[00:00:00] Speaker 00:
Case number 24-1350.

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SIBO Global Markets Inc.

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et al.

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petitioner for the Securities and Exchange Commission.

[00:00:09] Speaker 00:
Mr. Tehrani for the petitioners, Mr. Ebro for the respondents.

[00:00:14] Speaker 02:
Good morning, Council.

[00:00:15] Speaker 02:
Mr. Tehrani, please proceed when you're ready.

[00:00:18] Speaker 04:
Good morning, Your Honors, and may it please the Court.

[00:00:21] Speaker 04:
For three reasons, this Court should vacate the Commission's two-thirds reduction in the cap on exchanges' access fees.

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First, the Commission lacks the statutory authority to impose an across-the-board fee cap on all exchanges.

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Second, the Commission failed to acknowledge, let alone explain, its departure from its policy announced in the fee pilot rule that further study was necessary before embarking on any reform to the exchange's fee and rebate model because it was unclear to the Commission at that time whether there was even a problem

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warranting regulation.

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And third, the Commission failed to justify slashing the long-standing three-tenths of a cent PCAP all the way down to one-tenth of a cent, which was a far larger reduction than necessary to achieve the Commission's supposed objective of accommodating the new sub-penny pricing increment.

[00:01:20] Speaker 04:
Turning to the threshold issue of statutory authority,

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The Commission has the authority to regulate exchanges' access fees on an exchange-by-exchange or case-by-case basis under Sections 19B of the Exchange Act and 19C of the Exchange Act.

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But what it does not have the authority to do is impose an across-the-board fee cap on all exchanges invoking its general rulemaking power under Section 11A, C1 of the Exchange Act.

[00:01:54] Speaker 04:
That's clear from the text and structure of the statute.

[00:01:58] Speaker 01:
So one of your clients told the SEC during proceedings that they should proportionately update the fee cap for at least 0.005 tick stocks to 0.0015, not the current one at all.

[00:02:20] Speaker 01:
So they should change it.

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That was NASDAQ.

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and that they should collect information and then do further analysis and then consider fee cap adjustments again later and reference the very authority invoked by the commission here.

[00:02:38] Speaker 01:
So how can one of your clients tell the commission they should adjust it, not to the exact number chosen here, but not that far off, 0015.

[00:02:48] Speaker 01:
And then they should study it after they'd make that first change.

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They should study it and adjust and make future changes.

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And yet you're here arguing that there's absolutely no authority to make any global changes at all.

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NASDAQ acknowledged that if the commission were to adopt a new sub-penny pricing increment, that there would need to be an adjustment to... Right, so yes, across the board.

[00:03:11] Speaker 01:
Not exchange by exchange by exchange by exchange, across the board.

[00:03:14] Speaker 01:
But you're arguing that statutorily there's no power

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across the board change.

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That's what I'm confused about.

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NASDAQ raised, and I'm quoting, significant concerns regarding the commission's authority to engage in rate making.

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That said, JA 570.

[00:03:30] Speaker 01:
The commission squarely addressed... Deny the description of NASDAQ's position to the commission that I just recited to you and quoted to you?

[00:03:39] Speaker 04:
Your Honor, with respect, I deny that NASDAQ conceded that the Commission has the statutory authority to proceed on and across the board.

[00:03:49] Speaker 01:
You propose that the Commission do this?

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right up front when it was changing the tick size and no one here is challenging the change to the tick size.

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So it proposed that this be done and gave a precise number and then proposed going forward further study of how that worked and possible further adjustments and it made all those proposals even though it thought it would be unlawful for the commission to do what it was proposing.

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ASDAC was accounting for the possibility that the commission might move forward with adopting the sub-penny pricing increment, and that the commission might conclude that it had the authority to proceed on an across-the-board basis.

[00:04:25] Speaker 01:
On these submissions, does it say, we don't think you can change it at all, even if you change the tick size?

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But if we're wrong, here's what we think you should do.

