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Phase number 20-1181 et al.

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The Nasdaq Stock Market LLC et al.

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Petitioners versus Securities and Exchange Commission.

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Mr. Hungar for the petitioners, Ms.

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Hargan for the respondents.

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Good morning, Council.

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Council for Petitioners.

[00:00:20] Speaker 01:
Good morning, Your Honor, and may it please the Court.

[00:00:23] Speaker 01:
As explained in the supplemental briefs, the governance order is final and reviewable by this Court.

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The order should be set aside on three independent grounds.

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First, Congress was very specific in defining the authority granted to the commission under section 11A, A3B.

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Congress specified who the commission can direct to act.

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Self-regulation.

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Excuse me, counsel.

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That's the merits of the case.

[00:00:51] Speaker 01:
Yes, your honor.

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The question is whether or not the conditions

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direction that they submit these proposals are final.

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You're talking about the merits.

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Why don't we talk about finale?

[00:01:04] Speaker 01:
Yes, your honor.

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As both parties have explained in the supplemental briefs, the order is final because it satisfies the requirements under Bennett versus Speer.

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First, the order marks the consummation of the agency's decision-making process.

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Let me ask you to focus.

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Every one of the commission's federal register statements

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say this is not fine just take, for example, the latest the January 15th 15th order instantly.

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On whether to approve the proposed plan.

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The commission saw a comment on a number of specifically highlighted issues, quote, including whether the proposals are consistent with section 11A, as well as any other concerns they may have with the proposal.

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And then it says, institution of proceedings does not indicate that the commission has reached any conclusions with respect to any of the issues involved.

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That says this isn't final.

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And they say the same thing in every other federal register document.

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Your honor, the commission's determination in the order under review here with respect to the three issues that we are challenging is unquestionably final as the commission itself.

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Could you, would you just focus on what I just read you?

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I'm attempting to do that, Your Honor.

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Just look at the language I'm focusing on.

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The SEC, including whether the proposals are consistent with Section 11A, and the proposals include the forward issue here.

[00:03:00] Speaker 01:
Your Honor, the Commission makes clear in the long list of questions in its, the long list of specific questions in that order,

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that what it's inviting comment on is not the three matters under review here.

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As to which is determination is already final as it made very clear in the prior order and as it confirmed in its brief filed last week, it is not inviting comment on those matters.

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It has ruled definitively on those issues, those determinations are not tentative or interlogatory.

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The fact that- And what language are you focusing on there?

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I'm sorry?

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Which specific language are you focusing on there?

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I'm focusing on the express determinations in the order under review that we're challenging and the fact that there's nothing in the specific questions that the commission issued earlier this year with respect to the new consolidated data plan.

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I mean, to the contrary, the commission made very clear in its order and in the new consolidated data plan order inviting comment that it's one of the things it's inviting comments on in terms of compliance is whether

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the proposed plan complies with the governance order that's at issue here, because the governance order's requirements are the baseline.

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Let's go through some of these other documents.

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I'm sorry?

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The commission's order denying a stay, it says that the order does not, the one you saw to stay in, does not establish a new consolidated plan.

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It requires the exchanges to file a plan.

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Then it says, the new consolidated plan filed in response to the order will itself be published pursuant to public comment with any changes subject to the commission that are necessary.

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And then it says, that's why there's no injury here.

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That's why there's no harm.

[00:05:03] Speaker 01:
Yes, but the, the determinations that issue here are not part of what the commission is reconsidering what it's considering is whether the plan that it required the SROs to submit which itself imposed burdens on the SROs and therefore satisfies the second prong appended versus fear and the commission is determining.

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whether the plan that it forced the SROs to submit complies with the regulatory requirements that it imposed in the governance order.

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It's not determining whether to revisit those requirements.

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Those requirements are final.

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This is just like the domestic securities case in which this court held that where the first determination by the commission imposed certain requirements and approved certain provisions, but made implementation contingent on subsequent determinations.

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And then the subsequent determinations were made at a later date and promulgated by the commission.

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And someone wanted to challenge the original determination approving the first part of it, the first part of the plan.

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And this court said, no, you're too late.

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That's because in that case, the new trading rules, including the ones that were challenged, were fine.

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It's different from this case.

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The Commission has said they've invited comment.

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One of your arguments is that the new voting procedures that the exchanges were required to include in their plans violate the statute, right?

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Yes, and the commission has said that's what they're seeking comment on.

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They was not seeking comment on whether the requirements that imposed the last time around violate the statute, it's seeking comment on whether the plan complies with the requirements that impose the last time around because those requirements are final, just as the commission said in its own brief, the commission

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is not reconsidering.

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You're not going to get anywhere by relying on the commission's brief.

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The question here is what has the commission said in its various public announcements and published in the Federal Register.

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And I mean, you may say that the commission is asking nothing more than whether or not the plans that were submitted were consistent with the commission's prior order, but that's not what it says.

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It says whether it's consistent with the statute.

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You could ask that question.

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But what is the it, Your Honor?

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The it is the plan, not the provisions

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not the requirements that the SEC itself has already and are consistent with.

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Again, in the domestic securities case, the original order was not final in the sense that you're envisioning it.

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It didn't have any effect.

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It couldn't be implemented because the commission said, well, this is fine as far as it goes, but we need more before we are willing to implement this new plan.

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And so the commission required additional proceedings

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issued an additional order.

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And that second order was the only one that gave legal effect to the first set of provisions that it had approved in the earlier order.

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And nonetheless, the first order was.

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Let me ask you this.

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So if you really think that the SEC has already made a final judgment,

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that the disputed features must be included in the final plan.

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Why did NASDAQ file its brief in this case as one of its comments in response to the proposed plan?

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And it said, it said, you said, or NASDAQ said all the statements set forth in NASDAQ's letters and in the opening brief, and in the opening brief filed on behalf of NASDAQ in the court of appeals attached as appendix B

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are incorporated herewith by reference.

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For all the reasons stated therein, including this brief, the commission to disapprove the proposed clients.

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I mean, your own filing suggests that all of these issues are open.

[00:09:06] Speaker 01:
I'm sorry, Your Honor, if you're suggesting a filing connection with the current comment period.

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Yeah.

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So I don't know, but I assume the reason is that the-

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What do you mean if I'm suggesting it?

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I was reading you from NASDAQ's response to comments.

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NASDAQ's own comment where it submitted your brief in this case and said that for all of the reasons set forth in this brief, the commission should not adopt these proposals.

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I'm sorry.

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I was just trying to make sure I understood what you were asking about.

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If I understand correctly, as I say, I'm not familiar with the rationale for that, but I assume that it's a belt and suspenders approach because

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of concerns.

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I mean, again, in the domestic securities case is actually quite instructive because they're the party.

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Wait, hold on.

[00:09:57] Speaker 06:
I didn't understand your answer to my question.

