speaker 07:
And also 95% of the trades.

[01:59:35] Speaker 03:
Right.

[01:59:36] Speaker 03:
And that's, no, no, but as to them, there's no substitutability because they need all the books.

[01:59:41] Speaker 03:
But as to everyone else, they argued substitutability and the commission said no substitutability.

[01:59:49] Speaker 03:
I'm just trying to finish.

[01:59:50] Speaker 03:
Arbitrary increases challenges here and we have this sort of.

[01:59:53] Speaker 03:
divided analysis and I'm trying to figure out what would happen if a court were to find that their substitutability analysis was arbitrary and could be used to relax substantial evidence.

[02:00:08] Speaker 03:
But their order flow analysis as to the 100 didn't.

[02:00:12] Speaker 03:
What happens?

[02:00:13] Speaker 07:
I would think you'd vacate the remand because they weren't alternative bases on which the commission.

[02:00:18] Speaker 03:
You're sort of targeting different

[02:00:19] Speaker 03:
markets almost was the weird thing.

[02:00:21] Speaker 07:
To be sure, but again, I did not, I don't believe that is how the exchange is challenged.

[02:00:28] Speaker 03:
We would vacate and remand or?

[02:00:32] Speaker 07:
I don't know that you have to vacate and remand.

[02:00:34] Speaker 07:
I think you could just remand and say, we're still in a world where we don't have any proof that these are fair and reasonable fees.

[02:00:42] Speaker 07:
So I would not, I mean, in one sense, it doesn't make much difference, I suppose, because even if you vacate,

[02:00:49] Speaker 07:
The fees that are in effect now are new, different, much higher fees than are the two that are at issue in this particular case anyway.

[02:00:59] Speaker 03:
So are these fees at issue in this case no longer in effect?

[02:01:02] Speaker 07:
I mean, they're in effect, but they've been superseded by some specific fees.

[02:01:06] Speaker 03:
So is the case moved?

[02:01:09] Speaker 07:
No, because this is the classic capable of repetition yet evading review because they can always keep filing new fees and we never have an opportunity to have any of the fees challenged under any circumstances.

[02:01:20] Speaker 03:
But I mean, at least as to the arbitrary and capricious challenges, what's the point of analyzing that if it's whole different fees that are in now?

[02:01:26] Speaker 07:
It's the basis, I think, on which the entire set of remands need to be focused because it provides the core

[02:01:35] Speaker 07:
analytical framework for all that goes on from here on out in front of the exchanges or and ultimately in front of the Commission if there's further review at that point.

[02:01:46] Speaker 07:
So it does, it affects substantial rights in a way that continues on into the proceedings that will follow when I sit down.

[02:01:55] Speaker 03:
All right, thank you very much.

[02:01:56] Speaker 07:
Thank you, Your Honor.

[02:02:01] Speaker 03:
And I think you're both doing rebuttal.

[02:02:04] Speaker 00:
This way, do either of them have time left here?

[02:02:10] Speaker 03:
Okay, so can you just give me each one minute real fast, just whatever, or two minutes, whatever, just split it to you.

[02:02:16] Speaker 03:
That's fine.

[02:02:16] Speaker 03:
There's a lot to cover here.

[02:02:18] Speaker 03:
Thank you, Your Honor.

[02:02:19] Speaker 04:
Judge Moulet, you asked about whether there are any circumstances in which the pre-deprivation process requirement of 6D2 does not apply.

[02:02:29] Speaker 04:
The answer is yes, Congress expressly addressed that question in Section 6D3.

[02:02:35] Speaker 04:
It allowed the general rule

[02:02:36] Speaker 04:
is that, you know, in a proceeding to determine whether to impose a limitation, they have to provide pre-deprivation notice and hearing of the limitation under consideration.

[02:02:48] Speaker 03:
The summary process.

[02:02:49] Speaker 04:
Yes, so that's D2, so it's clearly pre-deprivation.

[02:02:52] Speaker 04:
And then D3 says summary process, but only in circumstances that don't apply here.

[02:02:57] Speaker 04:
So the statute is clear.

[02:02:58] Speaker 04:
The mechanism that the SEC has adopted for this situation just doesn't work with the statutory structure.

[02:03:05] Speaker 04:
With respect to substitutability and order flow, I agree if the Court agreed with us on substitutability, the case would have to go back to the Commission because clearly as to many fees at least, if not all, that would be sufficient to establish the existence of a competitive constraint.

[02:03:21] Speaker 04:
If the Court has no further questions.

[02:03:22] Speaker 03:
Do you agree then that the burden of proof issue,

[02:03:27] Speaker 03:
No, Your Honor.

[02:03:28] Speaker 04:
If I understood Mr. Henkin correctly, we have a different position.

[02:03:32] Speaker 04:
As I was trying to articulate before, the argument about the burden of proof, even if you assume that the burden of proof is on the SRO in what we would call an unreal 19D proceeding, in the case of what we have here, where we didn't go through any of that process, the SRO did not invoke

[02:03:48] Speaker 04:
an adjudicated proceeding and didn't hold an adjudication, it's not the moving party.

[02:03:53] Speaker 04:
SIFMA is the moving party initiating proceedings at the Commission under 19D.

[02:03:57] Speaker 04:
By operation of Supreme Court precedent, the moving party bears the burden of proof unless the statute says otherwise.

[02:04:02] Speaker 04:
Here it does not.

[02:04:04] Speaker ?:
Thank you.

[02:04:12] Speaker 05:
Judge Wilkins, to answer your question regarding process when filings are made, Mr. Phillips talked about the comment letters that are submitted and you had asked whether there are mechanisms that the SEC has to get additional information.

[02:04:30] Speaker 05:
The answer is yes, two ways.

[02:04:33] Speaker 05:
In the first instance, when a comment letter is submitted opposing a filing, generally speaking, the SRO that made the filing gets a call from the staff with a request for additional information.

[02:04:46] Speaker 05:
The SEC also has the ability to get additional information under both sections 17 and 21A.

[02:04:53] Speaker 05:
of the Exchange Act.

[02:04:56] Speaker 05:
Judge Mullett, to get to your point regarding enforcement and your menu example, that was quite apt.

[02:05:04] Speaker 05:
None of these are enforcement proceedings.

[02:05:08] Speaker 05:
These rules go into effect when by operation of law as Congress required,

[02:05:15] Speaker 05:
when the statutory procedures are followed, as they have been here.

[02:05:24] Speaker 05:
And there is no entity that is challenging these fees as an enforcement matter.

[02:05:31] Speaker 05:
And there is no way for an exchange to insulate a disciplinary or discriminatory action as a rule to somehow evade review.

[02:05:43] Speaker 05:
That just can't happen.

[02:05:44] Speaker 05:
the way these rules work.

[02:05:46] Speaker 05:
And the last thing I'd like to mention is that, you know, Mr. Frida talked about the concept of showing that a fee was too high and that the procedural order required the jurisdictional declarants to show that the fees were too high.

[02:06:03] Speaker 05:
And I direct the Court to pages 142 to 178 of the Joint Appendix, which are those jurisdictional declarations that do not show that.

[02:06:13] Speaker 05:
Thank you, Your Honors.

[02:06:15] Speaker 03:
Do we have another face now?

[02:06:20] Speaker 03:
Our remand face?

[02:06:23] Speaker 03:
We'll hear that one now.