[00:00:00] Speaker 03:
Case number 20-1470, Intercontinental Exchange Inc.

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et al.

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Petitioners versus Securities and Exchange Commission.

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Mr. Dunbar for the petitioners, Mr. Berger for the respondents.

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Mr. Dunbar, please proceed whenever you're ready.

[00:00:16] Speaker 00:
Thank you, Your Honor.

[00:00:20] Speaker 00:
The Exchange Act and the Commission's implementing regulations limit the SEC's authority over securities exchanges

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to regulating the marketplace, including the market facilities that quote bring together purchasers and sellers of securities unquote properly construed and consistent with how the commission has interpreted the exchange act for more than eight decades.

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That authority permits the SEC to oversee exchange functions, namely those activities that are part and parcel of the marketplace where offers to buy and sell securities are intermediated and executed.

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The commission historically has not sought to regulate as an exchange function

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the communications infrastructure that enables broker dealers and others to communicate with themselves.

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The two services at issue here, which we refer to in the brief as the wireless connections are pure data transport services that enable customers to communicate internally with themselves.

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The services do not perform marketplace functions and are therefore not part of an exchange over which the commission has regulatory jurisdiction.

[00:01:35] Speaker 02:
Aren't they extraordinarily specialized in enabling transfer of data in microseconds?

[00:01:47] Speaker 00:
They are very fast transmission services, Your Honor, but the function they perform is a pure data transport function.

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With that ability to transfer that amount of data so quickly, have any...

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It's only used to facilitate the purchase and sale of securities.

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They're not using it to listen to music or send emails.

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Your honor, that is correct that the wireless connections are used in a general sense for transmitting data related to securities transactions.

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But the important point

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is that the communications are between and among customers.

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These are not communications networks that are connected to the exchanges themselves.

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And as I said, the commission has never sought to regulate as a part of the exchange, the communications infrastructure that relates to securities transactions.

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And we believe the statute makes that unambiguously clear, Your Honor.

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But even where there are doubt on this point, the commission's own regulations compel that conclusion.

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And I'd like to begin with the statute, but then but then be sure to address the regulations.

[00:03:04] Speaker 01:
If I may keep it for a moment to done by with the statement just made, what was or is the status of tickers?

[00:03:15] Speaker 00:
Your Honor, the statutory definition of facility references tickers, but we think the proper analog here

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The market data at issue is created within the Exchange Act systems and is handed off to customers or to connectivity providers within the MAWA data center for further or subsequent transport.

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So in other words, we think that act of publishing the data and handing off the market data within the MAWA facility is the historical analog to the ticker.

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As far as we are aware, and the commission does not cite anything to the contrary in its brief, the commission has never sought to regulate the backbone communications network.

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You could imagine the telegraph lines transporting ticker data to broker dealers offices in Manhattan, or potentially even to tickers beyond those offices in Manhattan historically.

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And so again, the proper analogy here

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to the ticker is the fact that the commission has regulated the production of market data.

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And that is not an issue in this case.

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But that market data is handed off to customers for transport, either on a wireless offering from one of the ICE affiliates, one of the ICE data service companies, or third party connectivity providers.

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I'm sorry, you lost me on that.

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What is the difference?

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The ticker is just a device for transmitting information and like the wireless connections here, it's very specialized and it's used only in connection with the purchase and sale of securities in contrast to

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The New York Stock Exchange has land phone lines from which you can call anybody.

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So why aren't the wireless connections exactly like a ticker?

[00:05:24] Speaker 00:
Two points, Your Honor.

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The first is I want to be sure to draw a distinction between the two wireless services at issue here.

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The first are the wireless bandwidth connections which are simply empty pipes.

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I think the ticker analogy at most is relevant to the market data transmission service which is provided.

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And the critical point here, your honor, is that the exchanges and petitioners do not dispute that the market data itself, which is generated in the trading and execution systems of the exchange is regulated as market data.

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That data is then made available to customers or to competing connectivity providers within the MAWA data center.

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So in other words, the data are produced

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at a production point within the MAWA data center.

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And at that point, the commission's regulatory jurisdiction over the ticker infrastructure ends.

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The data can then be transmitted by customers via fiber pipes out of MAWA via standard telecommunications.

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or via wireless service offerings, including those that are offered by third party providers.

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And the critical point again is that the commission has never sought to regulate that backbone communications infrastructure as part of the exchange.

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And in your honor, I do want to make just one other quick point.

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Your honor refers to these as highly specialized services.

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And it is true that the wireless service offerings are used by broker dealers for purposes related to their securities business.

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But again, the actual technology that is at issue is not, I would say, highly specialized.

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It is, again, a pure data transport function, the same data transport function that a piece of fiber in the ground

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running out of mawa would provide.

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And again, I think the statutory language.

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The statute we believe makes clear that these that in providing these wireless offerings.

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the exchange affiliates are no more providing exchange functions than our unaffiliated communications providers that offer these same exchange functions.

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And we don't read the commission in the order it's briefed to disagree with that.

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The commission seemingly takes the position that these are only exchange functions when they are provided by affiliates of the NYSE exchanges.

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And your honor, we don't believe there's any support in the statute for that interpretate that interpretation and the Supreme Court's decision and utility air group really forecloses this approach to statutory interpretation which is interpreting very broadly.

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at time one what it means to be regulated by the act and then attempting to impose a textual limits to cabin the unreasonable consequences that flow from that.

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If the commission is right that providing pure data transport is an exchange function, then that would mean the fiber lines, the wireless offerings,

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that perform those exact same functions must be subject to exchange act regulation, regardless of whether they are provided by an ICE affiliate, by the exchanges themselves, or by a third party provider.

[00:08:55] Speaker 01:
I'm not sure if you've made this the premise of what you just said, but suppose the independent providers were using the poll on the premises of the MAWA facility.

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so that they are indeed doing exactly what you're doing.

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They would be subject to the same regulation, correct?

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Well, your honor, in that circumstance, we would submit that neither the unaffiliated providers or an affiliated provider is providing an exchange functions.

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In other words, in our view, the poll is simply irrelevant to the statutory question of whether these services, which again are pure data transport services, bring together purchasers and sellers of securities within the meaning of the act.

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And the key point, again, historically,

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is that the commission has never sought to regulate the backbone communications infrastructure, underlying the securities industry as if it's a part of an exchange.

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What if it were 1940 and the exchange had a limited number of telephones on the trading floor and they rented those telephones to brokers?

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Do you think that in that case, the SEC would have the type of authority it's asserting here?

[00:10:16] Speaker 00:
Your honor, in that circumstance, I believe the.

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it's very likely that the telephones themselves, which would be on the trading floor and directly connected to buying and selling activity could be viewed as facilities of the exchange.

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The question here is whether the telephone lines that then carried the electronic telephone signals outside of the Wall Street physical facility and across Manhattan and indeed across the country could be regulated as if they were part of the securities exchange.

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And our answer

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Since the pole is on the grounds, why isn't the pole analogous to the phones?

[00:10:58] Speaker 00:
Two reasons, Your Honor.

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First, the grounds of the Mawas Center are actually simply leased by an intercontinental exchange facility.

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So the property is not actually owned by anyone in the ICE intercontinental exchange family.

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Second, the pole itself is not

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A is also not owned by the exchanges themselves.

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And so I think the analogy breaks down on that level as well.

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But I think the real critical point your, your honor is that the poll is really

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is really and can't be relevant to the statutory interpretation question here for the simple reason that the MAWA to Markham wireless connections, that is the wireless offerings that connect MAWA and a third-party data center in Canada don't make use of the poll at all.

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And I think that highlights that even if the poll were taken out of the equation, the question at bottom comes back to the fact

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does the provision of a wireless transmission service bring together purchasers and sellers of securities within the meaning of the act?

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And again, we respectfully submit that the statutory answer to that question is no.

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But I would like to say a word about the commission's regulations because again, as we explained in our brief.

[00:12:20] Speaker 02:
Let's stick with the statute for a while.

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And could you talk about

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prong three in facility.

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And one phrase we have is for the purpose of effecting transactions on an exchange.

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And you're right that these connections don't actually do the exchange, but it would seem highly artificial

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If you asked IDS, why are you setting up these connections?

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The only plausible answer would be in order to facilitate stock trading.

[00:13:08] Speaker 00:
Your honor, if I could say two things about the facility's definition, then prong three.

[00:13:13] Speaker 00:
The first, and I don't want to resist the premise of your question, but the first point we think is an important one is that to fit within the facility definition describes a necessary but not sufficient condition for a service or asset to be regulated as a part of an exchange.

[00:13:30] Speaker 00:
And the definition of exchange makes that crystal clear in our view.

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It establishes that only a subset of facilities are actually regulated.

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Those facilities that are market facilities that bring together purchasers and sellers of securities.

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And that really has to be the case.

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If the SEC were right that the facility definition could redefine what it means to be an exchange, that would lead to an implausible result that any asset owned or operated by an exchange or even an affiliate of an exchange

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could be subject to regulation under the act.

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But second, Your Honor, taking the third prong on its own terms, we believe it's inapplicable for at least two reasons.

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The first is that the statutory text focuses on the right to use the underlying service.

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And here, the SEC is not attempting to regulate any right of an exchange to use the wireless services.

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It's regulating the services themselves and the rates that can be charged to customers for those particular services.

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Second,

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The wireless connections don't affect or report a transaction on an exchange.

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They're therefore not to or from an exchange.

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And again, the commission has historically interpreted that as requiring a direct link to the exchanges themselves.

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And if you don't maintain a strict limit on what it means to be to or from, you can quickly end up in a scenario where the SEC could claim the jurisdiction to regulate every antecedent communications link

[00:15:08] Speaker 00:
that may eventually lead to a securities transaction, whether that's communications within a broker dealers offices, calls to a broker dealers offices or communications to a broker dealers office from a customer, which is again, a reason why we think the commission has been right to insist upon a direct connection to trading activity before the third prong of the statutory definition would even come into play.

