[00:00:00] Speaker 00: Case number 21-1167 Edel. [00:00:02] Speaker 00: The NASDAQ stock market LLC Edel petitioners versus Securities and Exchange Commission. [00:00:10] Speaker 00: Mr. Hungar for the petitioners, Ms. [00:00:12] Speaker 00: Hardin for the respondents. [00:00:15] Speaker 01: Mr. Hungar, good morning. [00:00:17] Speaker 05: Good morning, Your Honor, and may it please the Court. [00:00:21] Speaker 05: Congress was very specific in defining the authority granted to the Commission under Section 11A, A3B. [00:00:28] Speaker 05: It's specified who the commission can direct to act, self-regulatory organizations, how it can direct them to act jointly, what they can act jointly about operating the national market system, and why SROs are the congressionally chosen recipients of this responsibility, namely because it involves matters as to which they share authority under the Exchange Act. [00:00:55] Speaker 05: Non-SROs are not mentioned [00:00:57] Speaker 05: because they're not included. [00:00:59] Speaker 05: They don't share authority under the Exchange Act, and so they have no place in this very specific statutory regime for those who do. [00:01:08] Speaker 05: And just to drive home the point, Congress also specified the very different role that it allocated to non-SROs. [00:01:15] Speaker 05: And what is that role? [00:01:17] Speaker 05: Advisory, as Congress said in sections 11A, A3A, and 11A-D. [00:01:24] Speaker 05: Given this carefully calibrated and very specific statutory regime, there's simply no silence or gap for the agency to fill. [00:01:33] Speaker 05: When Congress authorized the commission to direct self-regulatory organizations to act jointly, it meant self-regulatory organizations, not anyone else with whom the commission might prefer to share the quasi-regulatory authority that Congress gave only to the SROs. [00:01:51] Speaker 05: This court has repeatedly rejected [00:01:54] Speaker 05: Similar overreaches by agencies in keeping with the Expressio Unius canon and the principle that when Congress bests an agency with a specific grant of authority. [00:02:04] Speaker 05: The agency can't infer a broader general branch from the absence of an explicit prohibition. [00:02:11] Speaker 05: The same is true here. [00:02:13] Speaker 05: And the order also does violence to the structure and purpose of the act. [00:02:17] Speaker 05: because it grants national market system operating authority to individuals who unlike the SROs have no shared authority under the act and are therefore not subject to the SROs statutory obligations to protect investors and the public interest. [00:02:35] Speaker 05: Nor are they subject to the commission's direct regulatory oversight and control the way the SROs are. [00:02:41] Speaker 05: It begs credulity to suggest [00:02:44] Speaker 05: that Congress intended to allow non-SROs to exercise this authority without having imposed on them the same regulatory obligations and regulatory oversight that applies to the SROs. [00:02:59] Speaker 06: Can I ask you a question regarding, I guess it's section 11A, [00:03:09] Speaker 06: Let me just give the US Code site, because I always mess it up when I try to do it the other way. [00:03:17] Speaker 06: It's 78S subparagraph C regarding amendment by the Commission of Rules of Self-Regulatory Organizations. [00:03:35] Speaker 06: I don't know if you are familiar with that. [00:03:40] Speaker 06: statutory provision or have it handy. [00:03:43] Speaker 06: But it says that the commission may aggregate, add to or delete or amend essentially the rules of an SRO as the commission deems necessary or appropriate to ensure the fair administration of the SRO [00:04:06] Speaker 06: and also to conform its rules to requirements of this chapter, et cetera, et cetera. [00:04:16] Speaker 06: So let's suppose I agree with the, for the sake of this question, with your contention that only an SRO can administer the national market system. [00:04:34] Speaker 06: That might implicate [00:04:36] Speaker 06: part of the challenge order that would permit a non-SRO to administer the CT data plan. [00:04:54] Speaker 06: But with respect to governance, why doesn't this statutory provision that I've mentioned [00:05:04] Speaker 06: give the commission authority to the extent that it deems it appropriate to involve a non-SRO in the governance of this aspect of an SRO's duties. [00:05:27] Speaker 05: A couple of responses, your honor. [00:05:29] Speaker 05: First of all, the commission did not cite section, uh, that's the section 19 of the exchange act 78 S, um, see as authority for what it did here. [00:05:40] Speaker 05: And of course under Chenery, the commission's rule or order can't be defended on the ground. [00:05:44] Speaker 05: It didn't rely on, but, but more fundamentally that rule, that statute would have no application here because we're not talking about SRO rules. [00:05:53] Speaker 05: We're talking about [00:05:54] Speaker 05: uh, joint action by the SROs, which by definition doesn't involve their own rules. [00:05:59] Speaker 05: It involves them coming together. [00:06:01] Speaker 05: That's the point of the plan and the operating committee is that it's separate and distinct from the, from their own rules because it involves joint authority, which unless the commission approves the plan and authorizes them to proceed jointly, they can't do. [00:06:13] Speaker 05: And so, so these are the plan provisions are not individual SRO rules. [00:06:18] Speaker 05: They're separate requirements. [00:06:21] Speaker 05: created by the Commission's authority under Rule 608, I believe, of the Commission's rules. [00:06:31] Speaker 05: And so this provision I don't think would have any application even if the Commission had cited it, which it didn't. [00:06:37] Speaker 05: And then fundamentally, and going back to my primary point, Section 11A, A3B is the only place in the Exchange Act where the Commission is given the authority to direct anyone to act jointly. [00:06:50] Speaker 05: And it's a very specific authority. [00:06:53] Speaker 05: And it's the one that the commission relied on here. [00:06:55] Speaker 05: And of course, it only involves the SROs in the exercise of their shared authority. [00:07:00] Speaker 05: And therefore, it can apply to the non-SROs. [00:07:04] Speaker 06: Thank you. [00:07:06] Speaker 06: I thought that I saw that statute cited and relied on. [00:07:09] Speaker 06: But I take your point. [00:07:13] Speaker 06: Another provision that I wanted to ask you about, which is in, I guess, section 11A, [00:07:21] Speaker 06: It's the provisions regarding the National Market Advisory Board at subsection D. It seems to me that one way of reading this is that if you look at D2, it says that it shall be the responsibility of the advisory board [00:07:46] Speaker 06: to furnish its views on regulatory proposals made by the commission or any SRO concerning the establishment operation and regulation of the markets for