[00:10:00] Speaker 06:
Sorry.

[00:10:02] Speaker 01:
I'm sorry.

[00:10:03] Speaker 01:
I just didn't understand.

[00:10:04] Speaker 01:
I don't know.

[00:10:04] Speaker 06:
Before you go to domestic security, which, you know, it looks to me to be a different case.

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So well, whether domestic securities is relevant turns on the issue you and I are discussing, whether or not this is final or not.

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But I didn't understand your answer to my question about why NASDAQ submitted the brief in this case to the SEC.

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And as I say, I don't know the answer to that question.

[00:10:32] Speaker 06:
But doesn't that suggest to you that at least NASDAQ thought this wasn't final?

[00:10:37] Speaker 01:
Well, I can assure you that we think it is final.

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That's why we filed it.

[00:10:42] Speaker 06:
Come on.

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I know that's what you're saying.

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But why would NASDAQ have submitted this if it thought it was final?

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That's my only question.

[00:10:53] Speaker 01:
Well, because litigants and participants in administrative proceedings

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often take belt and suspenders approaches.

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But that doesn't change the fact that this order imposed real world obligations and costs and burdens on the regulated entities.

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They had no choice.

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They would have been subject to sanctions, regulatory sanctions, if they had not complied with the obligation to go through the cost and burden of developing a new consolidated data plan proposal to submit to the commission.

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And if they have not complied with the final determinations of the commission in the governance order,

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required them to include the three challenged features which the commission has made very clear it's not reconsidering and didn't invite comments on in the subsequent order asking for comments on the proposed plan complied with their previously imposed governance order requirements.

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Again it's final it imposed real world burdens on the commissions on excuse me on the SROs and it is therefore reviewable

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One of your arguments, Mr. Hunger, is that if you had not filed a petition in this case with respect to this particular order, you would have been barred from challenging it later.

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It's your position, right?

[00:12:03] Speaker 01:
That's correct, Your Honor.

[00:12:06] Speaker 00:
But doesn't Section 704 of the APA take care of that problem?

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Section 704 says that intermediate agency action or rulings

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can be challenged upon a review of the final agency rule.

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This is an intermediate rule, no matter how you look at it, because it's not giving you the ultimate plan.

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That's yet to be decided.

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And so why doesn't 704 take care of your problem?

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Let me give you a hypothetical and I don't want to argue back and forth, but tell me how you distinguish this because I think of this case in somewhat the same way.

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Let's assume it an action for an injunction and the district judge rules that the defendant is liable and then says that I want you to get together with the plaintiff and propose a plan with the following elements in it.

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Now, is that immediately appealable as a final action?

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If the judge has not entered an actual... He has not entered a final injunction.

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It would not be, but of course... It would not be.

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So how do you distinguish that situation from this?

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Because the commission is not just a negotiating party.

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It's a regulatory agency with authority and its governance order imposed immediately effective obligations

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on the SROs that they had no choice but to comply with.

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That's the same thing as in the hypothetical.

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The district judge imposed obligations to formulate a plan with the following elements in it.

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It's the same thing.

[00:13:53] Speaker 05:
So let me be clear, council.

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Your reading of our president and domestic is that

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whatever happens afterward is unrelated to the substance of the elements that the commission has identified in the rule you're challenging must be part of the plan.

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That is not going to change at all, even if the commission were to find that there are legal obstacles ahead.

[00:14:32] Speaker 01:
That's correct, Your Honor.

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because the commission has not invited comment on the requirements that had expressly imposed on the SROs and ordered them to include in the proposed plan.

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It's invited comment on whether the SROs have successfully have properly implemented those obligations, which is a very different question.

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And going back to the injunction, if I've answered your question, Judge Rogers.

[00:15:03] Speaker 05:
Please.

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Please, go ahead.

[00:15:08] Speaker 01:
I may come back.

[00:15:10] Speaker 01:
Going back to the injunction hypothetical, I mean, again, it's quite different.

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And this court, it was hardly a merit kind of instruction to go work things out.

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The governance order goes very carefully after notice and comment, goes very carefully through each of the objections, or at least some of the objections, because they didn't address all of them.

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But they go through the objections

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to the three requirements that the SEC had proposed.

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They resolved them, they expressed their final determinations that those requirements must be part of the plan and must be satisfied by the SROs in the plan that they're going to submit for approval.

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So it's just like the domestic securities case where the original order finally determines the matters that it addresses, but it leaves implementation and final implementation of the overall plan

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to a later proceeding where additional issues are going to be considered.

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So if, as this court held in domestic securities, the petitioner was barred because they filed only after the second implementation order, I think that's a complete answer to the question about the APA section 704.

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Because even though under the view that has been suggested, you could say the original order was an interim order in the sense that the implementation came until

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came later, this court nonetheless held it was final for purposes of its review because the issues that the original order addressed were finally resolved.

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And the same is true here.

[00:16:43] Speaker 06:
Let me just follow up on Mr. Hunger on Judge Randolph's question to you about your concern that if you waited, you would not be able to challenge them.

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He mentioned 704, which is true, but what about also, wouldn't you be fully protected if, I mean, this is a hypothetical.

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If we decide this is not final and we say on our order dismissing the petition that we lack jurisdiction because the order is not final, aren't you fully protected?

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When the commission issues its final standards, you will be free to challenge all aspects of this because the court of appeals will have already ruled

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that this was an intermediate order not subject to judicial review.

[00:17:33] Speaker 01:
Well, that's true, your honor, but that completely protects you, doesn't it?

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In other words, do you see my point?

[00:17:41] Speaker 01:
Yes, Your Honor, that is true.

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I mean, you've done your due diligence.

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It's one way to look at this is, OK, you weren't sure about whether this was final.

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So you did your due diligence.

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You filed the petition to protect yourself.

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And maybe you were wrong about that, but you're totally protected by a court of appeals order saying this is a non-final intermediate decision, not subject to challenge.

[00:18:05] Speaker 01:
Yes, that's true as a legal matter.

[00:18:06] Speaker 01:
I mean, obviously, as a practical matter,

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it would have been in that hypothetical, which we obviously resist, it would be a huge waste of resources and not just for the SROs, but for the commission, because then the commission is going to be forced to go through the final decision-making process on the other issues, not the issues at issue here, but completely different issues that it's currently considering, issue a final order on the new consolidated data plan, and then only then find out whether it actually had the legal authority

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to confer authority on non-SROs?

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We have hundreds of cases in this court where this court has concluded that agency action was intermediate and not final, where you can make that exact same argument.

[00:18:52] Speaker 06:
Yes, Your Honor.

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It's a consequence of this statute and the APA's requirement that we review only final orders.

[00:19:01] Speaker 06:
I hear your point.

[00:19:02] Speaker 06:
It's a consequence of that, right?