[00:15:36] Speaker 00:
I would, I know your honor suggested we talk more.

[00:15:39] Speaker 02:
Yes, please.

[00:15:40] Speaker 02:
Your argument has its greatest force.

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I think from the parade of horribles that leads to the commission regulating the iPhone that the trader has on site at model, which of course would be crazy.

[00:16:07] Speaker 02:
These lines seem like they can fairly be described as their own system of communication.

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Now I'm in the parenthetical, but system of communications that are maintained by or with the consent of the exchange.

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And if we bleed back up into the main text of prong three,

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are all for purposes of effecting transactions on the exchange.

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And all of those relations are much more direct than the iPhone that the trader just has on site and can call anyone anywhere in the world on.

[00:16:51] Speaker 00:
Your honor, even if that language could be read as capaciously as the SEC suggests, the question

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is that we believe the SEC has been right to historically limit its authority over exchange functions to those things that have a direct connection to the operation of the actual securities marketplace itself.

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And on that system of communications language, Your Honor, this is where

[00:17:19] Speaker 00:
Again, we believe the Commission's 1998 regulations are especially helpful because again, even if the statute at time one in 1934 might have been read broadly, the Commission has essentially codified a regulatory definition of exchange that the services here do not meet.

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And in particular, Your Honor, be one of the Commission's regulations interpreting an exchange, make clear that routing orders to a national securities exchange is not an exchange function.

[00:17:53] Speaker 00:
Now to be clear, in our view, these communications

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services at issue don't actually route orders and they don't actually connect directly to an exchange.

[00:18:03] Speaker 00:
But even if you were to indulge the SEC's fictions on those points, the B1 exception in the regulation makes clear that function is not an exchange activity.

[00:18:14] Speaker 00:
And in particular, Your Honor, I'd ask that the court turn its attention to 63 Fedreg at 7855, which provides an example

[00:18:26] Speaker 00:
of systems that are exempt under B1.

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And we cite this in our reply brief at page 23.

[00:18:33] Speaker 00:
System J, the commission made clear in promulgating the regulation would be excluded from the definition of exchange.

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And as you can read in the regulatory history, the language says that System J provides no facilities for execution, but rather only acts as a communication system

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for the transmission of orders and execution of reports.

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System J falls within the exclusion in paragraph B1 of rule 3B16.

[00:19:00] Speaker 00:
So, Your Honor, again, even if communications

[00:19:05] Speaker 00:
the language relating to communication systems in the facility definition could be read more broadly.

[00:19:11] Speaker 00:
The SEC has historically not read it that broadly in part because of the parade of horribles concern your honor identified, but it has also adopted a codified interpretation of the regulation that excludes

[00:19:26] Speaker 00:
order routing and order reporting functions.

[00:19:30] Speaker 00:
And again, it's of course black letter administrative law that the commission was bound to adhere to its own regulations.

[00:19:37] Speaker 00:
It failed to do so in that respect in this case.

[00:19:40] Speaker 00:
The other point I'd like to make just briefly.

[00:19:43] Speaker 01:
You don't mean that.

[00:19:44] Speaker 01:
You don't mean it failed to adhere to its regulation about system J. You just mean it's been inconsistent since its application here, correct?

[00:19:53] Speaker 01:
inconsistent in its interpretation of the statute, not the regulation.

[00:19:57] Speaker 00:
That's correct, Your Honor.

[00:20:00] Speaker 00:
My apologies if I misspoke, but I did want to make clear that it's not just the System J language.

[00:20:04] Speaker 00:
It's also that exception for routing orders is actually codified in the commission's regulation at Rule 3B16B1.

[00:20:14] Speaker 01:
As a rule of general application?

[00:20:18] Speaker 00:
Yes, your honor, that's correct.

[00:20:19] Speaker 00:
The commission suggests in its brief, I think that, well, we adopted this regulation only in the context of attempting to determine how to classify so-called alternative trading systems, but there's nothing in the text of the regulation itself that limits the regulation to that purpose.

[00:20:40] Speaker 00:
In fact, the heading of the rule

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is styled definitions of terms used in section 3A, one of the act.

[00:20:50] Speaker 00:
And the text of subparagraph A of the rule itself makes clear that the definition is essentially codifying what it means to bring together purchasers and sellers of securities within the meaning of the exchange act, which is of course the precise issue here.

[00:21:05] Speaker 01:
Give me the citations of that regulation again.

[00:21:10] Speaker 00:
Yes, your honor.

[00:21:11] Speaker 00:
This is rule 3B16, which is 17 CFR section 240.3B16.

[00:21:22] Speaker 00:
And the language I read to the court about System J was in the preamble to the rule that was adopted in 1998, which was 63 Fedreg at 70855, which again, we cite in our reply brief at page 23.

[00:21:41] Speaker 00:
But in addition to the B1 exclusion, I did want to say a word about paragraph A of that regulation.

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Because again, this was the Commission's latest effort after notice and comment to interpret what it means to bring together purchasers and sellers of securities.

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And the Commission made clear in its regulation.

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that for a system to satisfy that standard, the system itself must bring together the orders for securities of multiple buyers and sellers, and the system must use established non-discretionary methods under which such orders interact with each other, and buyers and sellers entering such orders agree to the terms of a trade.

[00:22:24] Speaker 00:
None of that occurs with respect to the systems at issue here.

[00:22:27] Speaker 00:
Again, these are pure transmission

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functions that transport data.

[00:22:32] Speaker 00:
Judge Katzis is of course correct that the data that are transmitted are used to make buy and sell decisions, either on the New York stock exchanges or on other exchanges.

[00:22:46] Speaker 00:
But the commission's own regulation in paragraph A says that is not enough.

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The system itself must instead actually permit orders to interact

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and establish non-discretionary rules that govern the terms of those interactions, harkening back to the auction market principles that are really at the heart or core of the history of the New York Stock Exchange and other exchanges themselves.

[00:23:11] Speaker 00:
And as we argue in our brief, these rules are generally applicable.

[00:23:17] Speaker 00:
They remain on the books.

[00:23:19] Speaker 00:
And the commission was obliged to adhere to those rules or at least explain how and why those rules applied to the wireless connection services at issue here, which is again something that the commission simply failed to do in the order.

[00:23:37] Speaker 00:
And as I said at the outset, even if the court had questions about how the statutory definitions might apply, if you were reading this on a blank slate, we again think the commission's regulations make it crystal clear that the wireless transmission services at issue in this case are simply not exchange functions and are therefore not subject to regulation as facilities of an exchange under the act.

[00:24:05] Speaker 00:
And unless there are additional questions, I know I'm over my time.

[00:24:07] Speaker 00:
I would like to reserve a few minutes for rebuttal.

[00:24:10] Speaker 01:
Would it matter to your argument at all if one of the exchanges, let's say New York Stock Exchange itself, rather than the holding company provided this service?

[00:24:26] Speaker 00:
We don't think so, Your Honor.

[00:24:28] Speaker 00:
In our view, an exchange function, and this is, I say our view, we think this is what the statute and regulations demand, which is that an exchange function either is part of

[00:24:42] Speaker 00:
the regulated marketplace or it isn't.

[00:24:46] Speaker 00:
And that has nothing to do with who provides the actual service.

[00:24:50] Speaker 00:
So if a fiber line that a broker dealer bought that runs into Mawa and that connects to the customer's equipment is being provided by Verizon, that fiber line into Mawa is either providing an exchange function or it isn't.

[00:25:08] Speaker 00:
If Verizon sold the fiber line to the New York stock exchanges themselves, we don't think applying a functional analysis, which is, again, what the commission purported to do in the order and attempts to defend in its brief, we don't believe that the actual owner of the service or asset should matter.

[00:25:27] Speaker 00:
What matters is, again, the function that's being provided.

[00:25:31] Speaker 00:
And in this case, to take the court back to where we began,

[00:25:36] Speaker 00:
it's important to be precise about the function that's at issue here.

[00:25:40] Speaker 00:
And again, that function is a pure transmission data function.

[00:25:45] Speaker 00:
Really the services of a telecommunications provider, not the services of a stock exchange.

[00:25:52] Speaker 01:
We talk about function.

[00:25:56] Speaker 01:
It seems to me you're losing

[00:26:01] Speaker 01:
any attention with the word facility.

[00:26:04] Speaker 01:
A facility is something that facilitates.

[00:26:07] Speaker 01:
So if it facilitates that function, then it's a facility.

[00:26:15] Speaker 00:
I don't think we disagree with that, Your Honor.

[00:26:17] Speaker 00:
I think the question is, again, providing internal communications connectivity that allows broker dealers to communicate with themselves.

[00:26:26] Speaker 00:
Is that the function of a stock exchange?

[00:26:30] Speaker 01:
No.

[00:26:30] Speaker 01:
The question, I think, is whether it facilitates the exchange's pursuance of its functions.

[00:26:39] Speaker 00:
Well, again, Your Honor, on that point, these wireless connections are not necessary to the operation of the exchange.

[00:26:46] Speaker 00:
And if it's true that everything that could facilitate an eventual securities transaction becomes subject to regulation as an exchange under the act, there would really be no limiting principle or stopping point to the commission's statutory authority.

[00:27:01] Speaker 01:
That's really the issue here, isn't it?

[00:27:04] Speaker 00:
I believe so, Your Honor.

[00:27:05] Speaker 00:
The point is, is that the commission, no fair reading of the act

[00:27:09] Speaker 00:
can give the commission the authority to regulate every antecedent step that leads to the later buying and selling of securities.