securities. [00:08:00] Speaker 06: And then if you go to D3B, it says that the advisory board shall study whether there's the need for the establishment of a new SRO [00:08:15] Speaker 06: to administer the national market system. [00:08:19] Speaker 06: And if so, to recommend how this new SRO will, what relationship it will have to existing SROs. [00:08:31] Speaker 06: It seems to me that those provisions also strengthen your argument that [00:08:39] Speaker 06: the only an SRO can administer these duties. [00:08:45] Speaker 06: But I didn't see that argument in your brief. [00:08:49] Speaker 06: And so I'm trying to understand, perhaps I missed it, whether I'm missing something. [00:08:56] Speaker 05: We agree on it. [00:08:56] Speaker 05: I believe we did argue, maybe we didn't get down into the quite as granular as your question suggests, but we certainly argue in our brief and today that among other provisions, 11A [00:09:08] Speaker 05: Subsection D and the advisory nature of that role assigned to non-SROs confirms that Congress, it's not as if Congress didn't think about what non-SROs should do in connection with the national market system, it did. [00:09:23] Speaker 05: And it thought about them making advisory contributions, including under 11A D3C, [00:09:31] Speaker 05: the advisory board shall consult with self-regulatory organizations. [00:09:35] Speaker 05: So there's an advisory role for non-SROs. [00:09:38] Speaker 05: It's just not exercising authority under the Act rule, which is what the commission has improperly tried to delegate to these individuals who aren't subject to the obligations that the SROs have under the Exchange Act and don't share the authority that the SROs have under the Exchange Act. [00:09:54] Speaker 06: I mean, this provision contemplates [00:10:00] Speaker 06: that if necessary, that a new SRO could be created that could be independent of the existing SROs to perform this function, right? [00:10:13] Speaker 05: I see your point. [00:10:13] Speaker 05: Yes. [00:10:14] Speaker 05: Yes, I agree with you. [00:10:15] Speaker 05: That's a great point. [00:10:18] Speaker 05: And I agree that's still further confirmation of the point that there are many mechanisms. [00:10:24] Speaker 05: Another mechanism available to the commission under section 11A, A3C is [00:10:29] Speaker 05: it specifically encourages the commission to make recommendations to Congress if they think something about the existing statutory regime doesn't work given the way the markets have developed, but they can't just depart from the authorities that Congress gave them without going back to Congress for new authority. [00:10:46] Speaker 01: Mr. Hunger, I have two questions about what the first one about the independent administrator. [00:10:58] Speaker 01: Are there any SROs that don't sell the proprietary data products and are also an affiliated with another SRO that does sell those? [00:11:10] Speaker 01: In other words, could an SRO be the independent administrator? [00:11:14] Speaker 01: I don't think so. [00:11:19] Speaker 05: I'm not entirely sure about this, but I know it has been the case and I believe it is still the case that there is at least one, if not more, [00:11:28] Speaker 05: SROs exchanges that do not sell proprietary data, but I can't be entirely certain about that. [00:11:35] Speaker 05: And so if that's the case, which I believe has been the case, and I think probably still is the case, then such an SRO could qualify as the independent administrator. [00:11:47] Speaker 05: The problem is there are only two administrators right now that have experience with this, and both of them are affiliated with [00:11:54] Speaker 05: exchanges that do sell proprietary data. [00:11:57] Speaker 05: So the exchanges that have the, I'm sorry, the administrators that have all the experience and expertise are concluded by the commission's rule, which is what results in the imposition of the very substantial costs that the independent administrator requirement will impose on the markets. [00:12:12] Speaker 01: Right. [00:12:13] Speaker 01: And then the other question I have is the difference between 11A and the regulation in the language. [00:12:24] Speaker 01: Let me see here. [00:12:25] Speaker 01: It's A3B. [00:12:32] Speaker 01: It's the language we're talking about. [00:12:34] Speaker 01: By rule or order to authorize or require self-regulatory organizations. [00:12:41] Speaker 01: Then you get to the reg and it drops required. [00:12:48] Speaker 01: And it simply says in three, and I'm looking at 608A3, self-regulatory [00:12:56] Speaker 01: author organizations are authorized to act jointly and they flop off required. [00:13:03] Speaker 01: Should we read anything into that? [00:13:08] Speaker 01: Just that discrepancy. [00:13:10] Speaker 05: I don't think so. [00:13:11] Speaker 05: You're right. [00:13:12] Speaker 05: I mean, obviously the statute allows the commission to authorize or require or both here. [00:13:17] Speaker 05: They chose to authorize. [00:13:19] Speaker 05: I mean, I think as a, as a, as a, [00:13:21] Speaker 05: as a practical matter, if you're a self regulatory organization subject to the commission's oversight and control and the, and the commission has developed a national market system and authorize you to play your role in participating in it. [00:13:34] Speaker 05: It's, it's, um, it's something of a, of a directive, even if phrased as an authorization. [00:13:39] Speaker 05: Um, but I don't know that it makes any difference as a statutory matter. [00:13:42] Speaker 05: I mean, the point from our perspective, the point about rule six, so eight that's most [00:13:47] Speaker 05: important is the fact that it simply confirms and drives home the fact that only the SROs are authorized to act jointly. [00:13:55] Speaker 05: The Rule 608 is filled with references to the SROs and the plan sponsors, which is simply SROs under another name, and the roles that they play exclusively with no reference whatsoever to any role being played or allowed to be played by the non-SROs in the governance of the plans. [00:14:15] Speaker 05: I see that my science. [00:14:18] Speaker 01: You don't see that that lack of the phrase or required to in any way would allow the SROs to say, well, we are authorized, but we're not going to do it. [00:14:32] Speaker 01: In other words, there's a difference between being authorized and being required to. [00:14:38] Speaker 05: I mean, so your honor, with respect to the plan, so the commission ordered [00:14:43] Speaker 05: the SROs to develop the CT plan at issue here and to propose it to the Commission. [00:14:49] Speaker 05: And then the CT plan, if it is not set aside, which it should be, has directives and mandates and requirements for how the exchanges are to operate. [00:15:01] Speaker 05: So I think it's a practical matter. [00:15:03] Speaker 05: And given the other obligations of [00:15:05] Speaker 05: Reg NMS and obligations of the SROs to provide data to the