[00:19:05] Speaker 01:
Well, but as I've attempted to argue, this court's precedents do not compel that result.

[00:19:11] Speaker 01:
And domestic securities points clearly in the opposite direction.

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And this court has also indicated that finality is to be evaluated in a flexible and pragmatic manner.

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Here, it makes no sense, given the final determinations that the agency has already made and that are properly before the court, for the court to kick this back to the agency and delay things and decline to provide clarity.

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for the regulated community on these important issues.

[00:19:37] Speaker 05:
So let me ask you, you heard some questions saying, well, domestic securities is a different case.

[00:19:44] Speaker 05:
There is language in domestic securities to the effect that, quote, the condition was unrelated to the substance of the super montage rules.

[00:19:59] Speaker 05:
Here, I'm trying to understand is the same situation true here by analogy to, for example, and this analogy may fail, I understand and you can come up with a better one, but I'm just trying to think of where a decision is made by an agency to do X, but it doesn't fully know what happens after X.

[00:20:28] Speaker 05:
And there may be other issues that come into play, but the agency decides it wants to decide these issues now.

[00:20:37] Speaker 05:
So what is the best argument that that's not piecemeal, piecemealing the issues such that we don't have a final order here?

[00:20:50] Speaker 05:
In other words, the commission says we want the plan to include four elements.

[00:20:59] Speaker 05:
Now, once we get those plans, there may be other issues that come to bear.

[00:21:06] Speaker 05:
And that happens all the time in these agency cases where the agency may adopt some of your objections, but reject others.

[00:21:17] Speaker 05:
And it goes ahead and issues the final plan.

[00:21:23] Speaker 05:
I guess what we're trying to understand is when

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Is your argument that the issue as to what may come in the future is simply not relevant here to what the commission had decided it wanted to be a part of the plan?

[00:21:44] Speaker 01:
I think so, Your Honor, in the sense that the elements that the commission determined in the governance order must be included in the plan.

[00:21:58] Speaker 01:
are not an issue in the subsequent proceedings, just like in domestic securities, the elements.

[00:22:04] Speaker 05:
Well, in domestic securities, as you know, there are certain sentences that appear to be different than the status of this case.

[00:22:12] Speaker 05:
And I need to understand why you think either it's not or if they are, they shouldn't be persuasive here.

[00:22:24] Speaker 05:
Because they say that,

[00:22:27] Speaker 05:
you know, or we said to be sure the SEC did condition implementation of super montage on the approval of an adequate ADF.

[00:22:38] Speaker 05:
But it said, or we said that this condition does not affect the finality because the condition was unrelated to the substance of the super montage rules here.

[00:22:54] Speaker 05:
Why?

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Is the finality issue raised in our order not addressing something that is related to the substance of the super montage rules?

[00:23:09] Speaker 05:
You're saying, as I understand it colloquy, that, well, the commission said it had made a final decision as to these three elements.

[00:23:20] Speaker 05:
But is that totally responsive?

[00:23:26] Speaker 01:
I think so, your honor, because again, in the in the committee's case, the commission had approved the super montage rules of the super montage plan and proposal, just like it has here approved the challenged elements.

[00:23:47] Speaker 01:
But it said that we need basically an alternative system to complement what we've approved.

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And

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we're going to withhold implementation unless and until that alternative system is approved and is implemented and approved.

[00:24:06] Speaker 01:
And then we will implement the super montage as well.

[00:24:08] Speaker 01:
The same is true here in the sense that the commission has finally determined the elements at issue, the three challenged requirements for any plan that is going to be implemented.

[00:24:20] Speaker 01:
But it has said, we're going to examine additional separate issues

[00:24:24] Speaker 01:
in the current ongoing proceeding to determine whether the plan in other respects satisfies the requirements of the act.

[00:24:32] Speaker 01:
And once it does that, it will implement the plan, including the requirements that it has previously imposed at the governance order.

[00:24:38] Speaker 01:
So I think it's the same thing and it's very parallel.

[00:24:46] Speaker 05:
Well, I think maybe some of our questions suggest that understanding that is

[00:24:54] Speaker 05:
maybe upon further examination clearer, but there you're saying the analogy where arguably it was stated that the commission was breaking up the matter into two parts.

[00:25:17] Speaker 05:
You're saying even if that's true here, we've already decided

[00:25:23] Speaker 05:
that that doesn't defeat finality.

[00:25:32] Speaker 01:
I think so, Your Honor.

[00:25:32] Speaker 01:
I mean, maybe this gets at your question, that it's not as if the conditions that the commission imposed in domestic securities were completely unrelated and had nothing to do with the provisions that it had approved in the initial order.

[00:25:48] Speaker 01:
I mean, it was an alternative system for

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a trade execution to go hand in hand with, as I understand it, with the super montage system to make sure that the investors and the regulated community had the full range of options that they needed in order to execute trades.

[00:26:09] Speaker 01:
And so it's not that they were totally unrelated.

[00:26:13] Speaker 01:
It was an additional piece of the puzzle that the commission felt it needed to address before it would allow implementation of the super montage

[00:26:20] Speaker 01:
aspects approved in the original order.

[00:26:22] Speaker 01:
And yet this court said the original order was final when issued, because that was not what the commission was considering and determining how to address in the second order.

[00:26:35] Speaker 01:
It was simply addressing other issues, which then, once they were finalized, allowed it to implement its previous determinations in the super montage underlying order.

[00:26:46] Speaker 01:
And again, that's precisely what's going on here, that the commission is not

[00:26:50] Speaker 01:
reconsidering the determinations and requirements that they've imposed on the exchanges.

[00:26:55] Speaker 01:
Indeed, I think this is the finality argument here is more substantial than it was in domestic securities.

[00:27:02] Speaker 01:
Again, because the governance order imposed real-world obligations on the exchanges, forcing them to develop and submit a plan on an expedited basis at significant cost and burden.

[00:27:18] Speaker 05:
And so what's your best response then to these more recent statements that Judge Tatel was discussing with you?

[00:27:28] Speaker 01:
Well, again, if you read the full list of questions that the commission promulgated and invited comment on, none of them has to do with the requirements it previously imposed in the governance order.

[00:27:42] Speaker 01:
To the contrary, it's saying,

[00:27:45] Speaker 01:
in substance, obviously I'm paraphrasing, but saying in substance, obviously the requirements of the governance order are the baseline.

[00:27:52] Speaker 01:
They're gonna stick and we wanna know whether the proposed plan satisfies all of the requirements of the act and the regulations and the governance order, not whether we should reconsider the requirements to be imposed in the governance order.

[00:28:08] Speaker 01:
So again, there's no way, shape or form in which the commission has invited comment

[00:28:13] Speaker 01:
about whether it should reconsider its determinations in that previous and final order.

[00:28:21] Speaker 05:
So do you understand some of the questions perhaps to indicate a reluctance to allow this type of splitting of actions or by agencies?