[00:27:17] Speaker 01:
What Judge Katz has described as your parade of horribles, which is more or less where you are again, relates to the commission's failure to give you a crisp rule, which makes it clear what is on either side of that line.

[00:27:37] Speaker 01:
There is no such rule or line right now.

[00:27:41] Speaker 00:
Your honor, we certainly agree with the first part of your question, which is that the commission didn't provide a clear explanation for why the services at issue fall on either side of any line.

[00:27:52] Speaker 00:
But I would resist the second part of the question.

[00:27:55] Speaker 00:
We do think that there is a fairly straightforward definition set forth of what it means to bring together purchasers and sellers of securities.

[00:28:03] Speaker 00:
And that, again, is the commission's own regulations.

[00:28:06] Speaker 00:
which fairly applied to the wireless services at issue here, make clear that these are not exchange functions.

[00:28:13] Speaker 01:
If the reg is dispositive, it's a little curious that it's the last element, I believe, in your step one argument.

[00:28:23] Speaker 00:
Your honor, to be clear, we think we have the better reading of the statute as well.

[00:28:27] Speaker 00:
But in our opening brief, we set forth in clear and independent argument that the order at issue here

[00:28:34] Speaker 00:
countermands the commission's regulations and can't be squared with those regulations.

[00:28:39] Speaker 00:
And as this court is certainly aware, that is an independent- That is an independent- Dispositive, right?

[00:28:44] Speaker 01:
In your view, that's dispositive.

[00:28:45] Speaker 01:
That's a simple matter, right?

[00:28:48] Speaker 00:
Yes, your honor.

[00:28:49] Speaker 01:
We believe that is a simple- I understand why you didn't lead with it, but okay, I think I have your point.

[00:28:55] Speaker 01:
Suppose- Go ahead, Justin.

[00:28:57] Speaker 03:
No, please, you first.

[00:29:00] Speaker 02:
Suppose we agree with you

[00:29:03] Speaker 02:
on the exchange point.

[00:29:10] Speaker 02:
So we say the relevant group of persons are the stock exchange entities as opposed to IDS and the data providers.

[00:29:22] Speaker 02:
Isn't there still an argument that these lines are the facility

[00:29:30] Speaker 02:
a facility of the exchange under prong three, because even if we treat IDS as different from the exchange, they still have the right to use the premises or property of the exchange.

[00:29:50] Speaker 02:
And then we're just back to the argument about purpose of affecting a transaction.

[00:29:58] Speaker 00:
Well, Your Honor,

[00:30:00] Speaker 02:
That's sort of a hostile question, but it could be a friendly question to the extent that I'm not necessarily agreeing with the Commission that corporate affiliation is the crucial factor here.

[00:30:18] Speaker 00:
Your honor, I think the best answer to that question is that first, the MAWA facilities, the grounds are not actually owned by the exchanges themselves.

[00:30:29] Speaker 00:
But setting that point aside, if the court wants to view the entire MAWA facility as in effect owned or controlled by the exchanges, despite that, the logic again of the court's opinion

[00:30:44] Speaker 00:
would mean that the third party telecommunications lines running into the MAWA center of which these are only one types of communications path would all need to be regulated as exchange functions and that is in a sense is a parade of horribles your honor but I

[00:31:03] Speaker 00:
I hesitate to call it that.

[00:31:05] Speaker 00:
I think it's more a question of there needing to be reasonable limits to the scope of the SEC's authority over the exchanges themselves.

[00:31:13] Speaker 00:
And the point is, and this is a critical point.

[00:31:15] Speaker 02:
And what would be wrong with the limiting principle?

[00:31:18] Speaker 02:
This is not a completely bright line, but seems to me a manageable line, which is that

[00:31:31] Speaker 02:
facilities like this that are very specially designed to have one and only one purpose, which is to facilitate stock trades fall on one side and facilities that connect no differently to MAWA than to anywhere else.

[00:31:57] Speaker 02:
The normal phone line from which you could call anyone in the country

[00:32:01] Speaker 02:
fall on the other side, because that is not a system, that phone line is not a system maintained to facilitate stock trading, whereas these connections are.

[00:32:15] Speaker 00:
Your honor, I think that line would be very difficult to apply in practice for the following reason.

[00:32:20] Speaker 00:
The fiber lines that are running into MAWA are not just for standard telephone calls from people to MAWA.

[00:32:28] Speaker 00:
They are also high speed.

[00:32:30] Speaker 00:
We're talking about the speed of light here.

[00:32:32] Speaker 00:
The difference is really just that light, and this defies my memory of physics, that light travels somehow faster in air than it does over fiber.

[00:32:41] Speaker 00:
But we're still talking about very high speed transport.

[00:32:44] Speaker 00:
regardless of whether we're talking about fiber lines into MAWA or wireless transmission facilities that carry data out of MAWA.

[00:32:52] Speaker 00:
And the point is, is that those fiber lines and other lines of communications are provided by all types of different unaffiliated third party providers, including one of the amicus here, McKay Brothers, is a telecommunications provider that offers competing wireless services in and out of MAWA and under the

[00:33:13] Speaker 00:
limiting principle I think that Your Honor was attempting to define.

[00:33:17] Speaker 00:
it would be clear that the McKay brothers facilities themselves would also be exchange functions.

[00:33:22] Speaker 00:
It would be clear that the special access lines that perhaps a telecommunications company might provide to a broker dealer connecting a broker dealers office to Malwa via fiber would also be a facility of an exchange under that interpretation.

[00:33:40] Speaker 00:
And so I think it becomes very difficult

[00:33:44] Speaker 00:
Once you accept that the commission's jurisdiction actually extends to regulating the communications backbone underlying some of these transactions, including transmission functions, it becomes very difficult if not impossible to draw.

[00:34:00] Speaker 00:
And I think that failure of the commission really even to attempt to do that in the order here is significant.

[00:34:09] Speaker 00:
The logic of the commission's opinion in effect is that if an affiliate

[00:34:16] Speaker 00:
of Intercontinental Exchange and Intercontinental Exchange is a significant company with 12 regulated exchanges globally, including futures markets and clearing houses and all manner of data connectivity services.

[00:34:30] Speaker 00:
If anything provided by Intercontinental Exchange

[00:34:34] Speaker 00:
affiliate that is related to the buying and selling of securities or has some type of connection to securities transactions could be regulated by the commission as under the exchange act that would truly be a breathtakingly broad view of the commission statutory authority and respectfully we don't think it's one.

[00:34:54] Speaker 00:
that could square with any reasonable understanding of Congress's intent.

[00:34:58] Speaker 00:
And it's certainly not one that, again, can be squared with the commission's own regulations, which authoritatively interpret, in the commission's view, what it means to provide an exchange function.

[00:35:09] Speaker 02:
OK.

[00:35:10] Speaker 02:
Judge Walker, sorry, I cut you off.

[00:35:12] Speaker 03:
No, that's OK.

[00:35:13] Speaker 03:
You basically got to what I was getting at.

[00:35:15] Speaker 03:
So I'm good.

[00:35:16] Speaker 03:
Thank you, though.

[00:35:17] Speaker 02:
Anything else?

[00:35:18] Speaker 02:
Judge Ginsburg?

[00:35:19] Speaker 02:
Thank you.

[00:35:21] Speaker 02:
All right, thank you, Mr. Dunbar.

[00:35:24] Speaker 02:
We'll give you some time on rebuttal.

[00:35:26] Speaker 02:
Thank you, Your Honors.

[00:35:28] Speaker 02:
Mr. Berger.

[00:35:29] Speaker 04:
Good morning, and may it please the court, Jeff Berger, for the Securities and Exchange Commission.

[00:35:34] Speaker 04:
The wireless connections at issue here are covered by Section 3 of the Exchange Act because they are communication systems for the purpose of affecting and reporting exchange transactions.

[00:35:47] Speaker 04:
And the commission, in reaching its order, adhered to Section 3A, which both defines exchange and then describes what constitutes a facility for purposes of that exchange.

[00:35:56] Speaker 04:
Now, as I understand petitioner's argument, which has changed over the course of this litigation, they're no longer focusing on corporate separateness and they now agree that exchange turns on functionality.

[00:36:06] Speaker 04:
So let's go to what functionality means in the commission's view.

[00:36:10] Speaker 02:
Is the commission focusing on corporate separateness?

[00:36:15] Speaker 02:
I thought you made a fairly big deal out of the affiliate relationship between IDS and the stock exchange.

[00:36:23] Speaker 04:
We were responding to the argument made in the opening brief that affiliation was relevant, or in their view, lack thereof.

[00:36:30] Speaker 04:
So that was in response.

[00:36:31] Speaker 04:
And I will say, and I'll get to this in a little bit if that's okay, I do think affiliation is relevant to answering about the parade of horribles you talked about with Mr. Dunbar.

[00:36:41] Speaker 04:
But I don't think for purposes of straight functionality, we can accept that we can just start with functionality.

[00:36:49] Speaker 04:
And as to functionality, the commission's reading

[00:36:52] Speaker 04:
is that the wireless communication systems are exchange facilities, which is a better reading of section three.

[00:36:58] Speaker 04:
To be clear, the commission has consistently found that exchange functionality includes communication of orders and market data to facilitate transactions at MALA.

[00:37:09] Speaker 04:
And I want to respond specifically to something Mr. Dunbar said.

[00:37:12] Speaker 04:
He said that the commission has not historically regulated telecom infrastructure.

[00:37:17] Speaker 04:
But I would add as to my law, which is what these particular filings were all about the Commission has consistently since mama opened in 2010 reviewed rules put forth by the proposed by the exchanges regarding backbone infrastructure such as fiber connections.

[00:37:35] Speaker 04:
local area networks, sort of smaller band wireless connections.

[00:37:41] Speaker 04:
But most importantly, the commission has regulated wireless connections at MAWA provided by these exchanges since the end of 2015.