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Is that language in that comment?

[00:04:35] Speaker 04:
Your Honor, I don't think it's as explicit as that.

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But I would make three points in response.

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Is it there at all?

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The point that NASDAQ conveyed is that it had concerns.

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And let me quote.

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I think we have to admit that NASDAQ's position kept evolving and changing throughout this.

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But that it was quite firm that if you're changing the tick size, which no one here at least disputes their authority to do,

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You got to do this.

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And you should study it and make other changes going forward, which is hard.

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It's hard to reconcile that with a you have no authority because you wouldn't propose the second half of that.

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And by the way, let's study it and think about making further changes going forward unrelated to a change in tick size.

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Your honor, the commission squarely addressed NASDAQ statutory objection.

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It is not arguing waiver or forfeiture in this court and has thus waived any waiver or forfeiture position.

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And there are multiple petitioners here.

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The points that you are making apply to NASDAQ, not to CBO.

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For all of those reasons.

[00:05:44] Speaker 01:
It sounds like your clients have contradictory positions in on this authority.

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Because what I'm having trouble understanding is if there's authority

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to make an across-the-board adjustment in response to the tick size change, then what in the statute says that you couldn't have made this change, this number, rather than the one that was proposed here?

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Your Honor, there is no statutory authority

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to make an across the board change in response to the tick size amendment.

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NASDAQ's point was that if the commission moves forward with a reduction in the tick size and concludes that it has statutory authority to proceed on an across the board basis, then at a minimum, it does need to reduce the access fee cap so that the access fee does not exceed one half of

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the new sub-penny minimum pricing increment.

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Again, the commission does not raise a waiver argument in this court.

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I just want to pick up on something you just said.

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Do you agree that if you were right, that 19C means you have to proceed on an exchange-by-exchange basis instead of across the board, that would also mean the tick size amendment wasn't proper?

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The tick size amendment is not statutorily improper.

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We're not arguing that.

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But why not?

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19C is not limited to fees.

[00:07:14] Speaker 05:
It's any change to an SRO rule, which would include tick sizes, wouldn't it?

[00:07:20] Speaker 04:
The Exchange Act grants the Commission specific authority to regulate exchange fees.

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in Section 19B and 19C.

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That's why the general rulemaking power in Section 11A, C1 does not extend to access fees.

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But because there are not other provisions of the Exchange Act that are specific to regulating tick sizes,

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which are not a fee.

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There aren't specific provisions of the Exchange Act that override the Commission's general rulemaking power under Section 11 AC1 with respect to tick sizes.

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The problem with the Commission's interpretation here is that it ignores that

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In multiple provisions of the Exchange Act, Section 6B4 and Section 19B3A, the Congress expressly granted the Commission the authority to regulate exchange fees.

[00:08:22] Speaker 05:
Well, that was my question.

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You're saying that 19B and C are limited to exchange fees, and I'm wondering where that limitation comes from.

[00:08:29] Speaker 05:
What the statute says is they have authority to regulate

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rules any SRO exchange rule and is there some understanding not stated in the text that that's just about fees.

[00:08:41] Speaker 04:
It's not limited to fees your honor but when we're addressing the ability of the commission to set a tick size on an across the board basis there are no substantive provisions of the exchange act that speaks specifically to the issue of tick sizes.

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kind of your negative implication argument.

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You're saying that there's other provisions that specifically refer to fees.

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So the negative pregnant of that is you can't do fees across the board under this one.

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There's no other provision that refers to tick size.

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And so there's not the negative implication that you can't do tick size across the board.

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That's the upshot of your.

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of your view.

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That's exactly right, your honor.

[00:09:24] Speaker 02:
But then, as the upshot of that, then, you don't dispute that where there's a move in the tick size that also requires, in order to have a sensible scheme, a move in the fee also.

[00:09:37] Speaker 04:
Yes, to ensure that the fee is not more than one half of the price increment.