[00:28:39] Speaker 01:
Well, I'm certainly getting that impression, Your Honor.

[00:28:42] Speaker 05:
No, but I'm trying to understand.

[00:28:43] Speaker 05:
A lot of the cases we hear involve big issues.

[00:28:49] Speaker 05:
And you can't decide all of them at once.

[00:28:51] Speaker 05:
And we often, and I think with Supreme Court authority, have said the agency doesn't have to address everything related to a particular issue in one rulemaking.

[00:29:03] Speaker 05:
It can decide it only wants to address part.

[00:29:08] Speaker 05:
And it may or may not come back to the issue later.

[00:29:12] Speaker 05:
So we haven't seemed to have a problem with deferring to the agency's determination of what it wants to address now and the manner in which it's docket is developed.

[00:29:29] Speaker 05:
And

[00:29:32] Speaker 05:
I think that's why both parties in this case may have emphasized the real world consequences now, even though later adjustments may either affect, but not so far as we can tell from what the commission has indicated it's interested in so far, redo what you referred to as the baseline here for the plan.

[00:30:04] Speaker 01:
Well, I mean, I don't see how that could be possible, Your Honor, in terms of, since they're not going to reconsider the requirements they imposed, and the requirements they imposed are very clear, right?

[00:30:16] Speaker 01:
Non-SROs are given authority alongside SROs to do what Congress said only SROs can do.

[00:30:23] Speaker 01:
And the voting requirements are very clear, albeit unlawful.

[00:30:27] Speaker 01:
And the independent administrative requirement itself is also very clear.

[00:30:31] Speaker 01:
So it's not as if there's ambiguity

[00:30:34] Speaker 01:
in the final determinations that the commission has made.

[00:30:36] Speaker 01:
And again, since we're talking about the first prong of the Bennett versus Spear test, which is whether the order marks the consummation of the agency's decision-making process, this court's cases and the Supreme Court's cases ask whether the agency's determination under review constitutes a definitive ruling, whether the agency's ruling is not tentative or interlocutory.

[00:31:00] Speaker 01:
That's the test that this court's cases and the Supreme Court

[00:31:04] Speaker 01:
articulates for the first prong of Bennett versus Spear.

[00:31:07] Speaker 01:
And the answer to those questions are clearly that the SEC has ruled definitively and has not issued a merely tentative or interlocutory ruling on the questions at issue here.

[00:31:18] Speaker 01:
And therefore, it satisfies the first prong of Bennett versus Spear.

[00:31:23] Speaker 01:
And there's no question that it satisfies the second prong as well, because again, as

[00:31:28] Speaker 01:
As I've articulated, it imposed real world obligations on the SROs in a sanction if they didn't comply.

[00:31:36] Speaker 06:
And what do you do with our decision in in Ray Murray energy?

[00:31:42] Speaker 06:
Where we said in Ray Murray said where we said.

[00:31:46] Speaker 06:
An agency statement about its legal authority to adopt a proposed rule is not the consummation of the agency's decision-making process, but only represents a proposed rule in law.

[00:32:00] Speaker 01:
Because, Your Honor, that was a statement in a notice of proposed rule-making, which by very definition is tentative and inviting comment and consideration for the commission later to determine or the agency later to determine what the answer is.

[00:32:15] Speaker 01:
It imposed no legal obligations, as this court said in Murray.

[00:32:18] Speaker 01:
So it didn't satisfy the second prong of the Bennett versus Spear test and could not be final.

[00:32:23] Speaker 01:
And moreover, it was by definition tentative.

[00:32:26] Speaker 01:
This order, on the other hand, is not the beginning of a notice and comment proceeding.

[00:32:30] Speaker 01:
It's the end of it.

[00:32:32] Speaker 01:
The commission issued a proposed order.

[00:32:33] Speaker 01:
It invited comment.

[00:32:35] Speaker 01:
Comments were submitted.

[00:32:36] Speaker 01:
The commission considered them and addressed some of them in its order and issued a final order resolving the issues that we are raising here

[00:32:44] Speaker 01:
So it's quite different from Murray where, of course, a mere statement in a notice of proposed rulemaking, which has no legal effect and by definition is tentative, doesn't justify the invocation of this court's review authority.

[00:32:59] Speaker 01:
This is obviously the end of the process, not the beginning.

[00:33:03] Speaker 01:
And again, the only reason that we're having this discussion is because the commission has not yet implemented in terms of the final plan

[00:33:13] Speaker 01:
the requirements that it imposed in the governance order.

[00:33:16] Speaker 01:
It did implement them in the sense of requiring the SROs to act pursuant to them, which again, why in our view, this is an easier case than domestic security is not a harder one.

[00:33:31] Speaker 05:
Would you like to address the merits briefly?

[00:33:37] Speaker 01:
Yes, Your Honor.

[00:33:38] Speaker 01:
I'll be brief.

[00:33:40] Speaker 01:
So first of all, with respect to the first issue that we raised, the text of section 11A, A3B is clear.

[00:33:47] Speaker 01:
Congress gave the commission authority to authorize or direct SROs to act jointly, not any other entities.

[00:33:56] Speaker 01:
It doesn't make any sense to suggest that Congress intended through silence to let the commission extend that authority to others.

[00:34:06] Speaker 01:
because first of all, Congress made clear that act jointly authority was conferred upon only the SROs.

[00:34:12] Speaker 01:
This was the only provision in the exchange act that talks about acting jointly and it's limited to SROs.

[00:34:17] Speaker 01:
And the statute itself makes clear the reason why SROs are the congressionally intended beneficiaries of this unique authority to act jointly is because they and they alone share authority under the act to do the things

[00:34:32] Speaker 01:
that allow them to participate in operating the national market system plan.

[00:34:37] Speaker 01:
Non-SROs have no such authority.

[00:34:39] Speaker 01:
The commission is essentially arrogating to itself the power to transfer authority that Congress gave the SROs to non-SROs under the guise of a provision that refers only to SROs.

[00:34:50] Speaker 01:
It makes no sense.

[00:34:51] Speaker 01:
And it violates the structure and purpose of the act because as a quid pro quo for giving SROs regulatory authority,

[00:35:01] Speaker 01:
Congress imposed on them unique obligations and responsibilities, including the obligation to protect investors and act in the public interest and to be subjected to direct regulatory oversight by the SEC, none of which applies to the individual representatives that the SEC is trying to shoehorn into this body.

[00:35:21] Speaker 01:
So for all the reasons set forth in the brief, the conferral

[00:35:26] Speaker 01:
of voting authority, regulatory authority, if you will, on non-SROs is completely contrary to the structure and text and purpose of the statute.

[00:35:36] Speaker 01:
The gerrymandered vote dilution scheme that the Commission has imposed on SROs also violates the statute.