SIPs and operate the SIPs and provide that information to the market. [00:15:14] Speaker 05: I think it's a practical matter, although framed as an authorization, it really works as a requirement. [00:15:21] Speaker 06: Right. [00:15:22] Speaker 06: Okay. [00:15:23] Speaker 06: I have just a couple of follow-up questions. [00:15:26] Speaker 06: So under the statutory scheme, [00:15:31] Speaker 06: The security's information processor is defined in the statute, but it is not defined to be an SRO. [00:15:42] Speaker 06: Am I correct about that? [00:15:47] Speaker 05: Yes, the security's information processors, there are two of them, and they're not SROs, but they are affiliates of the NIC and the NASDAQ, respectively. [00:16:01] Speaker 06: They're not bound by the national market system plan or anti-fog provisions, et cetera, just like broker dealers or other non-SROs aren't bound by those. [00:16:18] Speaker 06: Am I correct? [00:16:19] Speaker 05: Well, I don't know. [00:16:22] Speaker 05: I mean, there are provisions, confidentiality provisions, conflict of interest provisions, a variety of provisions in the plan. [00:16:30] Speaker 05: as affiliates of SROs, the obligations under the exchange act apply to SROs and their members and affiliates. [00:16:40] Speaker 05: So I believe, and certainly there are extensive obligations in the plans and in Reg NMS regarding how SIPs, Six Securities Information Processors are to behave. [00:16:54] Speaker 05: And so they are subject to all those requirements. [00:16:57] Speaker 05: I can't cite you chapter and verse for those requirements, but they are since are clearly regulated entities expressively covered by numerous provisions of the regulations and the plans. [00:17:10] Speaker 05: Thank you. [00:17:11] Speaker 01: All right. [00:17:12] Speaker 01: Mr. Hunger will give you a couple of minutes in reply. [00:17:15] Speaker 01: Uh, Ms. [00:17:15] Speaker 01: Harden, good morning. [00:17:19] Speaker 02: Good morning, your honor. [00:17:20] Speaker 02: And please the court on Tracy Harden on behalf of the securities and exchange commission. [00:17:25] Speaker 02: I think as became clear in the arguments this morning, you know, the flaw and petitioners challenge here is that they're misreading this particular subsection to perform a purpose that it's just, that's just not the work it's doing. [00:17:43] Speaker 02: They're improperly reading that section in isolation. [00:17:48] Speaker 02: And it becomes clear when you look at the entirety of section 11A, [00:17:55] Speaker 02: the work A3B is doing here is as Mr. Hunger said, making clear the ability for SROs to act jointly when they otherwise couldn't because- You understand that as a statutorily created agency, your agency has only those authorities given by Congress. [00:18:18] Speaker 04: What's your best statutory language that says the commission can do what they're doing here with respect to the [00:18:25] Speaker 04: acting jointly requirement. [00:18:29] Speaker 02: Your honor, I think the operative provision is 11 AC, which is the provision which grants the commission authority and requires the commission to develop a regulatory system for the dissemination of market data. [00:18:43] Speaker 02: And as the commission explained, you know, in the proposing order and the governance order and in this order, the equity data plans we're talking about here, [00:18:53] Speaker 02: were created to fulfill the obligations under 11 Caffe C. And that provision expressly contemplates the involvement of other market participants in the dissemination of market data by funneling them through the regulatory system Congress directed the commission to set up. [00:19:16] Speaker 02: And actually the Senate report makes clear that [00:19:22] Speaker 02: these provisions were intended to bring within the commission statutory jurisdiction, any entity involved in the collection, processing or publishing of market data. [00:19:35] Speaker 02: And so I think, you know, and even A3B, which the petitioners are relying on here necessarily requires a resort to other statutory predictions, right? [00:19:49] Speaker 02: Of course it has to further [00:19:52] Speaker 02: The purposes of the Directive in 11A, it expressly refers you back to there, which talks about the Commission using its authority under the entirety of the Exchange Act. [00:20:02] Speaker 02: There would be no reason to say that if Congress intended A3B to be the only authority. [00:20:10] Speaker 04: What do you see as the Office of the Acting Jointly Language? [00:20:15] Speaker 04: What's it in there for? [00:20:17] Speaker 04: if petitioners are not correct that it was needed in order to allow them to act jointly and that without it, you don't have any authority to deal with acting jointly. [00:20:29] Speaker 04: That is to say where it doesn't apply. [00:20:32] Speaker 02: Your honor, the work it's doing is to allay antitrust concerns that otherwise would exist if SROs were to act jointly. [00:20:43] Speaker 02: And remember, right, the provision is not just talking about administration of the national market system as a whole. [00:20:51] Speaker 02: It talks about regulation, administration or operation of any subsystem or facility thereof. [00:20:59] Speaker 02: The system Congress was setting up in 1975 was a system in which individual competing enterprises [00:21:08] Speaker 02: were to have to come together, act cooperatively and sell a product on a mutually agreed upon price that creates obvious antitrust concerns. [00:21:18] Speaker 02: And in fact, the legislative history indicates Congress was worried about that. [00:21:24] Speaker 02: And the antitrust implications of exchange actions were in fact the subject of conversation in the courts at the time after the Gordon and Silver cases in the Supreme Court. [00:21:35] Speaker 02: And so the work that is doing is clarifying the availability of that tool in the development of the market system, but it doesn't specify, right, the particular subsystem or facility of the national market system that joint action is with respect to. [00:21:54] Speaker 02: For that, you necessarily have to look to provisions in the regulatory scheme, which govern the substance of that. [00:22:02] Speaker 04: Absent that language. [00:22:05] Speaker 04: And I think I hear you just lurking in the background of what you're saying. [00:22:08] Speaker 04: Would the SROs have a fear or danger of being in violation of antitrust provisions if they acted jointly? [00:22:18] Speaker 02: Absolutely, your honor. [00:22:19] Speaker 02: And certainly at the time the act was passed in 1975, that was very much an open question. [00:22:30] Speaker 02: some developments in antitrust law that may allow them to have sort of a stronger argument for an implied waiver of antitrust under the Exchange Act, but that wasn't the case in 1975, and certainly there's specific discussion in the House hearings leading up to this bill about the need for this kind of