[00:37:48] Speaker 04:
So the whole historical argument doesn't really work here.

[00:37:53] Speaker 04:
What petitioners are advocating for here is an artificial restriction.

[00:37:57] Speaker 04:
In their view, exchange functions are only those that connect directly to the matching engines.

[00:38:02] Speaker 04:
They're only the ones that bring buyers and sellers together in the most literal sense.

[00:38:07] Speaker 04:
But our understanding is most faithful to the statute because it takes into account section 3A1 and section 3A2.

[00:38:15] Speaker 04:
And to emphasize the language, it includes any service

[00:38:18] Speaker 04:
for the purpose of affecting and reporting a transaction on a state, excuse me, on an exchange, and in the parentheses, any system of communication to or from the exchange.

[00:38:29] Speaker 04:
That is exactly what these wireless systems are.

[00:38:33] Speaker 04:
They are systems of communication.

[00:38:35] Speaker 04:
And I recognize that Mr. Dunbar is using the phrase pure data transport.

[00:38:40] Speaker 04:
But at this point, the exchanges agree that these services are a means to facilitate trading.

[00:38:47] Speaker 04:
Every single commenter except the exchanges describe these services as used solely to facilitate trading.

[00:38:54] Speaker 04:
And as part of explaining why these particular services satisfy Exchange Act Section 6, which we'll talk about a little more later,

[00:39:02] Speaker 04:
They describe them as their virtue was they enhance trading efficiency.

[00:39:06] Speaker 04:
So they're beyond just pure data transport.

[00:39:09] Speaker 04:
The only reason anyone is going to spend market participants, I should say, are going to spend $500,000 a year or up to $500,000 a year.

[00:39:18] Speaker 04:
is to facilitate rapid, super rapid transport of orders to complete transactions and to receive data.

[00:39:26] Speaker 04:
That is why people buy these things instead of, for instance, just buying DSL from Verizon.

[00:39:31] Speaker 04:
These are specialized services that serve market participants who both have facilities, excuse me, equipment at MAWA, as well as the other two data centers in the New Jersey Triangle, as well as the Markham data center, which serves some of the Canadian exchanges.

[00:39:48] Speaker 04:
Again, the only reason people use these as a system of communication for the purpose of affecting and reporting transactions.

[00:39:55] Speaker 04:
That is the whole goal.

[00:39:57] Speaker 04:
So if this is all about a question of exchange function, these wireless systems are precisely the type of communication systems

[00:40:05] Speaker 04:
that market participants use to transact, particularly on a modern stock exchange.

[00:40:11] Speaker 04:
The only way petitioners get to their conclusion is by in effect rewriting the statute to add this direct connection requirement that the commission has never imposed, nor could it, because Congress didn't put it in there.

[00:40:24] Speaker 04:
To be clear, section three does not limit the commission's authority solely to trading and execution systems.

[00:40:30] Speaker 04:
It's much broader than that.

[00:40:32] Speaker 04:
And facility is uses extremely broad language and I think an important case to look at here I grant you it's a little old technologically, but the seventh circuits decision in Board of Trade.

[00:40:43] Speaker 04:
There are actually two Board of Trade decisions and principally thinking of the second one which I believe was 1991 we said it in our brief.

[00:40:50] Speaker 04:
That's a situation where in deciding a registration issue, granted it dealt with clearing agencies, the Seventh Circuit noted how broad the language was in section three, and it viewed it as giving the commission maximum control over exchange regulation, and probably most importantly was intended for the commission to have flexibility as exchanges evolve.

[00:41:13] Speaker 04:
So if you're finding the language to be very broad, affecting reporting transaction on exchange, any system of communication, I think that was intentional by Congress.

[00:41:22] Speaker 04:
I think Congress wanted to make sure that as exchanges evolve and exchanges were evolving in 1934, they were certainly very much evolving in 1975.

[00:41:31] Speaker 04:
And they're evolving as we speak to give the commission some authority, excuse me, some flexibility to deal with different situations as presented.

[00:41:41] Speaker 04:
I believe Judge Cassis and I apologize if I'm attributing a different question to you, but you mentioned tickers.

[00:41:50] Speaker 04:
Tickers are an appropriate analogy here, although I would caution that they really are an analogy and only for the market data connections really.

[00:41:57] Speaker 04:
But that is a situation where market mark, excuse me, tickers never connected directly to the exchange floor, as we point out in our brief but more importantly, no one can really describe a ticker as literally bringing together buyers and sellers.

[00:42:12] Speaker 04:
But it was clear to Congress from how they described the statute, they put the word ticker in there as an essence, an example of a system of communication that meant to encompass that within an exchange facility and to give the Commission authority.

[00:42:25] Speaker 04:
In fact, tickers were one of the few areas in the original version of Section 19B, which is very different from the one now, that the Commission had authority over in terms of supervising SROs.

[00:42:39] Speaker 04:
I wanted to talk about a couple of points, and I really just think we should get to the parade of horribles, because it's obviously in your judge's mind.

[00:42:46] Speaker 04:
I think it's an important point, because- Mr. Berger, I agree, but I just want to clear up something you just said.

[00:42:51] Speaker 01:
Yes, Your Honor.

[00:42:52] Speaker 01:
About the Seventh Circuit case?

[00:42:55] Speaker 01:
Yes.

[00:42:57] Speaker 01:
That was resolved as a chevron's part two matter.

[00:43:02] Speaker 01:
And it seems to me that the gravamen of your argument is overwhelmingly based on the clarity of the statute.

[00:43:09] Speaker 04:
I think that is true, Your Honor, and I do view Chevron Step 2 as an alternative argument, sort of an at a minimum argument.

[00:43:16] Speaker 01:
David, you didn't fail to invoke it after strenuously arguing for a clear statute.

[00:43:24] Speaker 04:
We did discuss it in our brief, or you're saying?

[00:43:27] Speaker 01:
Yeah, right.

[00:43:29] Speaker 01:
But most of your argument, and I thought everything you'd said so far, was arguing that that's what the statute clearly requires.

[00:43:37] Speaker 04:
You're absolutely right, Your Honor.

[00:43:39] Speaker 04:
I bring up the Seventh Circuit decision, not really in terms of the main thrust of our step one argument, which you're correct is our main argument.

[00:43:48] Speaker 04:
Although again, we do see an alternative argument, but just to point out that there's another court that has looked at section three and has found the language to be intentionally broad.

[00:43:56] Speaker 04:
I mentioned it only for that reason, at least at this point.

[00:43:59] Speaker 04:
All right.

[00:44:01] Speaker 04:
So as the parade of horribles and sort of, I would touch on a few different things.

[00:44:07] Speaker 04:
One is a matter of history.

[00:44:08] Speaker 04:
Again, the commission has been regulating facilities at MAWA in various telecommunications systems at MAWA for 10 years now.

[00:44:17] Speaker 04:
There is no incidence of the commission having reached beyond MAWA to regulate AT&T or telecom providers serving random brokers who happen to send orders to the exchange.

[00:44:28] Speaker 04:
And there's a reason for that.

[00:44:30] Speaker 04:
And the reason is the centrality of MAWA and the exchange's control of MAWA.

[00:44:34] Speaker 04:
And this is where, at least in our view,

[00:44:37] Speaker 04:
why affiliation and corporate relationships does become important.

[00:44:43] Speaker 04:
What Congress was most concerned about in 1975 and setting up the current version of our statutory scheme, particularly with regard to Section 6, but also the review process in Section 19, was exchange control of facilities.

[00:44:59] Speaker 04:
You read 646568 and what Congress was, and I would add also the Senate report number 9475 which accompanied 75 and I know there's differing views on legislative history, but this happens to be a report, this court has cited, often in is very illuminating with regard to what Congress did in 75.

[00:45:20] Speaker 04:
And what Congress was clearly concerned with was the ability of exchanges, based on their control of premises of facilities to exclude others and effect, particularly communication systems and data transmission.

[00:45:33] Speaker 04:
It's why Congress gave the commission more authority to regulate precisely this area.

[00:45:38] Speaker 04:
And it's why commission, Congress created the section 19 process which is a public and essence notice and review comment for these types of rule filings and the commission does consider affiliation important as to why it hasn't gone further and again there's a track record of it not having gone further during the entire time of my was existence.

[00:45:59] Speaker 04:
And the reason is that the exchanges, which apparently in this instance have sort of offloaded certain facilities to the subsidiaries the ideas subsidiaries which I'll just lump together, because petitioners do as well.

[00:46:11] Speaker 04:
that they can still gain control over the ability of people to access those facilities and get that crucial latency edge, that crucial latency advantage, which as the commenters in this case and the commission's expertise recognizes, can make all the difference.

[00:46:27] Speaker 01:
I recognize- Mr. Berger, the private providers that compete with IDS are not common carriers.

[00:46:35] Speaker 01:
They could exclude anyone from their facilities.

[00:46:38] Speaker 04:
But they can't exclude people from the marketplace itself.

[00:46:41] Speaker 04:
They don't control the marketplace.

[00:46:43] Speaker 04:
They don't control, in this case, what we call the matching engines, which is basically the modern term for the trading floors, the place where buy and sell orders are matched to execute a transaction.

[00:46:54] Speaker 04:
And to us, that's the entire

[00:46:56] Speaker 04:
point here in the entire relevance of why the commission has consistently regulated exchange facilities, communication facilities, as well as colocation facilities which shouldn't be ignored here.

[00:47:09] Speaker 04:
at MAWA, but hasn't gone beyond that.

[00:47:12] Speaker 04:
Mr. Dunbar mentions that ICE has all these other entities, other exchanges in the world, other data services.

[00:47:19] Speaker 04:
There's no incidents of the commission regulating any of those.

[00:47:22] Speaker 04:
They're not new.