[00:35:44] Speaker 01:
The Commission itself admits

[00:35:46] Speaker 01:
that section 11A, A3B requires it to ensure that the SROs have sufficient voting power to act jointly on behalf of the plan pursuant to the requirements of section 11A.

[00:35:58] Speaker 01:
And yet it fails to do that because a majority of the SROs can't even act jointly because they can be overridden by a minority of the SROs and the non-SRO voting members.

[00:36:09] Speaker 01:
And the commission's only response to that is to adopt this vote dilution scheme that treats multiple SROs as if they were

[00:36:16] Speaker 01:
a smaller number than they actually are, which is contrary to the statute's definitional provision, which makes clear that each exchange is its own independent SRO.

[00:36:25] Speaker 01:
It's also inconsistent with the commission's own long established regulatory practice, which it provided no reason to explanation for departing from.

[00:36:33] Speaker 01:
And it's inconsistent with this court's case law, including the Lilliputian systems case, which precludes agencies from discriminating among similarly situated entities

[00:36:45] Speaker 01:
without evidence and a reasoned explanation.

[00:36:47] Speaker 01:
And here the commission failed to explain why it is limiting the votes of affiliated SROs while not limiting the votes of unaffiliated SROs that face the same alleged conflict of interest that the SROs face.

[00:37:04] Speaker 01:
And finally, with respect to the administrative, the independent administrator requirement, the commission failed to assess

[00:37:13] Speaker 01:
whether that requirement, which imposes admitted costs and burdens, will do more good than harm.

[00:37:17] Speaker 01:
Their only explanation was the sheer speculation about the potential for conflicts of interest, but they made no findings and pointed to no evidence of any real world harm, let alone explain how that overcomes the costs that the commission's rule is imposing.

[00:37:34] Speaker 01:
Again, the rationale is internally inconsistent and discriminatory because the commission allows

[00:37:41] Speaker 01:
non-SRO data vendors to serve as the administrator even though they face precisely the same alleged conflict of interest that the commission attributes to the SROs.

[00:37:52] Speaker 01:
The commission provided no explanation for that discriminatory treatment, which therefore violates the litigation system precedent that I mentioned before.

[00:38:00] Speaker 01:
And the commission failed to consider the fact and the significance of the fact that it has contemporaneously imposed heightened confidentiality obligations

[00:38:10] Speaker 01:
on the SROs and the administrator, which go to the very alleged problem that this requirement purports to address.

[00:38:19] Speaker 01:
So for all those reasons, the independent administrator requirement is arbitrary and capricious and the governance order should be vacated.

[00:38:30] Speaker 05:
All right, thank you.

[00:38:30] Speaker 05:
Thank you.

[00:38:38] Speaker 05:
Let's hear.

[00:38:39] Speaker 05:
Council for respondent.

[00:38:42] Speaker 04:
Thank you, Your Honor.

[00:38:43] Speaker 04:
Tracy Harden on behalf of the Securities and Exchange Commission.

[00:38:46] Speaker 04:
As we indicated in our supplemental brief, we do agree with the petitioners that this is final agency action subject to review at this time.

[00:38:57] Speaker 04:
It is the consummation of the commission's decision-making process.

[00:39:03] Speaker 04:
As Council for petitioners pointed out, there has been

[00:39:06] Speaker 04:
notice and a comment process here in the commission made a recent determination that it's both in its authority and appropriate to proceed along these lines at this point.

[00:39:17] Speaker 04:
And I think this court's precedent makes clear that the fact that something could be changed in the future is not sufficient to render something non-final.

[00:39:28] Speaker 04:
And that's precisely the situation we have here.

[00:39:31] Speaker 04:
I think also this court has

[00:39:33] Speaker 04:
and the Supreme Court have both taken a pragmatic approach to questions of finality.

[00:39:39] Speaker 04:
And here we have a situation where a decision by the court at this point could in fact provide clarity to the parties going forward.

[00:39:49] Speaker 04:
And it would serve the interest of both judicial efficiency and the efficiency of effort by the parties here.

[00:39:59] Speaker 04:
Moving on to the merits, if the court has no questions.

[00:40:02] Speaker 05:
Well, would you like to respond, council, excuse me, before you do that, would you like to respond to some of the colloquy that you have just heard, in particular, referencing more recent statements issued by the commission?

[00:40:21] Speaker 05:
Sure, Your Honor.

[00:40:22] Speaker 06:
Yes, and just to follow up on Judge, let me just call your attention to some very specific statements by the commission, okay?

[00:40:29] Speaker 06:
And let's start with the most recent, the January 15th order on whether to approve the proposed, seeking comments on whether to approve the proposed plan.

[00:40:43] Speaker 06:
It specifically asks whether the proposals are consistent with section 11A,

[00:40:50] Speaker 06:
quote, as well as quote, any other concerns they may have with the proposal.

[00:40:57] Speaker 06:
And then it said, institution of proceedings does not indicate that the commission has reached any conclusions regarding any of the issues involved.

[00:41:08] Speaker 06:
Okay.

[00:41:09] Speaker 06:
To me, that says it's not fine.

[00:41:12] Speaker 04:
Your Honor, I have a couple of responses to that.

[00:41:15] Speaker 04:
First, you know, the question about consistency with section 11A of the act,

[00:41:20] Speaker 04:
That is part of the approval process of an MMS plan under Code 608.

[00:41:26] Speaker 04:
The commission.

[00:41:26] Speaker 06:
Yeah, but that, but excuse me, but that is the primary argument that the petitioners are making here.

[00:41:32] Speaker 06:
The petitioner's primary argument here, which is a strong argument, is that including the non-SROs violates the statute.

[00:41:42] Speaker 06:
And the question the commission has asked here is whether the proposals are consistent with the statute.

[00:41:51] Speaker 04:
I think it's important to separate in this analysis, the questions of the commission's order here, the governance order, which is subject to this petition for review and the plan itself.

[00:42:01] Speaker 04:
We can see the plan itself is not final.

[00:42:04] Speaker 04:
And that's true.

[00:42:05] Speaker 06:
I understand that.

[00:42:08] Speaker 06:
I understand that.

[00:42:09] Speaker 06:
But I'm asking you the question about what the commission said in the order I just quoted from, where it says two critical things, it seems to me.

[00:42:18] Speaker 06:
One, we're asking for comment.

[00:42:20] Speaker 06:
whether the proposals are consistent with the statute.

[00:42:24] Speaker 06:
And number two, anything, any final order will be subject to notice and comment.

[00:42:36] Speaker 06:
And that's just the first I want to add.

[00:42:37] Speaker 06:
That's the last of the orders.

[00:42:39] Speaker 06:
I want to ask you about the others.