provision. [00:22:49] Speaker 04: Is there any problem with respect to the non-SROs in that area today? [00:22:55] Speaker 04: If they're acting jointly with the SROs, is there any danger of [00:23:01] Speaker 04: accusation of antitrust violation on the part of those entities. [00:23:06] Speaker 02: I think there are factual and legal distinctions between sort of the participation of non-SROs. [00:23:13] Speaker 02: And again, you know, we're also, we're talking about representatives of varying categories of non-SROs. [00:23:23] Speaker 02: Unlike the exchanges, right? [00:23:25] Speaker 02: You're not talking about every broker dealer being a member of this operating committee. [00:23:29] Speaker 02: right, you're talking about two representing different categories. [00:23:33] Speaker 02: Whereas the exchanges in order for a consolidated data feed to exist, you necessarily need all of the exchanges. [00:23:43] Speaker 02: I do want to sort of address kind of one argument in this respect that the petitioners raised in their brief, which is if Congress was worried about antitrust and contemplated other market participants, why wouldn't they be listed in A3B? [00:23:59] Speaker 02: But I think the answer to that question is very similar to what we've just been talking about, Your Honor, which is there was less legal or factual clarity that that was a risk with respect to non-SROs. [00:24:15] Speaker 02: And there wasn't sort of a particular highlighted concern that was already sort of being discussed in the legislative history and in case law at the time. [00:24:26] Speaker 02: So I don't think that precludes our reading. [00:24:29] Speaker 02: And I do think once you sort of recognize that A3B is serving that role and that in itself is indeterminate about the substance of the market facility we're talking about, you necessarily have to look to surrounding provisions, including 11CAP AC, which is specific to the market activity we're talking about here, right? [00:24:54] Speaker 02: Congress very specifically directed the commission [00:24:58] Speaker 02: to create a regulatory system to assure the prompt, accurate, reliable, and fair collection, processing, and dissemination of market data. [00:25:08] Speaker 02: As the commission said in this order, given changes in the market, it is no longer clear that these equity data plans, which were created to serve those purposes, are effectively doing so. [00:25:22] Speaker 02: And so that is why the commission stepped in here and made what is a measure of change. [00:25:28] Speaker 06: And I wanna- So why then did Congress in setting forth the duties of the National Market Advisory Board speak only in terms of administration by SROs? [00:25:46] Speaker 06: in proposed plans by SROs. [00:25:51] Speaker 06: And if there is a need to kind of have a new administrator, then it should be an SRO. [00:26:02] Speaker 02: So I think a couple of things, Your Honor. [00:26:05] Speaker 02: I do want to point out just as an aside that that provision actually [00:26:09] Speaker 02: You know, Mr. Hungar said that SROs are consulted by that board, but that provision also lists non-SROs being consulted by that board as entities that are interested in or likely to participate in the establishment, operation, or regulation of the national market system. [00:26:29] Speaker 02: It lists broker dealers, it lists SIPs, and it lists issuers and investors. [00:26:34] Speaker 02: So again, this is specific. [00:26:36] Speaker 06: That doesn't help you because it says interested in. [00:26:40] Speaker 06: So all of those non-SRO entities can be interested in, but it doesn't mean that Congress contemplated that they would take a role in establishing or administering. [00:26:54] Speaker 02: A couple of things, Your Honor. [00:26:55] Speaker 02: First, I would say we're not arguing that the statute is clear at Chevron 1. [00:27:01] Speaker 02: What we're arguing is that there is ambiguity as to whether Congress [00:27:07] Speaker 02: would have. [00:27:09] Speaker 06: But here's why I'm concerned that it's not ambiguous and it's not ambiguous against you because if you look at the National Market Advisory Board language at D3B, it says that the advisory board shall study the possible need for modifications of the scheme of self-regulation [00:27:35] Speaker 06: provided for in this chapter so as to adapt it to a national market system, including the need for the establishment of a new self-regulatory organization to administer the national market system. [00:27:52] Speaker 06: That's very explicit language. [00:27:55] Speaker 02: So, Your Honor, I think what that shows, right, is in the 75 amendments, Congress very specifically did not make a decision [00:28:05] Speaker 02: as to the precise manner in which the national market system was going to be structured, right? [00:28:10] Speaker 02: This is something new in which it's asking existing industry players to come together and engage in this joint enterprise. [00:28:20] Speaker 02: Congress considered a number of different options, right? [00:28:24] Speaker 02: Which is it being administered by some combination of the existing exchanges, [00:28:31] Speaker 02: broker dealers, other market participants, creating a new entity to administer it, which would be this new self-regulatory organization that the advisory board looks to. [00:28:45] Speaker 02: But ultimately Congress said, look, commission, here are your very specific goals. [00:28:51] Speaker 02: Here's the things your regulatory system has to advance within that sort of ballpark [00:28:59] Speaker 02: You can't outstrip stray outside the ballpark, but within that ballpark we're going to leave the operative decisions to you. [00:29:07] Speaker 02: One option on the table is creating this new kind of entity, right? [00:29:11] Speaker 02: This SRO. [00:29:13] Speaker 02: But the very fact that this is set up for an advisory board to look at and consider doesn't show that, you know, Congress wasn't [00:29:22] Speaker 06: saying this is the right way to go and ultimately the advice why would congress have that is the only option for the advisory board to consider unless congress believed that it should be an sro to administer this system because the other options are already embodied elsewhere in the statute your honor which is the other where where are they embodied in the statute because you mentioned um subsection c but i think that the [00:29:52] Speaker 06: problem that you run into with it is that it mentions non-SROs, but it also governs purchases and sales and other things beyond the dissemination and publication of market data. [00:30:12] Speaker 06: In provision C1E, for instance, it says brokers and dealers have to [00:30:22] Speaker 06: essentially input the data pursuant to the rules of the national market system because obviously the system can't work unless all of the people kind of using it in bidding and making offers input the data. [00:30:44] Speaker 06: So I don't really see how [00:30:47] Speaker 06: this particular subsection contemplates that Congress, shows that Congress contemplated a non-SRO to administer the system. [00:31:03] Speaker 02: So I think there's two things, right? [00:31:05] Speaker 02: One, I would point out that A3B itself is not just about administration. [00:31:10] Speaker 02: Again, it encompasses operation of facilities and subsystems. [00:31:14] Speaker 02: And so for petitioners to be correct about their reading, Congress, in the context of being concerned about market center domination of market data, solved that problem by codifying SRO control down to the operation of facilities and subsystems to the exclusion of all others. [00:31:33] Speaker 02: I think that's pretty unlikely reading of that language. [00:31:36] Speaker 02: But to turn to your question about paragraph C, [00:31:41] Speaker 02: Right, what this provision does is it funnels all of these entities listed sort of at the beginning of C1 through all of the rules listed that it directs the commission to promulgate, right? [00:31:57] Speaker 02: And one set of those rules is to assure the prompt, accurate, reliable and fair collection, processing, distribution and publication of information with respect to market securities. [00:32:10] Speaker 02: And again, reading this in juxtaposed against A3B, which again has a clear alternative role to play here, I just don't think you get to clearly precluding other market participants. [00:32:27] Speaker 02: And the commission's read of this is perfectly reasonable when you look to not only the language, which indicates some contemplation, right? [00:32:38] Speaker 02: that other market participants would be involved, not only in C, but in Congress's findings and objectives for A1. [00:32:46] Speaker 02: But also, if you look to the legislative history and the purpose of this statute, right, the Senate report explicitly says, we intend to bring all entities involved in the dissemination of market data into the commission's regulatory jurisdiction. [00:33:04] Speaker 02: And we want to create a system that ensures the fair dissemination of this data, which in a consolidated form is essentially a monopoly. [00:33:14] Speaker 02: And we need that to work for other market participants. [00:33:20] Speaker 02: And we are concerned that that data is currently being dominated by market centers. [00:33:28] Speaker 02: Given that purpose and history, the petitioners would have you believe [00:33:32] Speaker 02: that Congress codified for all time their exclusive control over all facilities and mechanisms of the national market system. [00:33:42] Speaker 02: And that's at the very least not clear, given the indications and the text. [00:33:47] Speaker 06: Well, Congress contemplated that a new SRO that could be independent of any of those SROs could take over the responsibility, right? [00:33:59] Speaker 02: Congress contemplated, as I said, a number of options. [00:34:03] Speaker 02: It could have been the exclusive SRO control they're talking about. [00:34:06] Speaker 02: It could have been joint activity between the SROs and non-SROs as the commission encompassed in this order, or it could have been a new body altogether, a new SRO. [00:34:19] Speaker 02: But what Congress did was say markets are dynamic, markets are ever changing. [00:34:26] Speaker 02: We are going to give the commission the tools [00:34:29] Speaker 02: to watch how the market develops and nudge it in the direction to develop, to hit our findings and objectives, right? [00:34:36] Speaker 02: This isn't a situation for which the commission is charging in guns blazing, sort of upending the system. [00:34:44] Speaker 02: This is a measured change and incremental change from what was established in 2005 when these market participants were given an advisory role on the operating committee of [00:34:56] Speaker 02: of the NMS plan, right? [00:34:59] Speaker 02: The move here is from an advisory role to a minority voting power. [00:35:06] Speaker 02: And that is justified by the sort of fundamental changes that have occurred in the market, most specifically, right? [00:35:13] Speaker 02: The shift of these exchanges that currently dominate the national market system plan from nonprofit mutual organizations to for-profit companies that sell a competing product [00:35:26] Speaker 02: and the consolidation of a number of the exchanges into these large exchange groups that then can dominate voting control on the operating committee. [00:35:36] Speaker 02: And what the commission reasonably determined is that the combination of those factors and sort of the conflict of interest that exists because they sell these competing products necessitated at least a little more weight behind the vote of the advisory committee members. [00:35:52] Speaker 02: And that's really all we're talking about here. [00:35:54] Speaker 02: It's a very reasonable, [00:35:56] Speaker 02: appropriate reaction within the bounds of the statute and the system Congress created? [00:36:03] Speaker 06: I mean, I could agree with all of the kind of factual basis. [00:36:11] Speaker 06: And I don't even think that there's much of a dispute about the factual basis that some of these other data systems are faster than the systems disseminating the core data and the conflict of interest, et cetera, et cetera. [00:36:27] Speaker 06: it may agree as a policy matter that what the commission is doing kind of makes perfect sense and is reasonable in that regard. [00:36:39] Speaker 06: That's separate from whether the statute permits it. [00:36:47] Speaker 06: I mean, you're essentially saying that even though Congress explicitly created an advisory role, [00:36:54] Speaker 06: We can read between the lines and say that Congress authorized us to make these parties who had an advisory role actually have a governing role. [00:37:12] Speaker 06: And the best language you have for that is kind of the absence of exclusive [00:37:23] Speaker 06: in subsection A in this language in subsection C that encompasses kind of all parties kind of involved in the system. [00:37:42] Speaker 02: So your honor, I do want to make clear one distinction between the advisory roles that are talked about in the statute and what we're discussing here with respect to the operating committee on an NMS plan. [00:37:56] Speaker 02: The advisory role in this statute is about the market structure writ large, and it's advice to the commission about market structure writ large. [00:38:06] Speaker 02: That's true both in D and in the other sub-fair got the petitioner's point to, which is A3, [00:38:13] Speaker 02: A, I believe, which talks about advisory committees under the Federal Advisory Committee Act, right? [00:38:19] Speaker 02: We're talking about advice to the commission about larger market structure issues. [00:38:23] Speaker 02: What we're talking about with respect to the operating committee of the National Market System Plan is a body that's making the day-to-day decisions about the