[00:09:43] Speaker 02:
But you're saying if you're doing across the board with the tick size, let's just, if we take the implications of your argument,

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It would be that there's no bar to doing an across the board move as the tick size.

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And then if you do that, you have to have an across the board move as to the fee also.

[00:09:58] Speaker 02:
It's just that you can't actually do it on an across the board basis.

[00:10:01] Speaker 02:
You have to do it on an exchange by exchange basis, even though you definitely have to do it across the board.

[00:10:05] Speaker 02:
And then we can talk about the amount.

[00:10:07] Speaker 04:
The commission would need to coordinate its regulatory activity.

[00:10:12] Speaker 04:
The commission sets and reviews

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exchange fees, including access fees under Section 19B, dozens of times a year.

[00:10:21] Speaker 04:
That is how these fees are set in rules that are proposed to the Commission and reviewed or approved by the Commission.

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Even though there is a fee cap in place, the exchanges change their fees and have different fee schedules

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that they submit to the commission literally dozens of times a year.

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In the words of the commission on page nine of its brief, the exchange's fee schedules are constantly changing.

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So the commission absolutely could coordinate its regulatory efforts so that on the one hand, it adopts an across the board modification to the minimum pricing increment.

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under Section 11 AC1.

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And on the other hand, modifies exchanges access fees either across the board for each exchange under Section 19 C or on a fee by fee basis under Section 19 B. That is the bread and butter of what the commission does in reviewing proposed exchange.

[00:11:21] Speaker 01:
How long would it take to change the access fees across the board?

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for all exchanges.

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Billion exchange by exchange by exchange by exchange.

[00:11:35] Speaker 04:
I don't think it would be a difficult task at all because they difficult.

[00:11:39] Speaker 01:
I said how long would it take?

[00:11:41] Speaker 04:
Well, it would depend on the length of the notice and comment process that the commission ordered, but the commission can proceed on an exchange specific basis under section 19 C. How does that work?

[00:11:54] Speaker 01:
So they have to do a notice and comment rulemaking for each specific each individual exchange.

[00:11:59] Speaker 04:
Correct.

[00:12:00] Speaker 01:
And so then if they change the tick size, do they let that take effect while they're going through this individualized process, or do they then have to delay the tick size change for a year, two years, while it goes through this exchange by exchange by exchange notice and comment rulemaking process?

[00:12:19] Speaker 04:
I think they could pursue parallel tracks, Your Honor, and they could include a provision in the tick size amendment that provides that it doesn't.

[00:12:27] Speaker 01:
There's like 60 something exchanges, right?

[00:12:30] Speaker 04:
Or 16.

[00:12:30] Speaker 04:
16, sorry.

[00:12:31] Speaker 01:
So they're going to have essentially 17 notice and comment rule makings going on simultaneously, is your vision, all accomplishing the exact same thing they accomplished in the single and notice and comment rulemaking, just doing it piecemeal.

[00:12:44] Speaker 04:
Well, there would certainly be economies of scale if the commission were to proceed

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with respect to all exchanges under section.

[00:12:50] Speaker 01:
You can do it all at once, I just don't understand why Congress, you can do it across the board, you just have to do it in pieces.

[00:12:56] Speaker 01:
But there's nothing that says they couldn't do exchange by exchange by exchange and across the board change.

[00:13:02] Speaker 01:
And they can do it all at once.

[00:13:06] Speaker 01:
What in the statutory text tells us that we care whether it's in a single notice and comment?

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or 17 notice, simultaneous notice and comment proceedings.

[00:13:15] Speaker 01:
So it seems like that's really the only difference that you're talking about here.

[00:13:19] Speaker 01:
Or are you assuming that they will actually make different numbers for different exchanges?

[00:13:25] Speaker 04:
They may, different exchanges have different business models.

[00:13:28] Speaker 01:
I know, but they want to do it across the board.