[00:42:40] Speaker 06:
But

[00:42:41] Speaker 06:
I didn't see any, maybe I missed it, but I didn't see anything in that order which said that when the commission asked for comment on whether or not the proposals can port with a statute that it wasn't referring, for example, to the inclusion of the non-SROs or to the creation of the independent administrators.

[00:43:08] Speaker 04:
It doesn't say that explicitly.

[00:43:09] Speaker 04:
You're right, Your Honor.

[00:43:11] Speaker 04:
The rule 608 approval standard that the commission has to find to approve a plan includes finding whether the plan is otherwise in furtherance of the purposes of the act.

[00:43:24] Speaker 04:
And so the question here is going to whether the entirety of the plan is consistent with the act, not specifying any particular provisions.

[00:43:35] Speaker 04:
And it's true that the commission

[00:43:38] Speaker 04:
It has discretion to change its mind.

[00:43:41] Speaker 04:
That's always true in an administrative context.

[00:43:44] Speaker 04:
But the commission, as I said, made a very extensive recent decision here.

[00:43:50] Speaker 04:
And to change its mind on these provisions would be subject, of course, to APA principles of recent decision making and explaining that change.

[00:43:59] Speaker 04:
And there's nothing to indicate in this record that there's a serious or a, you know,

[00:44:08] Speaker 04:
a real reevaluation of that going on.

[00:44:11] Speaker 04:
Of course, the commission retains that discretion.

[00:44:14] Speaker 06:
I'm just curious, maybe you don't have to answer this if you don't want to, it's going a little beyond your brief, but I'm not quite sure I understand why the commission is taking this position.

[00:44:24] Speaker 06:
I would assume that the commission's view would be that it's in a much stronger position, would be in a much stronger position to defend its ultimate decisions here if we let the regulatory process go to its conclusion.

[00:44:39] Speaker 06:
What is it about this case that seems to, that makes the commission want to get a review now as opposed to later?

[00:44:51] Speaker 04:
There's nothing in the commission's determination on these particular issues and the order that's before the court now that's contingent upon anything that

[00:45:02] Speaker 04:
is going to play out or could change in the approval process.

[00:45:06] Speaker 04:
This is a situation where the issues are so interrelated that there's a rightness concern.

[00:45:14] Speaker 06:
Let me ask you about a few of the other of these documents.

[00:45:17] Speaker 06:
So the governance order.

[00:45:21] Speaker 06:
One of the comments that the commission responded to said that the SEC's rationale for making governance changes

[00:45:32] Speaker 06:
relied on what they call cherry-picked opinions.

[00:45:35] Speaker 06:
In other words, they challenged the legality of that.

[00:45:38] Speaker 06:
The commission said the new consolidated plan submitted in response to this order will itself be published for public comment prior to any decision to approve or disapprove the plans with any changes or subject to any conditions the commission deems necessary or appropriate.

[00:46:02] Speaker 06:
So in response to an argument that the commission's rationale for requiring some of these requirements was flawed.

[00:46:11] Speaker 06:
The commission said, don't worry about it.

[00:46:13] Speaker 06:
The final order will be subject to notice and comment rulemaking.

[00:46:19] Speaker 04:
What the commission said before that, your honor, was that it published this order for comment prior to issuing the order, making the determinations it made.

[00:46:32] Speaker 04:
And I think that the totality of the Commission's response here was to an argument that we haven't had sufficient time to comment on this.

[00:46:41] Speaker 04:
And the Commission is saying, well, wait a minute.

[00:46:43] Speaker 04:
We've looked at these issues since at least 2015, since we established the Equity Market Structure Advisory Committee.

[00:46:51] Speaker 04:
The commission has been looking at these issues for years.

[00:46:54] Speaker 04:
We published this order for comment.

[00:46:57] Speaker 04:
We think it is, we have sufficient information to proceed now.

[00:47:00] Speaker 04:
And to the extent you have concerns about that, there will be a post hoc process for approval as well.

[00:47:07] Speaker 06:
All right.

[00:47:09] Speaker 06:
And, okay.

[00:47:10] Speaker 06:
And what about the, so the exchanges asked for a stay before the commission, the commission denied it, right?

[00:47:18] Speaker 06:
That's right.

[00:47:19] Speaker 06:
And it said very clearly in it, the order does not establish a new plan.

[00:47:24] Speaker 06:
It requires the SROs to file a plan with the commission.

[00:47:28] Speaker 06:
The new consolidated data plan submitted in response to these will itself be published.

[00:47:32] Speaker 06:
Same thing.

[00:47:33] Speaker 06:
They said, don't worry, we're going to deny a state because nothing we've done so far is final.

[00:47:41] Speaker 06:
Through that process, through that process, interested parties will still be able to comment on the proposed plan and the commission will review the plan and may make changes or add conditions before issuing a subsequent order approving or disapproving the plan.

[00:48:01] Speaker 04:
The commission in that order was responding to the irreparable injury argument that had been made in the state papers filed before it, in which the petitioners included harms stemming from implementation of a new data plan.

[00:48:15] Speaker 04:
And so the commission is saying here in part, those harms are not going to come to pass here and a stay is not required at this point to prevent that kind of irreparable injury.

[00:48:29] Speaker 04:
But certainly any costs of implementation of a plan will in fact be affected by the details of that plan.

[00:48:37] Speaker 04:
And so in addressing the injury argument before it, I think it was perfectly appropriate for the commission to recognize that the plan's not going to be implemented at this point.

[00:48:47] Speaker 04:
And the details of that plan are still to be sorted out in a later proceeding.

[00:48:52] Speaker ?:
Thank you.

[00:48:58] Speaker 04:
If the court has no further questions about finality, I would like to turn to the merits.

[00:49:04] Speaker 04:
I think, you know, section A3B of the act authorizes precisely what the commission did here.

[00:49:11] Speaker 04:
It required joint action by the SROs with respect to an aspect of the national market system over which they share authority.

[00:49:19] Speaker 04:
And here that aspect of the market system, the equity data plans were created to further Congress's goals with respect to market data.

[00:49:28] Speaker 04:
as expressed both in paragraph A, one of the provision and in paragraph C. And contrary to the petitioner's argument, this grant of authority is not a clear indication that Congress intended to best sole decision-making authority over the national market system to SROs.

[00:49:46] Speaker 04:
This court's case law makes clear that the espressio neus canon doesn't get you to a clear indication of congressional intent when the provision is juxtaposed

[00:49:58] Speaker 04:
against provisions providing an agency flexibility.

[00:50:04] Speaker 06:
Before you get to express your use, I'm just looking at the statute here.

[00:50:08] Speaker 06:
The statute says an agency only has the authority Congress gives it, right?

[00:50:12] Speaker 06:
We all agree with that.

[00:50:14] Speaker 06:
So in furtherance of this directive, the SEC may, okay, authorize or require self-regulatory organizations

[00:50:24] Speaker 06:
to act jointly, okay.