[00:47:23] Speaker 04:
They've been around for quite some time.

[00:47:25] Speaker 04:
The commission hasn't regulated them because they don't have that connection to MAWA, which is, as everyone agrees in this instance, the nerve center of what is now the New York Stock Exchanges.

[00:47:36] Speaker 04:
And I use plural to encompass all five.

[00:47:41] Speaker 04:
So, Your Honor, Judge Katsas, you asked kind of a hypothetical.

[00:47:47] Speaker 04:
and about, you know, it's not really facilities in general, it's facilities like this.

[00:47:52] Speaker 04:
And I think I agree with that point very much because I think MAWA is the key here.

[00:47:57] Speaker 04:
The issue that was presented to the commission, and I do want to emphasize, this is not a rulemaking.

[00:48:02] Speaker 04:
The commission did not, is not making a legislative or substantive rule.

[00:48:07] Speaker 04:
We're not invoking section three to, for instance, redefine facility.

[00:48:11] Speaker 04:
We were presented with a proposed rule change by the exchanges that presents the commission with a very definite set of facts regarding a specific system of communication at a specific location.

[00:48:23] Speaker 04:
And I mention this because once that comes into us, we make a determination of whether it is consistent with the Exchange Act or inconsistent.

[00:48:31] Speaker 04:
In this instance, we approved it because we deemed it consistent.

[00:48:34] Speaker 04:
If there are different facts and circumstances presented in a different context, including a different type of facility,

[00:48:41] Speaker 04:
There may be a different analysis and the commission has made clear over time, particularly with regard to the order routing type of scenario which is the example, Mr Dunbar gave you the 63 fed reg.

[00:48:54] Speaker 04:
That's in the broker dealer order writing and I'll talk about that in one second.

[00:48:58] Speaker 04:
But that scenario, different facts and circumstances under a section 19 analysis, under that process, it is possible it will produce different results.

[00:49:06] Speaker 04:
But I will say up to now with MAWA, we have not gone beyond the MAWA boundaries in terms of what we've regulated for systems of communication.

[00:49:14] Speaker 02:
So let me give you one different one that interests me, which is it's the identical arrangements you have at MAWA

[00:49:24] Speaker 02:
accept IDS instead of being an affiliated company as a separate company and they're doing this, they're offering this as a joint venture or just companies supplying complimentary services together.

[00:49:38] Speaker 02:
How would you analyze that?

[00:49:40] Speaker 04:
I would say you really have to look at the facts and circumstances of the joint venture.

[00:49:44] Speaker 04:
And I know your honor probably- It's the same arrangement.

[00:49:47] Speaker 04:
It's seven- It's the same arrangement as IDS?

[00:49:49] Speaker 02:
Yeah.

[00:49:50] Speaker 02:
I would say- Make IDS an unaffiliated company.

[00:49:54] Speaker 04:
If the exchanges still have the ability to leverage their control over the matching engines, the marketplace, access to those matching engines, it's the same analysis.

[00:50:03] Speaker 04:
It has to be the same analysis precisely because of what the exchanges can do in terms of excluding.

[00:50:09] Speaker 02:
And I'm inclined to agree with you

[00:50:16] Speaker 02:
except you seem to have put such heavy emphasis in your brief and in the underlying order on the fact of affiliation.

[00:50:30] Speaker 04:
And I will say, Your Honor, one that was in response to the arguments that the petitioners were making, that affiliation is irrelevant, meaning that just because their initial argument was because the IDS affiliates sort of control the system, therefore it's not an exchange.

[00:50:45] Speaker 04:
That was partially our response.

[00:50:46] Speaker 04:
But let me add a little bit beyond that, though, which is that particularly in these what we're calling routing orders, again, these are a series of orders.

[00:50:55] Speaker 04:
We cite them in our brief.

[00:50:56] Speaker 04:
Mr. Dunbar mentioned one of them.

[00:50:58] Speaker 04:
But the commission has consistently said in these situations where broker dealers are in effect routing either buy or sell orders to exchanges, we have said that the relationship between the routing broker and the exchange is a fact that gets considered in determining

[00:51:15] Speaker 04:
whether it's a facility of the exchange.

[00:51:17] Speaker 04:
I mean, there's a track record of this and we've said in some instances where there's no relationship, contractual otherwise, it's not a facility and in others it is.

[00:51:25] Speaker 04:
And again, the whole principle behind that is the element of control over the marketplace.

[00:51:31] Speaker 02:
So, sorry, walk me through within the statutory definitions of exchange or facility where affiliation comes in.

[00:51:43] Speaker 04:
To us, the concept of affiliation comes in with the group of persons constituting, maintaining, or providing the marketplace or facilities.

[00:51:52] Speaker 02:
And then even though group of persons to me just sounds like people acting in concert, not corporate affiliates.

[00:52:03] Speaker 04:
Yes, but I think that sort of gets to your point that while we're talking about corporate affiliation in this particular

[00:52:10] Speaker 04:
I don't want to say rulemaking, but it's not a rulemaking in terms of this SRO rulemaking.

[00:52:15] Speaker 04:
Those are the facts that were presented here.

[00:52:18] Speaker 04:
In a different situation, is affiliation not necessarily, for instance, a corporate subsidy subsidiary relationship, but rather a contractual or joint venture relationship?

[00:52:27] Speaker 04:
Yeah, that could be a relevant factor the commission considers in facts and circumstances in determining whether a specific proposed rule change fits within.

[00:52:38] Speaker 04:
Your honor, I know I'm a little over it.

[00:52:39] Speaker 04:
Can I have just a few minutes to talk about rule 3b16?

[00:52:42] Speaker 04:
Sure.

[00:52:43] Speaker 02:
We gave Mr. Dunbar a fair amount of extra time, so take a few minutes if you'd like.

[00:52:50] Speaker 04:
Sure.

[00:52:51] Speaker 04:
I want to call attention to a few parts about rule 3b16.

[00:52:55] Speaker 04:
So first of all is just start with the text.

[00:52:58] Speaker 04:
What that rule is establishing is a definition of exchange.

[00:53:03] Speaker 04:
What it is not doing is discussing facility at all.

[00:53:06] Speaker 04:
It is not putting limits or creating any other gloss on the statute of what facility means.

[00:53:12] Speaker 04:
So it doesn't touch it, talk about what any service for purpose of affecting or reporting a transaction means, any system of communication.

[00:53:20] Speaker 04:
That is not what it is doing.

[00:53:23] Speaker 04:
Within just the exchange definition though, all you have to do is juxtapose sub A with sub B to understand the context of this particular rule.

[00:53:34] Speaker 04:
So it is establishing an A, what is an exchange, and then in B is establishing what sort of broker dealer operations, again, not exchange operations, but what broker dealer operations will not bring certain actions within the definition of exchange.

[00:53:49] Speaker 04:
And the reason it's doing that goes to precisely why 3B16 really isn't as relevant here as Mr. Dunbar suggests.

[00:53:57] Speaker 04:
3B16 was adopted as part of Reg ATS.

[00:54:01] Speaker 04:
And Mr. Dunbar has referred the court to sort of the system J example.

[00:54:05] Speaker 04:
So we can then get into the context of Reg ATS.

[00:54:09] Speaker 04:
There are different regulatory buckets for the commission.

[00:54:13] Speaker 04:
There's exchange regulation and there's broker deal or regulation.

[00:54:16] Speaker 04:
At the time, 3b16 was adopted was back in 1998.

[00:54:20] Speaker 04:
This is pre mawa.

[00:54:22] Speaker 04:
This is pre full time automated trading the way the world looks now.

[00:54:26] Speaker 04:
But if there was a rise of what are called alternative trading systems that were principally run by broker dealers.

[00:54:33] Speaker 04:
there was a regulatory dilemma that arose, which is, do you regulate these entities as broker dealers in that regulatory bucket under section 15 and other statutes, or do you regulate them as exchanges under section six?

[00:54:46] Speaker 04:
And what Reg ATS did was basically create a train switch, basically telling these alternative systems, you can either A, register as exchanges, or B, continue to be regulated as broker dealers, but you have to comply with specific

[00:55:01] Speaker 04:
specific requirements under Reg ATS, which is a different part of the commission's regulatory code.

[00:55:09] Speaker 04:
So it's not enough to just look at 3B16A in a definition in isolation, which again is really deciding or determining whether a broker dealer has to register as an exchange, whether the function they're providing an alternative trading system,

[00:55:24] Speaker 04:
puts it in that exchange bucket or allows it to stay in this reg ATS bucket, meaning this alternative form of regulation bucket.

[00:55:33] Speaker 04:
What it didn't do, though, very clearly is it did not attempt to define facility system of communication or service for the purpose of affecting or reporting a transaction.

[00:55:45] Speaker 04:
And what it absolutely did not do was impose this direct connection requirement that petitioners want to read into the regulation.

[00:55:54] Speaker 04:
Bragg ATS was brought to this court's attention to try to show that the commission was somehow inconsistent with its past conduct.

[00:56:01] Speaker 04:
And it simply is not inconsistent.

[00:56:03] Speaker 04:
It's serving a different purpose.

[00:56:05] Speaker 04:
The commission has been consistent throughout the years.

[00:56:08] Speaker 04:
It has consistently stated that the broad language in section three means the facility determination requires a facts and circumstances analysis.

[00:56:16] Speaker 04:
And the commission, again, has consistently reviewed rules regarding wireless communication

[00:56:21] Speaker 04:
along with other MAWA co-location services for consistent with Section 6.

[00:56:26] Speaker 04:
And to just talk for one second about co-location, below, the exchanges have conceded that co-location is a facility, co-location at MAWA.

[00:56:37] Speaker 04:
Co-location is a service the exchanges offer that allow broker dealers to place their equipment close to the matching engines, because again, it gains them a speed edge, or seen from the other side of the coin, reduces latency.