operation of the consolidated data feed, right? [00:38:37] Speaker 02: Those provisions don't talk about [00:38:41] Speaker 02: who is making decisions about the day-to-day operation of the feed. [00:38:45] Speaker 02: And that's what the operating committee is doing here, right? [00:38:48] Speaker 02: It's essentially sort of like a board of directors. [00:38:51] Speaker 06: And you can- I understand that. [00:38:54] Speaker 06: I'm just trying to make sure I'm, let me make sure I understand your current argument. [00:38:58] Speaker 06: You're saying to me that the national markets advisory board [00:39:10] Speaker 06: Um, is not authorized to speak to this issue. [00:39:16] Speaker 06: Is that your argument? [00:39:18] Speaker 02: I'm saying that that wasn't the purpose of that board, right? [00:39:21] Speaker 02: The purpose of that. [00:39:23] Speaker 06: Can that board, if it wants to make a recommendation to create a new SRO to perform the functions of the CT board? [00:39:32] Speaker 02: So that board doesn't exist anymore. [00:39:36] Speaker 02: Right, it is a board that was created by the 75 act to make recommendations. [00:39:41] Speaker 02: It made recommendations and it has long since disbanded. [00:39:48] Speaker 02: So there are equity markets advisory committees that the commission has created under the federal advisory committee act. [00:39:58] Speaker 02: And that advisory committee actually explicitly recommended and supported [00:40:04] Speaker 02: governance reforms almost exactly like the ones the commission made in this order. [00:40:10] Speaker 02: And so to the extent there's a question about what those advisory committees believe is important, the one that currently exists recommended these changes. [00:40:22] Speaker 06: But doesn't this, unless I'm misreading this, which I may be, but doesn't section 11A have [00:40:35] Speaker 06: provision about creating other advisory boards other than this particular National Market Advisory Board. [00:40:44] Speaker 02: That's what I'm talking about, Your Honor. [00:40:45] Speaker 02: If you look at paragraph A3A, just above sort of the subparagraph we've been talking about here, it allows the Commission to create advisory committees under the Federal Advisory Committee Act. [00:41:03] Speaker 02: And there is a equity market structure advisory committee that the commission convened in 2015 to look at equity market structure issues, precisely because of the sort of shifts in the market that prompted this order. [00:41:20] Speaker 02: And that advisory committee recommended many of these very same changes that the commission made in this order. [00:41:30] Speaker 02: And it did not believe there was an authority problem with making those changes. [00:41:38] Speaker 02: So I'm not, and I think, you know, just sort of step back a minute and look at the larger statutory argument, right? [00:41:47] Speaker 02: That the fact that Congress kind of set a floor and made clear that all market participants should be able to provide advice about how to engage in this joint enterprise [00:42:00] Speaker 02: doesn't mean that Congress has precluded more roles. [00:42:03] Speaker 02: I think that's evidenced by the fact that as Mr. Hunger said, the statute even contemplates a consulting role for SROs with respect to the advisory board. [00:42:15] Speaker 02: So just because Congress envisioned everybody involved in this having a say doesn't mean it precluded formalizing that say by votes on the operating committee of a national market system plan [00:42:28] Speaker 02: which by the way, isn't even mentioned in the statute, right? [00:42:32] Speaker 02: These plans grew up as a way for market participants to jointly comply with regulatory obligations based on other provisions in the act, right? [00:42:45] Speaker 02: The CQ plan, one of the first one of these data plans arose as a industry way of jointly complying with obligations under a [00:42:57] Speaker 02: market data rule that the commission formulated under paragraph C here. [00:43:04] Speaker 06: I have a question regarding the independent administrator. [00:43:08] Speaker 06: Let's suppose it is an entity that is not an SRO. [00:43:18] Speaker 06: What rules and statutory provisions are going to apply to it? [00:43:27] Speaker 02: So I think first to sort of go back and clarify what the plan requires, which is that the administrator not be affiliated with an entity that sells proprietary data products. [00:43:45] Speaker 02: And so to sort of circle back to Judge Henderson's question from earlier, [00:43:50] Speaker 02: There are SROs that don't sell proprietary data products right now. [00:43:56] Speaker 02: There are some independent exchanges. [00:43:58] Speaker 02: Of course, FINRA is an SRO and a participant in the plan. [00:44:04] Speaker 02: But to get to your honor's point in terms of what binds the administrator, as is currently true, the provisions of the plan govern the administrator's actions. [00:44:15] Speaker 02: Those include conflicts and confidentiality provisions, but they also [00:44:19] Speaker 02: includes sort of the policies and procedures of the plan. [00:44:22] Speaker 02: And there's a few other sort of fail saves there, right? [00:44:27] Speaker 02: Which is rule 608 and rule 608D allows the commission to hear appeals from the action or failure to act of anyone in connection with a national market system plan. [00:44:40] Speaker 02: And so anyone can bring a claim to the commission under that provision. [00:44:46] Speaker 02: And there's an adjudication where the commission looks at [00:44:49] Speaker 02: whether the action or failure to act was consistent with the terms of the plan and whether the terms of the plan are being applied consistent with public interest protection of investors, fair and orderly markets, sort of all the regular standards. [00:45:03] Speaker 02: So that process exists. [00:45:06] Speaker 02: And then of course, there's sort of the fundamental point that the SROs here maintain majority voting control, a super majority voting control on the operating committee. [00:45:18] Speaker 02: control or preclude any action that by either the administrator or non-SRO members of the operating committee that they don't believe is consistent with the plan or other regulatory obligations. [00:45:32] Speaker 02: And finally, of course, plan action runs through the commission for approval and it examines for consistency with the act, the plan and other regulations. [00:45:44] Speaker 01: I know my time is up. [00:45:47] Speaker 01: Have you had your questions answered? [00:45:51] Speaker 06: I don't have any further questions, thank you. [00:45:52] Speaker 01: All right, Judge Santel. [00:45:53] Speaker 01: All right, I do have one for you, Ms. [00:45:54] Speaker 01: Harden, and that is, let's assume that we think the addition of the non-SROs to this CT plan and operating committee is ultraviolet rays. [00:46:09] Speaker 01: Your argument about severability is pretty