[00:50:26] Speaker 06:
It says self-regulatory organizations, not non-self-regulatory organizations.

[00:50:31] Speaker 06:
And then it says, with respect to matters as to which they share authority under this chapter, which doesn't apply to non-SROs.

[00:50:42] Speaker 06:
I mean, I don't, the statute looks clear to me.

[00:50:47] Speaker 06:
I don't see where the commission, true, it doesn't say anything about non-SROs,

[00:50:54] Speaker 06:
It seems to say that, not seems, but what it says is the commission has authority over NSROs with respect to matters as to which they share authority under this chapter, including all these things that NSROs have no authority over.

[00:51:17] Speaker 06:
I mean, I don't get where the commission gets authority to include non-NSROs who have no such authority.

[00:51:24] Speaker 06:
In other words, Chevron 1.

[00:51:29] Speaker 04:
I understand, Your Honor.

[00:51:30] Speaker 04:
And I point out that that provision actually doesn't define the matters over which joint action can be required.

[00:51:38] Speaker 04:
What it does is leave those matters to be fleshed out.

[00:51:41] Speaker 06:
It does.

[00:51:41] Speaker 06:
It says, as to which they share authorities, planning.

[00:51:45] Speaker 06:
Anyway, go ahead.

[00:51:46] Speaker 06:
I didn't need to interrupt you.

[00:51:47] Speaker 06:
Go ahead.

[00:51:47] Speaker 04:
But what those matters are, and what the joint action is, are not fleshed out in this provision.

[00:51:54] Speaker 04:
And you can't look at that provision in a vacuum, because here, the aspect of the national market system over which they share authority is the equity data plans, which, as I said, and as the Commission said in this order, were created to further the purposes of 11C.

[00:52:10] Speaker 04:
And 11C not only is a

[00:52:13] Speaker 04:
a grant of broad discretion to the Commission with respect to market data, but it also in its language contemplates the involvement of non-SROs.

[00:52:24] Speaker 04:
So if you look at that provision, it expressly mentions brokers, dealers, and securities information processors.

[00:52:32] Speaker 04:
If you go back to paragraph 3B, it also expressly refers back to paragraph A2, which is the directive to the commission to facilitate the establishment of the national market system.

[00:52:48] Speaker 04:
That, again, is a flexible grant of authority and refers back to Congress' objectives in A1.

[00:52:57] Speaker 04:
Those objectives in A1 also contemplate the involvement of

[00:53:01] Speaker 04:
other market participants in the national market system.

[00:53:05] Speaker 04:
There are other indications in the language of 11A as well that the SROs are not meant to be the sole decision makers in this space.

[00:53:15] Speaker 04:
If you look even at paragraph D3, which the petitioner is going to, this is the market advisory board.

[00:53:22] Speaker 04:
If you look to subparagraph three and that provision, it says the board is to consult with

[00:53:29] Speaker 04:
SROs, yes, but also issuers, investors, brokers, dealers, and securities information processors, and quote, other persons interested or likely to be involved in the establishment operation or regulation of the national market system.

[00:53:50] Speaker 04:
I think that petitioners argument really hinges upon taking a 3D

[00:53:56] Speaker 04:
in a vacuum and by its terms that can't be taken in a vacuum is part of a statutory scheme, which does provide flexibility to the commission, provides the boundaries of that flexibility in order to facilitate the national market system and ensure it develops in accordance with Congress's defined objectives.

[00:54:17] Speaker 04:
So this is precisely like the cases in which this court has said that

[00:54:23] Speaker 04:
the juxtaposition of a provision in a larger statutory scheme that provides flexibility to the agency is not a situation in which espersia can give you a clear indication of congressional intent.

[00:54:39] Speaker 04:
It is at least as likely that Congress meant to leave this decision to the commission.

[00:54:45] Speaker 04:
And that's particularly true because there is a alternative explanation for this language here.

[00:54:52] Speaker 04:
antitrust concerns that were clearly present at the time of enactment would be present with joint action by self-regulatory organizations in this space.

[00:55:03] Speaker 04:
And in that situation, we think it's appropriate for the court to move to Chevron 2 on this question.

[00:55:09] Speaker 04:
And there, again, the context and the history of the statute show that Congress at least contemplated

[00:55:20] Speaker 04:
involvement of non-SROs in the decision-making in the national market system and that it intended to provide the commission with flexibility here.

[00:55:33] Speaker 04:
Nor do we think that this action is fired by rule 608.

[00:55:38] Speaker 04:
The commission did address this both in the proposed order in which it explicitly said that 608 does not fire the involvement of non-SROs

[00:55:48] Speaker 04:
And in the approval order, it recognized that these comments were going to be had been raised again and disagreed with the argument that the inclusion of one group in a statute or a regulation precludes the involvement of others.

[00:56:04] Speaker 04:
And to the extent more is needed, the stay order makes very clear that the commission does not interpret rule 608 as barring its action here either.

[00:56:18] Speaker 04:
Turning briefly to the voting structure, the exchange group voting structure that the petitioners also challenge.

[00:56:27] Speaker 04:
There's nothing in the Act Jointly provision that unambiguously requires majority voting control by individual SROs, which is what they're arguing here.

[00:56:38] Speaker 04:
It's not about control at all.

[00:56:42] Speaker 04:
In fact, we'll successfully recognizes that two or more SROs can act jointly

[00:56:47] Speaker 04:
with respect to an NMS plan.

[00:56:49] Speaker 04:
And there's nothing in the exchange act definition of SROs which guarantees an individual vote on the operating committee of a national market system plan.

[00:57:04] Speaker 04:
Nor do we think that this is an inappropriate or insufficiently explained departure from commission practice.

[00:57:13] Speaker 04:
the commission has treated corporate affiliation differently depending upon the circumstances, but more importantly, it sufficiently explained its decision here, explaining that there's both a legal and a factual distinction here between situations in which SROs have been treated individually.

[00:57:33] Speaker 04:
When SROs or exchanges are operating their individual marketplaces, they have individual regulatory

[00:57:42] Speaker 04:
responsibilities and it's appropriate for the commission to treat them separately.

[00:57:46] Speaker 04:
But that's not true when they're acting jointly pursuant to an MMS plan.

[00:57:52] Speaker 04:
And the commission found that that legal distinction combined with the undisputed fact that the exchanges are acting as a collective organization here in voting as blocks on the operating committee.

[00:58:05] Speaker 04:
of an NMS plan justified treating them as a collective organization for purposes of voting power.

[00:58:12] Speaker 04:
The other thing I would note is the commission did not conceive this interpretation and its order as petitioners argue.

[00:58:23] Speaker 04:
This court's precedent is very clear that it's to look to the totality of an agency explanation and not parse individual sentences.

[00:58:32] Speaker 04:
And the Commission's order here explains that it was making a policy choice to balance the desire for increased non-SRO participation against the regulatory responsibilities of the SROs and ensure that the SROs maintained a majority vote.