[00:56:51] Speaker 04:
But the commission has always regulated it as a facility at MAWA.

[00:56:59] Speaker 04:
And as I understand the petitioners having said, and this is JA 161, note 43, is that they all concede that co-location is a facility.

[00:57:09] Speaker 02:
Sorry, I thought the co-located servers.

[00:57:13] Speaker 02:
were directly connected to the matching engines.

[00:57:16] Speaker 04:
They connect through a common pathway, which means they all have, so they are like one step removed from the point at which the co-location enters the matching engine.

[00:57:27] Speaker 04:
And the reason why that is, is so that no co-locator has an edge, meaning that for exactly the idea that- They all have the same cable length.

[00:57:36] Speaker 04:
It would be like you all have to go in through the same door so no one can cut ahead of line, because if you allow people to cut ahead of line, this goes back to exchange control at MAWA, they can give preferential terms.

[00:57:48] Speaker 04:
And the Section 19 process worked exactly as planned here.

[00:57:52] Speaker 04:
In response to commenter's concerns about those latency advantages from the poll, the exchanges amended their proposal to eliminate the latency advantage that the rule would be consistent with section six.

[00:58:01] Speaker 04:
Without that review process, without that public review process, the exchanges could have leveraged their control of the marketplace to charge more fee services and or discriminate against market participants.

[00:58:13] Speaker 02:
Nice question about the statute, which is, and this goes a little bit to your observation that the reg

[00:58:23] Speaker 02:
defines only exchange and not facility.

[00:58:26] Speaker 02:
That one thing that's puzzling me is trying to understand how the two definitions interact with each other, because there's this huge circularity problem, which is that the exchange definition uses the word facility and vice versa.

[00:58:44] Speaker 02:
So how do we, how should we unpack that?

[00:58:49] Speaker 02:
Do we start with

[00:58:51] Speaker 02:
the exchange definition with kind of an intuitive platonic idea of facility in the back of our minds or vice versa?

[00:59:00] Speaker 02:
Or can we come at it either way?

[00:59:04] Speaker 04:
It's an interesting question, Your Honor, and I'm not really disagreeing about the circularity, although I think in that instance, it plays to our benefit because it makes the language broader.

[00:59:14] Speaker 04:
I do think you actually start with the exchange definition because it sort of defines the universe of who in terms of the types of entities that the commission regulates.

[00:59:24] Speaker 04:
And to me then the key of sort of why I say that, although I don't think the other thing you're proposing is necessarily sort of wild or unreasonable, but the reason I say that is because then it goes down in that last phrase includes the marketplace and market facilities.

[00:59:39] Speaker 04:
And then that leads you into 3A2 when, again, the term facility includes, not means, but includes, so it suggests enlargement and that what's coming next are examples, sort of not the clear and only definition.

[00:59:54] Speaker 04:
And then gives you these types of examples of services, facilities, things that make functions easier to use a sort of dictionary definition of facility that exchanges can offer.

[01:00:05] Speaker 04:
I think the goal of all that, in my view, in my understanding of the history of the statute with Congress was to make this as broad as possible, to make sure the commission had authority over exchange regulation.

[01:00:20] Speaker 02:
I guess, I mean, you're right.

[01:00:22] Speaker 02:
It's probably a little bit more logical to start with exchange, but assume just hypothetically that I think

[01:00:33] Speaker 02:
your case on facility is stronger than your case on exchange.

[01:00:40] Speaker 02:
And when we drill down into factor three, I think your case on the parenthetical is stronger than your case on the prior language

[01:00:52] Speaker 02:
leads me to wonder, would I be messing anything up if I just said, look, the easiest, clearest ground on which you win is just that parenthetical in factor three of facility, and I don't need to worry about anything else.

[01:01:08] Speaker 04:
I think you can go that route, particularly because it makes 3A1, you would still have to go back in 3A1 at some point, you have to talk about the whole statute, but 3A1 points you to market facilities.

[01:01:19] Speaker 04:
So you could start with the parenthetical, sort of say, is this a facility?

[01:01:24] Speaker 04:
Yes.

[01:01:25] Speaker 04:
If it's a facility, is it part of a market facility, particularly since this service, this exact communication system here serves MAWA, your answer is yes.

[01:01:35] Speaker 04:
And you can, you know, affirm or uphold the commission's order on that basis.

[01:01:41] Speaker 02:
Okay.

[01:01:42] Speaker 02:
Judge Ginsburg, anything else?

[01:01:44] Speaker 01:
No, that's it.

[01:01:45] Speaker 01:
Thank you.

[01:01:45] Speaker 02:
Judge Walker?

[01:01:46] Speaker 03:
Let me ask one hypothetical if I can.

[01:01:49] Speaker 03:
I'm looking at the figure three Google Earth photo on page 17 of the amicus.

[01:02:01] Speaker 04:
Your honor, can I just ask where's the amicus so I can look at it with you?

[01:02:04] Speaker 04:
I apologize.

[01:02:05] Speaker 03:
Yeah, sorry about that.

[01:02:06] Speaker 03:
It's the McKay brothers.

[01:02:12] Speaker 04:
Okay, I have it open.

[01:02:13] Speaker 04:
Sorry.

[01:02:14] Speaker 03:
And so just as a preface, this goes to Parade of Horribles and what your limiting principle and what I've had in my head as I prepared for this argument was that maybe part of the limiting principle is that the MAWA poll is on the facilities, the public access polls are not.

[01:02:32] Speaker 03:
And so imagine in this photo that the MAWA poll were

[01:02:39] Speaker 03:
on the other side of the street there, a little street, right next to the other two public access poles.

[01:02:45] Speaker 03:
And so it's not on the grounds of the MAWA data center, still owned by the same people who own it now, but it's not on the grounds.

[01:02:55] Speaker 03:
Is that a facility of an exchange?

[01:03:00] Speaker 04:
I would say yes, it is, your honor.

[01:03:02] Speaker 03:
I would say the fact that- Why is that?

[01:03:03] Speaker 03:
Because that, yeah.

[01:03:07] Speaker 03:
I'm sorry, Your Honor, I cut you off.

[01:03:09] Speaker 03:
Your Honor, I cut you off.

[01:03:09] Speaker 03:
Please go ahead.

[01:03:11] Speaker 04:
It goes back to this is where we get into affiliation.

[01:03:14] Speaker 04:
This gets into the exchanges control of the MAWA facility.

[01:03:18] Speaker 04:
The fact that the poll is on the MAWA premises in reality is a factor we consider.

[01:03:23] Speaker 04:
But if the poll were off next to the public access polls in this picture, the exchange entities that control the marketplace still have the ability to prefer access to those who place their equipment on that poll.

[01:03:37] Speaker 04:
Now, the latency advantage would go away.

[01:03:40] Speaker 04:
But under what the exchange is offered here, and the reason the commission approved it, the latency advantage also went away.

[01:03:48] Speaker 04:
But the fact that the poll is in the public right away, but they still control access to it, that is the key in terms of why that would still be covered.

[01:03:58] Speaker 04:
And I would note that that is basically the Markham example.

[01:04:01] Speaker 04:
These private polls,

[01:04:03] Speaker 04:
really just serve the New Jersey connections.

[01:04:07] Speaker 04:
As far as we understand from the record, the Markham connections are on a pole that does not use the Malwa pole.

[01:04:17] Speaker 04:
What I'm trying to say here is that the Malwa pole is important to our analysis, but it's not the only part of our analysis.

[01:04:23] Speaker 04:
The analysis doesn't hinge on it.

[01:04:25] Speaker 03:
If everything you just said is right, then I am beginning, then I'm back to worrying about Predator Horribles that you and my colleagues had more or less with their questions and your answers talked me out of.

[01:04:38] Speaker 03:
If what you just said is right, then it seems like you could regulate Intercontinental if it bought Verizon and you could just regulate

[01:04:46] Speaker 03:
all of the cell phone connections that Verizon does that have anything to do with the New York Stock Exchange, buying and trading, buying and selling?

[01:04:54] Speaker 04:
Well, I mean, it's hard to sort of believe that just cell phone connections are going to have that same core purpose of affecting and reporting transactions that these particular wireless services have.

[01:05:07] Speaker 04:
But let's just say, for instance, I'm just trying to think of an example that gets us back to NYSE Rule 36.

[01:05:14] Speaker 04:
which does in fact sort of place limitations on the ability, this is sort of back in the floor days at 11 Wall Street, the ability of brokers to be able to communicate using certain types of, it's not about the cell service itself, it's about the timing and way in which you use cell service.

[01:05:30] Speaker 04:
There are rules about that the commission has reviewed.

[01:05:33] Speaker 04:
Now we're not regulating AT&T or Verizon itself,

[01:05:37] Speaker 04:
But you are regaining the pathway or the way in which the communication system is run, in part because, again, there's a control of the marketplace.

[01:05:44] Speaker 04:
So I don't think it goes back.

[01:05:46] Speaker 04:
I don't think it leads to that parade of horribles at all, precisely because we're talking about this pole at Mawa here, where the exchanges can still leverage their control of the marketplace, of the matching engines that are just inside the building, as well as the fiber paths that lead from the pole to the building, all of which are on the premises.

[01:06:06] Speaker 04:
That is what distinguishes this from, for instance, a pole 80 miles away that AT&T owns.

[01:06:14] Speaker 03:
Your limiting principle has a lot to do with the leverage that Intercontinental has.

[01:06:20] Speaker 03:
And you're imagining in my hypothetical, well, they might be able to still have some additional leverage over competitors.

[01:06:27] Speaker 03:
And that's your limiting principle.

[01:06:31] Speaker 04:
I mean, that's the analysis that we do under Section 19.