sparse, and I don't wanna [00:46:21] Speaker 01: lengthen the argument anymore than we've already done. [00:46:24] Speaker 01: But you do speak about the second requirement we're supposed to look at. [00:46:32] Speaker 01: That is that the agency you say it can function sensibly. [00:46:36] Speaker 01: And that's more or less a parroting of it. [00:46:39] Speaker 01: But we've all listened to your expansive description of how the SEC wanted to open this whole thing up. [00:46:50] Speaker 01: and including the non-SROs, which was very important. [00:46:55] Speaker 01: So without those, I don't see that the first requirement that is did the agency intend to pass the legislation even without the non-SROs. [00:47:13] Speaker 01: I don't see how you can argue that it did in light of what you've already argued about [00:47:18] Speaker 01: it's intent to expand participation. [00:47:23] Speaker 01: But if you wanna take a minute or two to respond. [00:47:27] Speaker 02: Yes, Your Honor, and I will try to be brief, right? [00:47:30] Speaker 02: We have talked at length about the non-SRO requirement this morning because that's been sort of the heart of the petitioner challenge. [00:47:38] Speaker 02: The order itself and the government's order which preceded this also speak at length about the benefits of the exchange group [00:47:46] Speaker 02: voting allocation and the independent administrator. [00:47:50] Speaker 02: The logic of both of those provisions, you know, applies sort of irrespective of whether there are non-SRO members on the operating committee. [00:48:01] Speaker 02: I will say with respect to the sort of augmented majority voting structure that is set up under the plan, you know, that may be a situation in which [00:48:12] Speaker 02: a remand would be appropriate. [00:48:14] Speaker 02: We would argue a remand without vacator if the non-SRO participants are not on the operating committee just because of the way sort of the wording of the plan sort of envisions there being non-SRO members. [00:48:30] Speaker 02: But I also want to point out that there's a number of parts of this plan that aren't challenged at all. [00:48:38] Speaker 02: Another sort of innovation in this plan is the combination of the existing three equity data plans into one. [00:48:46] Speaker 02: None of that is implicated by the logic. [00:48:48] Speaker 02: And so we would argue that there is separability language in the order. [00:48:53] Speaker 02: There are several ability language in the plan. [00:48:55] Speaker 02: The logic of these three things are separate. [00:48:58] Speaker 02: Beyond that, the logic of the other provisions of the plan are not implicated here. [00:49:04] Speaker 02: And so we think, you know, this may be the rare case in which remand without vacancy is appropriate if what the court is doing is vindicating only a subset of petitioners' challenges. [00:49:20] Speaker 01: Thank you. [00:49:21] Speaker 01: Mr. Hunger, why don't you take two minutes? [00:49:25] Speaker 05: Thank you, Your Honor. [00:49:26] Speaker 05: Four brief points. [00:49:27] Speaker 05: Taking severability first. [00:49:29] Speaker 05: In addition to the fact that this non-SRO [00:49:33] Speaker 05: voting mandate was a core goal of the commission and therefore, if it is invalidated as it should be, vacator is required. [00:49:42] Speaker 05: It's simply not the case that the regime can function sensibly if that's invalidated because it becomes internally inconsistent. [00:49:50] Speaker 05: There are two different voting requirements for the operating committee's decisions, a majority vote requirement and a two-thirds vote requirement. [00:49:57] Speaker 05: And there'd be no way to know which one governs once you throw the non-SROs out, the operating committee couldn't even do anything that the plan would have no leadership because it would be incapable of deciding even how to make decisions. [00:50:10] Speaker 05: So for that reason as well, vacating would be required even if only the non-SRO voting requirement is invalidated. [00:50:17] Speaker 05: And for all the reasons stated in our brief, the vote dilution provision is equally invalid. [00:50:22] Speaker 05: Second Council for the SEC argues that the operative provision here is section 11 AC the Commission did not even rely on 11 AC as authority for the acting jointly mandate it relied on 11 a three B. And that's because 11 a three B is the only statutory provision that talks about acting jointly 11 AC doesn't say anything about conferring authority on anyone. [00:50:44] Speaker 05: to exercise regulatory authority, let alone on non-SRI. [00:50:49] Speaker 05: It talks about imposing mandates on the regulated community by the SEC through rules. [00:50:55] Speaker 05: So yes, [00:50:56] Speaker 05: Non-SROs are obligated to comply with regulations promulgated by the Commission to the extent they apply to non-SROs. [00:51:05] Speaker 05: That hardly suggests that Congress intended to give the Commission the authority to delegate SRO authority to non-SROs where nowhere in the Exchange Act are non-SROs entitled to exercise such authority. [00:51:17] Speaker 05: The antitrust argument advanced by Council is completely baseless. [00:51:21] Speaker 05: The only reference to antitrust concerns in the committee reports of the 1975 legislation have to do with the antitrust concerns about a single SRO's rules that could have antitrust implications for people operating in a given exchange. [00:51:37] Speaker 05: It has nothing to do with acting jointly. [00:51:38] Speaker 05: There's not a shred of evidence in the legislative history that Congress had any concern about antitrust when it was acting jointly. [00:51:44] Speaker 04: Suppose we're looking at the language of the statute without looking at the legislative history. [00:51:52] Speaker 04: susceptible of the interpretation by giving them permission to act jointly, this is a protection against possible antitrust liability. [00:52:01] Speaker 04: Remember, some of us know a little bit of legislative history very much, but why isn't that a reasonable possibility to the statute? [00:52:12] Speaker 05: It's a possibility. [00:52:14] Speaker 05: We have no way of knowing. [00:52:15] Speaker 05: They certainly didn't say it, but it's a possibility that that was one consideration. [00:52:19] Speaker 05: But it's also simply a logical inference that when Congress has granted authorities to individual SROs, but it hasn't authorized them to act jointly, they don't have the authority to come together and act jointly, regardless of the antitrust laws. [00:52:36] Speaker 05: And so Congress wanted to provide a mechanism for the commission to let them exercise their regulatory authority jointly. [00:52:42] Speaker 05: And it created this provision, but there's no reason to infer [00:52:45] Speaker 05: from that, that it intended Congress also to be able to do that for non-SROs who have no regulatory authority. [00:52:51] Speaker 06: And again, this, the