[00:58:51] Speaker 04:
The Commission in fact responded to

[00:58:54] Speaker 04:
comments suggesting that greater voting power for non-SROs, including majority voting power for non-SROs, not by saying it lacked authority to make that change, but by saying it thought it was striking the appropriate balance at this time.

[00:59:09] Speaker 04:
And I think the sentence that the petitioners point to is best read as consistent with that explanation.

[00:59:16] Speaker 04:
That the commission said sort of the same thing in a few different ways in a few different places in the order,

[00:59:23] Speaker 04:
making clear that it's making a policy choice and saying that if one of the SROs is to have the ability to assure that the plan meets the requirements of section 11A and rule 608, not that those provisions required only SRO control.

[00:59:45] Speaker 04:
Turning briefly to the independent administrator requirements,

[00:59:50] Speaker 04:
It's both reasonable and reasonably explained here.

[00:59:54] Speaker 04:
The petitioners don't deny the obvious conflict of interest that exists.

[00:59:59] Speaker 04:
If you have an administrator with access to confidential proprietary information, both operating the public data feeds and selling its own proprietary data products, they argue that there wasn't sufficient evidence of harm here, but the

[01:00:19] Speaker 04:
commission is entitled to act prophylactically.

[01:00:22] Speaker 04:
And it did that here based upon concerns that have been expressed by a number of market participants across a broad spectrum of roles in the market, both at the roundtable held in 2018 and in the comments before the commission.

[01:00:38] Speaker 04:
Here, sufficient concerns were expressed to justify the reasonable step of ensuring that the administrator is not

[01:00:48] Speaker 04:
wearing two hats here.

[01:00:50] Speaker 04:
With respect to the consideration of balancing the vermin good that comes from this requirement, the commission did consider that.

[01:01:01] Speaker 04:
It recognized the cost of shifting to an administrator.

[01:01:06] Speaker 04:
It explained why some of those costs may not be as great as were asserted.

[01:01:11] Speaker 04:
And it reasonably concluded that the benefits of eliminating the conflict justified those costs.

[01:01:17] Speaker 04:
The petitioners have not pointed to any information and certainly not any data that the commission failed to consider on this point.

[01:01:25] Speaker 04:
And the commission did expressly ask for comments on the economic consequences of this order.

[01:01:32] Speaker 05:
And yes, we lie on your brief for the rest of any argument.

[01:01:39] Speaker 05:
Yes, your honor.

[01:01:40] Speaker 05:
Thank you.

[01:01:42] Speaker 05:
All right.

[01:01:42] Speaker 05:
Any questions from my colleagues?

[01:01:45] Speaker ?:
No.

[01:01:46] Speaker 05:
All right, thank you.

[01:01:48] Speaker 05:
So council for petitioner.

[01:01:52] Speaker 05:
Give you a few minutes.

[01:01:54] Speaker 01:
Thank you, your honor.

[01:01:55] Speaker 01:
Just very briefly, many of the arguments from opposing council are essentially post-hoc arguments of council as opposed to statements actually found in the agency's order.

[01:02:10] Speaker 01:
Just touching briefly on the first issue, a few points I think merit a response.

[01:02:15] Speaker 01:
Council cited

[01:02:16] Speaker 01:
sections 11A, A2, and 11A, C as alleged support for the Commission's decision to grant authority to non-SROs.

[01:02:28] Speaker 01:
Neither of those provisions even addresses the question of conferring SRO authority on non-SROs.

[01:02:34] Speaker 01:
They certainly aren't in any way inconsistent with Congress' specific determination in 11A, A3B that only SROs

[01:02:42] Speaker 01:
can be given the authority to act jointly given that they are the only entities that have the authority that Congress gave them under the statute.

[01:02:49] Speaker 01:
11AA2 cited by the commission in its order doesn't actually confer any authority on the commission at all.

[01:02:55] Speaker 01:
It's a directive, a command to the commission to exercise other authorities such as 11AA3B to implement a national market system.

[01:03:05] Speaker 01:
It doesn't convey any authority separate and apart from other authorities.

[01:03:08] Speaker 01:
So it does nothing for them.

[01:03:10] Speaker 01:
As I mentioned 11 AC doesn't doesn't confer any authority with respect to the specific issue addressed here and indeed was not even cited by the commission in order council pointed to 11 ad but that supports us because it's true it refers to non sros and and confers upon them a potential role in the SEC discretion of the role that gives them is expressly quote advisory close quote which is.

[01:03:35] Speaker 01:
of course, directly inconsistent with what the commission has done here by conferring actual authority on their representatives.

[01:03:42] Speaker 01:
And finally, the antitrust argument that council made as an attempted explanation of why Congress spoke to SROs in section 11A, A3B.

[01:03:51] Speaker 01:
There's no indication that that was even why Congress acted in this manner.

[01:03:57] Speaker 01:
The commission points only to a stray comment in a committee report from years before the legislation that issued.

[01:04:04] Speaker 01:
But even if that was one of the motivations, it says nothing about, it provides no support for what the commission did here because of course the commission has conferred authority on other participants in the securities markets, including broker dealers who also would have competitive antitrust concerns with being allowed to act jointly.

[01:04:25] Speaker 01:
And so if Congress thought that it was necessary to expressly authorize the SROs to act jointly in order to eliminate antitrust concerns, its failure

[01:04:32] Speaker 01:
to convey that same exemption on the non-SROs simply confirms that the non-SROs are not permissible beneficiaries of this authority.

[01:04:44] Speaker 00:
But doesn't that argument lead to the proposition that non-SROs broker dealers will not go up for election to be on the commission?

[01:04:58] Speaker 00:
Now, if they're going to suffer antitrust liability, they won't participate.

[01:05:04] Speaker 01:
Well, I mean, again, we're not suggesting that this is why Congress imposed this provision, because I mean, the Supreme Court, even absent a provision like this, the Supreme Court had made clear that there's an antitrust exemption for things that the commission can authorize people to do.

[01:05:21] Speaker 01:
So I'm not sure that, but in any event, as I say, even if there were some antitrust concerns, but for

[01:05:28] Speaker 01:
the commission's authorization that wouldn't justify extending the scope of 11A, A3B to entities that Congress didn't include within it.

[01:05:37] Speaker 00:
So- They're using it just as an interpretive tool.

[01:05:41] Speaker 01:
Correct, Your Honor.

[01:05:42] Speaker 01:
Or really responding to their attempt to use it as an interpretive tool to shoehorn non-SROsia.

[01:05:47] Speaker 01:
Got it.

[01:05:47] Speaker 01:
So for all these reasons, we ask that the order be vacated.

[01:05:53] Speaker 05:
Thank you, Council.

[01:05:55] Speaker 05:
I'll take the case under advisement.