[00:13:31] Speaker 01:
So then we're going to have litigation on these 16 cases about whether they were right to do it in their particular, on their particular record.

[00:13:38] Speaker 04:
Your honor, this court confronted a very similar issue in NASDAQ versus SEC, this court's 2020 decision, where the court held that the commission could not invoke Section 19D of the Exchange Act, which governs limitations on access to exchange services to regulate exchange fees, because fees are not referred to in Section 19B, even though they are

[00:14:04] Speaker 04:
referred to in multiple other provisions of the Exchange Act, and because stretching the language of Section 19D's limitation on access provision to reach exchange fees would undermine the carefully calibrated statutory structure that Congress put in place here to provide for either fee.

[00:14:26] Speaker 02:
On the question of the possibility of different fees by different exchange, I take it you're

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Your preference, though, would be to have one fee across all of them.

[00:14:35] Speaker 02:
It's just that it shouldn't go below half of the tick side.

[00:14:40] Speaker 04:
No, Your Honor.

[00:14:41] Speaker 04:
We're not suggesting that the access fee charged by each exchange needs to be the same.

[00:14:49] Speaker 04:
This is an inherently individualized inquiry, even today with the 30 mills

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fee cap in place exchanges don't all charge a 30 mils access fee they provide volume discounts to some customers for example they have different fee schedules so there would be variation which is precisely why congress provided for individualized review under section 19b and 19c but even if there is statutory authority here the

[00:15:22] Speaker 04:
Commission acted arbitrarily, capriciously in violation of its obligations under Fox Television and this court's precedent by silently departing from the policy it announced in the fee pilot.

[00:15:37] Speaker 05:
Counsel, I want to get to the Fox issue, but I have one more question about the statutory authority.

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And I just want to make sure, do you agree that when we look at section 19,

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19B is essentially reactive.

[00:15:51] Speaker 05:
It governs what the SEC does when exchanges propose a rule change.

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And 19C is speaking to the SEC's affirmative authority.

[00:16:00] Speaker 05:
It's a general matter.

[00:16:01] Speaker 05:
That's correct, right?

[00:16:02] Speaker 04:
That's exactly right.

[00:16:03] Speaker 05:
OK.

[00:16:03] Speaker 05:
And then, so my question is, it would seem to me that if you had a negative inference,

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about section 11, it would have to arise from the proactive authority, because you're suggesting a limit on the SEC's proactive authority.

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And so my question is, what's your answer to the savings clause, which appears only in 19C and says, nothing herein shall limit the SEC's otherwise available rulemaking authority?

[00:16:28] Speaker 05:
Just seems like a potentially difficult point, and I want to give you a chance

[00:16:31] Speaker 04:
A couple of responses, Your Honor.

[00:16:33] Speaker 04:
First, the Savings Clause doesn't detract from the indicia of interpretive meaning that the other provisions of the Exchange Act that we've been discussing here this morning, Section 19B, which refers to exchange fees, Section 6B4, which refers to exchange fees, those other provisions aren't affected by the Savings Clause.

[00:16:55] Speaker 04:
The Savings Clause is analogous to a Savings Clause in a preemption

[00:17:01] Speaker 04:
provision or in the preemption setting, which makes clear that the statute by its terms doesn't expressly preempt state law.

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But that does not override the ordinary workings of conflict preemption principles because Congress would not want states to enact measures that conflict with congressional directives.

[00:17:21] Speaker 04:
And the same is true

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The savings clause doesn't override the well-settled canon of statutory construction that a specific provision controls over the general.

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And that's because courts need to make sense of the statute as a whole.

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And if the commission were able to invoke its general rulemaking power in the face of these specific grants of authority, it would create conflicts.

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It would lead to superfluity.

[00:17:50] Speaker 04:
With respect to the specific grants of authority, Congress would not want its statute to be interpreted in that way.

[00:17:57] Speaker 04:
It would want to ensure that it is construed in a comprehensive manner that gives effect to all relevant provisions.