non-SROs, that the, if it's true, Don't you say that a single SRO can propose a plan? [00:53:02] Speaker 06: I'm sorry, your honor? [00:53:04] Speaker 06: Where, if at all, does it say that a single SRO acting solely can [00:53:15] Speaker 05: Well, by definition, plans as as devised by the concept of national market system plans is a creation of the Commission and its rules. [00:53:23] Speaker 05: And by definition, a plan is national SROs acting jointly. [00:53:29] Speaker 05: If you look at rule 608A, that's what a plan is. [00:53:32] Speaker 05: And in fact, so so it's it's [00:53:38] Speaker 05: By definition, if you have a plan, it's because the commission has authorized SROs to act jointly through a plan. [00:53:45] Speaker 05: But, but the statute is section six. [00:53:49] Speaker 05: That's 19 F and in section 19. [00:53:53] Speaker 05: B authorizes SROs individually to adopt rules and imposes on them various regulatory obligations and grants them various regulatory authorities. [00:54:02] Speaker 05: So they have the authority to, for instance, adopt rules concerning the dissemination of market information and coordinating the activities of persons involved in that activity individually. [00:54:14] Speaker 05: pertaining to their own market information. [00:54:16] Speaker 05: The point of section 11A, A3B is to give the commission the authority to permit them to act jointly, which the commission did through creating the rule 608, which allows national market system plans. [00:54:30] Speaker 06: So why isn't one way of reading this statute that to be, well, the independent administrator [00:54:41] Speaker 06: in the CT order has to be an SRO. [00:54:44] Speaker 06: It can either be an existing one or a newly created one. [00:54:52] Speaker 06: And so we limit the order in that fashion, but we don't have to set it aside. [00:55:02] Speaker 06: And to the extent that the commission amended the governance, [00:55:10] Speaker 06: by adding non-SROs to the operating committee, we can interpret the statute to maybe speak clearly as to whether ultimately an SRO has to control that function [00:55:39] Speaker 06: But so long as this plan gives SROs essentially the ability to control by having a majority of the votes, it does so and doesn't run afoul then of the statutory scheme. [00:56:04] Speaker 05: I think there are two questions there, your honor, with respect to the administrator point. [00:56:07] Speaker 05: I think your correct observation that section 11 a D three D, if I'm getting my letters correctly. [00:56:21] Speaker 05: Provide further evidence. [00:56:23] Speaker 05: of the point that Congress intended the SROs and only the SROs to be involved in administering the national market system and therefore the national market system plans. [00:56:32] Speaker 05: I think that's an excellent point, a valid point and a further reason why the commission's independent administrator requirement is invalid. [00:56:40] Speaker 05: With respect to the second part of your question about non-SRO voting, that the statute requires SROs to be able to act jointly under the current regime [00:56:50] Speaker 05: The commission, by giving voting power and influence to non-SROs, who Congress clearly did not intend or authorize to exercise quasi-regulatory authority, has completely upset the regime that only SROs should be exercising this authority. [00:57:07] Speaker 05: If non-SROs have voting power and significant voting power, given that the SROs don't agree on many issues, that means that the non-SROs have the authority [00:57:19] Speaker 05: to essentially influence the decision-making, the regulatory decision-making by the SROs. [00:57:24] Speaker 05: And the whole point of including them in the commission's view is that the commission thinks they will have the ability to change the way decisions are made by the committee. [00:57:33] Speaker 05: It's like, you know, it's like the Supreme Court's decision in Aetna against Lavoie. [00:57:37] Speaker 05: Even one member of a three-judge panel, let alone a larger panel, has an influence on the decision-making process and in that sense is exercising authority [00:57:46] Speaker 05: And if that person has no right to exercise authority, the whole system needs to be set aside. [00:57:51] Speaker 05: The decisions cannot stand. [00:57:53] Speaker 06: Well, on this or any other case, I'm with on the panel of three and the other two judges disagree with me and vote differently. [00:58:08] Speaker 06: I may have had an opportunity to influence the decision making and I would have had some input. [00:58:15] Speaker 06: But ultimately, those two judges are going to exercise the authority of the court. [00:58:22] Speaker 06: You know, I can write an assent, a dissent, as much as I might like that dissent to have some authority, it will have none. [00:58:30] Speaker 05: That's true, your honor, but in some cases, it might go the other way and you would be in the two to one majority. [00:58:35] Speaker 05: And in that circumstance, your role would very much have been important, indeed, dispositive in the decision. [00:58:42] Speaker 05: And the same is true here. [00:58:43] Speaker 05: Indeed, that's the intent of the regime. [00:58:44] Speaker 05: The commission expressly says, yes, the point of this regime is that the [00:58:48] Speaker 05: non-SROs should be able to join together with a minority of the SROs to make decisions and impose their will on the majority of the SROs. [00:58:57] Speaker 05: So the Commission is intending and envisioning that the non-SROs will play a dispositive role in decision-making that is clearly the exercise of regulatory authority in a way that Congress did not envision. [00:59:09] Speaker 05: The Commission's reliance on 11A-C simply proves the point. [00:59:14] Speaker 05: even though the commission in the order didn't rely on it and therefore can't rely on it as a basis for trying to save its order from invalidation. [00:59:22] Speaker 05: 11 AC makes clear that the non SROs are the targets of regulatory authority, not the exercisers of it, and it would be extraordinary to think that an agency [00:59:33] Speaker 05: can take regulatory authority that's been granted to one set of entities and give it to someone else when Congress determined that the people that the agency wants to give that authority to were not to be the people exercising regulatory authority, but the people subject to regulatory authority. [00:59:49] Speaker 05: It's incongruous. [00:59:52] Speaker 05: The commission doesn't identify a single case in the history of administrative law where an agency has acted in that way without congressional authorization, and this should not be the first such case. [01:00:03] Speaker 01: All right. [01:00:05] Speaker 01: Any more questions? [01:00:07] Speaker 01: No. [01:00:08] Speaker 01: All right. [01:00:09] Speaker 01: Thank you. [01:00:10] Speaker 01: Thank you, then. [01:00:10] Speaker 01: And Madam Clerk, if you would call the next case.