[01:06:34] Speaker 04:
That's the analysis Congress charged us to do under principles like 6b4, 6b5, 6b8, is to consider whether there's any inappropriate or unnecessary competition.

[01:06:45] Speaker 04:
So yeah, I mean, we are going to have to take each communication system as it comes in, which is why we've emphasized the facts and circumstances analysis.

[01:06:54] Speaker 04:
I recognize that that is not the most edifying thing ever to hear in terms of bright lines.

[01:07:00] Speaker 04:
But also, I don't think that's what Congress had in place with this.

[01:07:03] Speaker 04:
We're not creating a rule that covers all facilities going forward.

[01:07:07] Speaker 04:
We're dealing with a particular set of facts as given to us in the Section 19 process.

[01:07:16] Speaker 01:
Council, just briefly, what is the exact mechanism by which this control would be exercised?

[01:07:24] Speaker 01:
Is it slowing down the other's connections at the matching engines or just what is it?

[01:07:30] Speaker 04:
I think it would be more charging more.

[01:07:33] Speaker 04:
To me, this is a hypothetical because it didn't happen here, but if you're one microsecond closer, everyone needs to be one microsecond closer to compete.

[01:07:45] Speaker 04:
you would need to go to the exchanges for that and the exchanges could charge more supply and demand.

[01:07:50] Speaker 04:
So that's an essence.

[01:07:52] Speaker 04:
And although I suppose there's a concern about blocking access as well in another context.

[01:07:56] Speaker 01:
Exploding is a bit of an overstatement.

[01:08:00] Speaker 01:
It's discriminating.

[01:08:02] Speaker 04:
You're right, you're right.

[01:08:03] Speaker 04:
And frankly, that's the term that I believe is used in the statute.

[01:08:07] Speaker 04:
So I should have said that.

[01:08:09] Speaker 04:
Also, equitable allocation of reasonable fees is the language in 6b4.

[01:08:13] Speaker 04:
That would also, what we're talking about, price differentials would fit into that.

[01:08:18] Speaker 03:
Yeah.

[01:08:18] Speaker 03:
And in this case, it is the location of the poll that is the reason that some people get to buy at a lower price and other people have to buy at a higher price.

[01:08:28] Speaker 03:
Is that right?

[01:08:29] Speaker 04:
No, I think it's more that there's one price, but the latency was equalized.

[01:08:34] Speaker 03:
But I thought that the people who use the MAWA poll are able to buy a microsecond faster than other people, and so they're able to buy it at a lower price.

[01:08:44] Speaker 04:
No, so what happened as a result of the section 19 process was the exchange is basically committed to what's called five.

[01:08:52] Speaker 03:
Oh, no, I understand.

[01:08:52] Speaker 03:
I understand.

[01:08:53] Speaker 03:
But that's because they.

[01:08:54] Speaker 03:
But if you had no jurisdiction here.

[01:08:57] Speaker 03:
Yes, that would be the con.

[01:08:58] Speaker 03:
That would be the concern.

[01:08:59] Speaker 04:
That would be the concern is that the prices would be higher.

[01:09:02] Speaker 03:
And if there is a legitimate concern on that ground.

[01:09:05] Speaker 03:
then I think your case for having the authority you assert and for this being a facility of an exchange is a lot stronger than if that leverage did not exist.

[01:09:16] Speaker 04:
Right.

[01:09:16] Speaker 04:
And I mean, what we heard from every commenter, you know, was a deep concern about that exact issue.

[01:09:22] Speaker 04:
And the commission was persuaded by those comments.

[01:09:25] Speaker 01:
So just to be clear again, the disparity in pricing you're talking about is not with reference to the transactions on the exchange.

[01:09:34] Speaker 01:
It's with reference to the price paid for access through the tube.

[01:09:41] Speaker 01:
Yeah, in essence, speed.

[01:09:42] Speaker 01:
Well, that's why the price is higher.

[01:09:44] Speaker 01:
Yes.

[01:09:44] Speaker 01:
Right.

[01:09:45] Speaker 01:
To get that speed.

[01:09:48] Speaker 03:
And the brokers would pay the higher price for that access so that they could buy

[01:09:54] Speaker 03:
at a tiny bit lower price, a microsecond faster than other people before the price rises.

[01:10:02] Speaker 04:
The market participants who would buy this service, most of them have their own equipment at all three of the major data centers in New Jersey.

[01:10:12] Speaker 04:
In order to fulfill their duties in the national market system, they are constantly having to triangulate

[01:10:17] Speaker 04:
to find the best price among the exchanges.

[01:10:19] Speaker 04:
And most of the stocks we're talking about here trade in all three exchanges, all three exchange families, I should say.

[01:10:25] Speaker 04:
So there's constant data in order going through all of these, through this triangle, which is absolutely necessary and by congressional design, but late data is pretty much useless data.

[01:10:36] Speaker 04:
So this stuff is mission critical for the market participants who would pay all this money for it.

[01:10:43] Speaker 04:
Anything else?

[01:10:45] Speaker 02:
No, thank you.

[01:10:46] Speaker 01:
Well, just one last thing then, Mr. Berger.

[01:10:49] Speaker 01:
If everybody has access to the same speed of connection, and that's not a feature of their competition, what do they compete on?

[01:11:04] Speaker 04:
What do they compete on in terms of this particular service or

[01:11:08] Speaker 01:
No, no.

[01:11:09] Speaker 01:
I mean, if they're all, if they can all get to the exchange at the same time and see the best price.

[01:11:14] Speaker 01:
Oh, you mean the market participants, excuse me.

[01:11:18] Speaker 04:
Yeah.

[01:11:18] Speaker 04:
I mean, you know, information is one, how they assimilate the information.

[01:11:25] Speaker 04:
You know, there's a variety of things, but also some of it is just complying with their best execution requirements that are imposed by law.

[01:11:32] Speaker 04:
Right, they're all able to do that if they have the same access.

[01:11:37] Speaker 04:
If they have the, and if they can move as quickly as speed as physics allow.

[01:11:42] Speaker 01:
That's about it.

[01:11:43] Speaker 01:
You don't need to go on for me.

[01:11:44] Speaker 01:
Thank you.

[01:11:47] Speaker 02:
All right.

[01:11:47] Speaker 02:
Thank you, Mr. Berger.

[01:11:48] Speaker 02:
Mr. Dunbar, we'll give you a few minutes.

[01:11:53] Speaker 00:
Thank you, Your Honor.

[01:11:54] Speaker 00:
I think Mr. Berger's answer on the poll question gives away the SEC's position here, which is that ultimately the interpretation set forth in the order is based on an affiliation standard, not a functional analysis of whether the service issue is actually providing an exchange function.

[01:12:15] Speaker 00:
And I think that's critical because there is no, and I,

[01:12:18] Speaker 00:
And I didn't hear Mr burger supply one no textual basis for an affiliation gloss on the group of persons language and exchange.

[01:12:26] Speaker 00:
Judge Katz's you asked the hypothetical question, what if we had this exact same arrangement, but it wasn't the IDS data service companies that hypothetical exists now.

[01:12:37] Speaker 00:
And it's the McKay brothers and it's the other wireless and telecommunications providers that run facilities into the ma wa facility.

[01:12:45] Speaker 00:
And so I hate to complicate your honors lives, but I don't think parenthetical three judge cats is for that reason is a straightforward answer to this that language.

[01:12:55] Speaker 00:
refers to any system of communication to or from the exchange maintained by or with the consent of the exchange.

[01:13:02] Speaker 00:
And if the court is treating the entire MAWA data facility as essentially part of the exchange family, which again we think would be

[01:13:10] Speaker 00:
counterfactual, but accepting that for the sake of argument, that would mean any communications line, fiber, wireless, what have you, into MAWA is there with at least the consent of the exchange and therefore would also be a system of communication subject to regulation under the act.

[01:13:26] Speaker 00:
Now, Mr. Berger spends a lot of time attempting to say, well, we've never attempted to regulate in that manner.

[01:13:32] Speaker 00:
That type of argument that you know don't worry court, we will forbear from exercising our authority is one this court has repeatedly rejected when it comes to statutory interpretation, including in the Merck decision we cite in our brief, which says that you measure.

[01:13:47] Speaker 00:
an agency's assertion of authority, not simply by the application at issue, but also by the implications claimed from that authority.

[01:13:55] Speaker 00:
And the bottom line, and I think this goes back to a question Judge Ginsburg, you answered in the opening, the bottom line is that there is a fundamental inconsistency at the heart of the order, which is to claim that it is regulating based on whether the function at issue is an exchange function, but to essentially be regulating on the basis of corporate affiliation.

[01:14:17] Speaker 00:
again, a assertion of corporate affiliation that has no foundation in the text.

[01:14:22] Speaker 00:
As Judge Katz has noted, if a group of persons, even unaffiliated persons, is cooperating to provide a marketplace activity, a forum where buyers and sellers of securities can meet and engage in transactions, that has nothing to do with whether the entities are affiliated or not.

[01:14:41] Speaker 00:
It has to do with the functions being provided.

[01:14:44] Speaker 00:
And again, that basic inconsistency, the commission's nominal embrace of a functional standard, but its refusal to provide it in an attempt to apply some type of affiliation standard, is a type of internal inconsistency in an agency's reasoning that itself is a ground for vacatur of the order.

[01:15:06] Speaker 02:
Let's assume we agree.

[01:15:08] Speaker 02:
with you, it's either all in, everyone's regular, regulable, or no one is regulable.

[01:15:16] Speaker 02:
Why shouldn't we conclude, starting with the parenthetical in prong three, that McKay could be regulated?

[01:15:30] Speaker 02:
They provide a system of communication, which goes to the exchange

[01:15:37] Speaker 02:
maintain buyer with the consent of the exchange and to cut off the absurd hypotheticals we gloss system of communication to mean something that's designed specifically or exclusively or primarily to facilitate stock trades.