[00:18:05] Speaker 04:
Turning to the commission's unacknowledged and unexplained change in position.

[00:18:11] Speaker 04:
In 2018, the commission sought to embark on a fee pilot study

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because it could not determine whether there were adverse consequences from the exchange's fee and rebate model that would warrant regulation.

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In the words of the commission at page 5292 of the fee pilot rule, quote, further study in this area is warranted before permanently adopting any changes through rulemaking.

[00:18:41] Speaker 04:
Six years later,

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at JA 138 in the access fee rule, the commission declared the commission disagrees with commenters suggestions that further study be conducted before adopting the amendment.

[00:18:56] Speaker 04:
So the commission here after this court held that it lacked the authority to proceed with the fee pilot, proceeded to

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promulgate the same reduction in the access fee cap that it sought to study in 2018, but failed to acknowledge its prior uncertainty on that issue and failed to explain what had changed.

[00:19:21] Speaker 04:
Why was it that in 2018, the commission issued a 100 page rule

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explaining why it did not know the consequences of an access fee cap reduction for transaction costs, for order flow between exchanges and off-exchange venues, for potential broker-dealer conflicts of interest.

[00:19:43] Speaker 04:
And then, after this court disapproved the fee pilot, the commission plows ahead with the same measure

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but does so without acknowledging the fee pilot.

[00:19:57] Speaker 01:
What's your best authority that FOX, FOX's requirement that you acknowledge a change in policy applies when an agency said 2018

[00:20:14] Speaker 01:
We're hearing from some people that there's a problem with this.

[00:20:17] Speaker 01:
You're in different views from others.

[00:20:18] Speaker 01:
We don't yet know.

[00:20:19] Speaker 01:
We need information to make a decision about whether a regulatory change is needed.

[00:20:27] Speaker 01:
They try one approach to getting that information.

[00:20:29] Speaker 01:
They're told you can't do it through this pilot program.

[00:20:33] Speaker 01:
And then in the ensuing years between, we're only talking about a short period of time.

[00:20:37] Speaker 01:
You said six years here.

[00:20:39] Speaker 01:
They go and get other studies, economic studies they cite that were not cited in the fee pilot rule, additional studies and experience, and a decision is made to change tick size.

[00:20:53] Speaker 01:
And so this has just been one sort of long process of regulatory review that has now culminated in the rule before us.

[00:21:02] Speaker 01:
It was just in 2018, they said, we need more information.

[00:21:05] Speaker 01:
And they tried one way to get information, and now they're trying another.

[00:21:08] Speaker 01:
So what is your best case that their statements in 2018 that we need to get more information before we can make a call on this are the types of policy positions that

[00:21:22] Speaker 01:
that agencies have to acknowledge a change from when they adopt a different policy.

[00:21:32] Speaker 04:
Your Honor, Fox itself is our best authority because this change in position falls within the heartland of Fox.

[00:21:39] Speaker 04:
In 2018, there were commenters who urged the commission to move forward with permanent regulation at that point.

[00:21:46] Speaker 04:
And the commission said, no, we don't know whether there's a problem here.

[00:21:50] Speaker 01:
We didn't say, no, we're not going to change policy.

[00:21:53] Speaker 01:
It said, wait, we can't do that without getting more information.

[00:21:58] Speaker 01:
Now, had they said exactly what you just said, no, we are not making that policy change.

[00:22:04] Speaker 01:
We're sticking with this access fee for these reasons.

[00:22:09] Speaker 01:
and then they switched now, that would definitely be a change.

[00:22:12] Speaker 01:
But they didn't.

[00:22:14] Speaker 01:
What their no was was a hang on, we're hearing from different parties here and we need more information and you've just had a six year long effort by the agency to get the information and then mixing in a tick size change that meant, well, we've got to make some change.

[00:22:34] Speaker 01:
And so it doesn't feel like there was any sort of locked in policy determination.