[01:16:01] Speaker 02:
What's wrong with that?

[01:16:03] Speaker 00:
Two responses, Your Honor.

[01:16:04] Speaker 00:
The first is there's a basic chenri problem with all of this, of course.

[01:16:07] Speaker 00:
You know, none of this explanation or, but setting aside, setting, setting, setting aside the chenri issue, I think the fundamental problem is, is that if you don't read to or from the exchange to actually mean to or from the exchange, and you read it to mean anything

[01:16:25] Speaker 00:
And maybe anything is too broad but other things that could facilitate securities transactions, you quickly run into line drawing problems that are extremely difficult.

[01:16:35] Speaker 00:
Mr burger referenced the idea that these means of communications are used to facilitate security transactions.

[01:16:43] Speaker 00:
But think of all of the things that are also used by broker dealers to facilitate securities transactions, including the news and information sources broker dealers might consult.

[01:16:53] Speaker 00:
If ICE acquired a company that provided stock-related news to broker dealers, I think the logic of the commission's position would demand that that news service be regulated as an exchange function.

[01:17:05] Speaker 00:
The computers or communications within a broker dealer's office, there is no

[01:17:08] Speaker 00:
Good limiting principle, unless you read to or from the exchange again consistent with the commission's eight decades of interpretation at least prior to the 2013 orders that Mr burger reference.

[01:17:22] Speaker 00:
consistent with the commission's consistent communication that we are not going to regulate the communications backbone that's left to perhaps telecom providers the SEC, but that's no business of the SEC.

[01:17:34] Speaker 00:
And I think that's the fundamental problem your honor with parenthetical three which is that it becomes very quickly to articulate.

[01:17:41] Speaker 00:
It becomes very difficult I should say to articulate a defensible limiting principle.

[01:17:45] Speaker 00:
once you move away from communication systems that directly connect to the exchange.

[01:17:50] Speaker 00:
And I think the parenthetical three example also leads to another point that I really do want to stress on the regulations.

[01:17:57] Speaker 02:
So exchange by exchange, you mean just the matching engines.

[01:18:04] Speaker 00:
Your honor, we think the exchange is more than just the matching engines.

[01:18:07] Speaker 00:
It's the servers that are in MAWA that have to do with the intake of data, including buy and sell orders, their ranking, their matching, and then the publication, which is the creation of the market data itself.

[01:18:22] Speaker 00:
We think all of those things are fairly described as core marketplace activities.

[01:18:26] Speaker 00:
So I don't think we're suggesting it's limited to just a specific server.

[01:18:30] Speaker 00:
But it is listed, it is limited to a specific functionality.

[01:18:34] Speaker 00:
And the point again is that these are internal communications by a broker dealer itself.

[01:18:40] Speaker 00:
And if those are treated as regulated exchange functions, I submit to you there is not a defensible way to say that turns on the affiliated status of the provider offering that communication service.

[01:18:52] Speaker 00:
Either that communication service is or is not an exchange function.

[01:18:56] Speaker 00:
And again,

[01:18:57] Speaker 00:
the statute runs into innumerable line drawing problems that the SEC really hasn't even attempted to deal with in the order and articulating its interpretation.

[01:19:08] Speaker 00:
But more to the point, and again, even if in isolation,

[01:19:12] Speaker 00:
You could puzzle over how to read the facilities definition in light of the exchange definition in the statute, we do submit that the regulations answer this question in a very straightforward manner, Mr burger suggested that the regulations were not intended to define what it means to be a facility.

[01:19:30] Speaker 00:
But that's plainly contradicted by the text of the regulation itself, which says that the purpose of the regulation in paragraph A is to define what it means to provide a marketplace or facility for the purpose of bringing together purchasers and sellers of security.

[01:19:45] Speaker 02:
And if you just take a quick look at even the- That's just the statutory language in 3A1, right?

[01:19:53] Speaker 00:
That's correct, Your Honor, but I think that's our point, which is that it's not enough.

[01:19:57] Speaker 02:
That's his point that this reg is about exchange and not facility, putting aside the circularity issue to the extent there's any difference.

[01:20:08] Speaker 02:
It's a 3A1 definition.

[01:20:11] Speaker 00:
Your Honor, and I think this is a critical point.

[01:20:13] Speaker 00:
We respectfully believe that

[01:20:16] Speaker 00:
What the definition of exchange talks about are market facilities that serve a particular purpose of bringing together purchasers and sellers.

[01:20:25] Speaker 00:
And our point is that the commission's regulations define what it means to be that type of facility.

[01:20:32] Speaker 00:
So we think it's wrong to suggest that the regulation provides no insight into what a facility is for purpose of regulation under the act.

[01:20:41] Speaker 00:
And if you read the preamble to the rule,

[01:20:46] Speaker 00:
The 1998 rule it's clear the Commission was clear over and over again that rule three B 16 was meant to define essentially a functional activities based inquiry for what it means to provide an exchange function.

[01:21:01] Speaker 00:
And the point is that the services that issue here, the wireless services that are issued here.

[01:21:06] Speaker 00:
which again are internal communications functions that transport data to or from customers, that those are not exchange functions within the meaning of the commission's own regulations.

[01:21:17] Speaker 00:
And system J makes that, the system J example we pointed to makes that very clear.

[01:21:24] Speaker 00:
And I think the argument Mr. Berger is making that, well, this was adopted to help us deal with the problem of alternative trading systems is correct, but there are often,

[01:21:34] Speaker 00:
specific problems that prompt agencies to promulgate or revise their rules and the text of the regulatory change that the agency accomplished goes beyond the specific problem before it, and this is

[01:21:46] Speaker 00:
a circumstance where the commission adopted a generally applicable, to borrow Judge Ginsburg's term, generally applicable regulatory standard for interpreting exchange, including Judge Katz's, what it means to be a market facility, which is I think the critical issue here.

[01:22:03] Speaker 00:
And we'd respectfully submit that the commission has really made no reasoned effort

[01:22:07] Speaker 00:
to square what it did here with its own regulations, which again is an independent reason that the orders can be vacated.

[01:22:15] Speaker 02:
Okay, I understand.

[01:22:17] Speaker 02:
Judge Ginsburg, anything else?

[01:22:19] Speaker 01:
Yes, please.

[01:22:20] Speaker 01:
Mr. Dunbar, you opened with saying that

[01:22:24] Speaker 01:
that council for the OCC had sort of given away the game by revealing it really does depend upon affiliation, corporate affiliation, because any alternative provider would be there with the consent of the exchange, which is an alternative to being maintained by the exchange, correct?

[01:22:50] Speaker 01:
But his point seemed to me turned not on that, but on the ability to exclude or price discriminate.

[01:22:58] Speaker 01:
And if the provider is there with the consent of the exchange, it would be on the terms

[01:23:05] Speaker 01:
dictated or reached by agreement with the exchange, in which case the exchange could still keep its exclusivity in zero or lesser latency or by charging more for others to get it.

[01:23:25] Speaker 01:
Same discrimination, just with the consent.

[01:23:29] Speaker 00:
Your honor, I think I agree with that but I took that explanation to mean what's driving the commission here is the commission's view to borrow I think what Judge Walker said the leverage that is inherent.

[01:23:41] Speaker 00:
Apparently as the commission sees it in the idea that part of this ice exchange family are actual exchanges themselves.

[01:23:51] Speaker 00:
Mr. Berger suggested it doesn't really matter where the poll is located on or off premises.

[01:23:56] Speaker 00:
The SEC is going to take the position that if anyone in the ICE family gets into the business of providing communications, there is somehow a potential for discrimination that requires regulating their services as if they are

[01:24:12] Speaker 00:
As if they are provided by the exchanges themselves and that I'd submit your honor is essentially another way of saying that affiliation is what's driving the outcome, not the location of the pole, but to the point about exclusion I do want to say your honor that I think there.

[01:24:27] Speaker 00:
To conclude that the Exchange Act does not remedy any particular problem with access to a poll or not is not to say that there is no regulatory apparatus or laws that would be in place, including general antitrust standards that would continue to govern access to the polls and fair competition.

[01:24:48] Speaker 00:
The question isn't an abstract policy one of how best to regulate fair competition in this space.

[01:24:53] Speaker 00:
The question is,

[01:24:54] Speaker 00:
Are these communication services exchange functions and again the policy preferential access point that the Commission is making I think only show that what's really driving their conclusion here is affiliation.

[01:25:09] Speaker 00:
an affiliation that has no textual anchor in the statute.

[01:25:13] Speaker 00:
I'd also be remiss though, Your Honor, if I didn't point out that the idea that the exchanges themselves would have the incentives to attempt to artificially constrain competition or raise the price by which broker dealers could interact with the exchanges contradicts all economic logic.

[01:25:29] Speaker 00:
These exchanges compete

[01:25:31] Speaker 00:
vigorously with alternative trading systems and other exchanges across the country for order flow and for transactions on the exchange.

[01:25:39] Speaker 00:
So the fiction that this ICE corporate family would want to engage in preferential discriminatory activity that raises unnecessarily the price of actually conducting business on the exchange is one that doesn't have much of a basis in economic logic we would submit either.

[01:25:55] Speaker 00:
But at the end of the day,

[01:25:57] Speaker 00:
We simply don't think those policy concerns justify reading or rereading, in our view, either the text of the Exchange Act or the commission's regulations, which establish that these wireless transmission functions are not exchange functions under the Act.

[01:26:15] Speaker 00:
And if there's no further questions, we thank the court for its time.

[01:26:21] Speaker 02:
All right.

[01:26:23] Speaker 02:
Thank you, Mr. Dunbar.

[01:26:24] Speaker 02:
The case is submitted.