[00:22:38] Speaker 01:
It was just so we need to get information.

[00:22:41] Speaker 01:
And they still agreed that they needed to get more information.

[00:22:43] Speaker 01:
They didn't act without anything.

[00:22:45] Speaker 01:
They took another few years before they acted.

[00:22:48] Speaker 04:
Your honor, the commission declined to move forward with a permanent reduction in 2018.

[00:22:56] Speaker 01:
Because it didn't yet have enough information.

[00:22:59] Speaker 01:
And then two things happened.

[00:23:01] Speaker 01:
It went and got more information.

[00:23:03] Speaker 01:
And two, it made a tick size change that required movement.

[00:23:08] Speaker 01:
As you agree and your clients agree and so that doesn't they didn't make a locked-in policy determination in 2018 they said we can't do this without more information and they got more information.

[00:23:21] Speaker 04:
If I may take those two points separately first with respect to the additional study I acknowledge the commission did more work between 2018 and 2024 there is additional material in the 2024

[00:23:34] Speaker 04:
rulemaking record that was not before the commission in 2018.

[00:23:37] Speaker 04:
But what FOX requires, what the APA requires is that the commission first display awareness that it is changing position.

[00:23:45] Speaker 01:
Sorry, I think we're crawling past each other.

[00:23:47] Speaker 01:
Because what I'm saying is what position changes are covered by FOX?

[00:23:54] Speaker 01:
Now, FOX talks about a policy that was adopted there.

[00:23:58] Speaker 01:
No policy was adopted in 2018.

[00:24:01] Speaker 01:
All they said was made a decision that before we can make a policy decision, we need information.

[00:24:07] Speaker 01:
We don't know without information.

[00:24:09] Speaker 01:
Are you saying that every time an agency says, we need to gather more information?

[00:24:17] Speaker 01:
And then it gets some more information.

[00:24:19] Speaker 01:
And we can't decide without that information.

[00:24:22] Speaker 01:
And then later it gets more information.

[00:24:24] Speaker 01:
It has to acknowledge that before it said we couldn't make this decision without getting more information.

[00:24:30] Speaker 04:
Yes, Your Honor.

[00:24:31] Speaker 01:
When the Commission spends... They just agreed they got more information.

[00:24:34] Speaker 04:
When the Commission spends a hundred pages of the Federal Register in 2018 explaining why regulation is not appropriate now because we can't answer these fundamental questions and we need more information.

[00:24:47] Speaker 04:
And when the commission turns around six years later and concludes that it now has the information, what it needs to do is, number one, acknowledge that six years earlier it didn't have the information, and then explain what has changed.

[00:25:02] Speaker 01:
What is the best case that says, hey, we need information, and then we go get information, and then we don't act until we get new information, is a policy change as opposed to simply sort of

[00:25:17] Speaker 01:
how the world works.

[00:25:19] Speaker 04:
Your honor.

[00:25:21] Speaker 01:
Fox is talking about policy changes in which reliance interests can be made.

[00:25:25] Speaker 01:
But all it said was we need more information.

[00:25:28] Speaker 01:
Do you have a case that's not a policy decision?

[00:25:31] Speaker 01:
Your honor.

[00:25:32] Speaker 01:
A judgment that you have to make informed decisions.

[00:25:36] Speaker 04:
I would respectfully disagree with the position that the fee pilot was not a policy position.

[00:25:42] Speaker 04:
Commenters urged the commission in 2018 to move forward with permanent regulation.

[00:25:47] Speaker 01:
Did other commenters urge them not to?

[00:25:51] Speaker 04:
Yes.

[00:25:52] Speaker 04:
Okay.

[00:25:52] Speaker 04:
And the commission decided that its policy was to conduct the fee pilot and engage in additional fact-gathering before making a decision about whether there is a problem here even worthy of regulation.

[00:26:07] Speaker 04:
And that was the fault that this court identified when it vacated the fee pilot.

[00:26:12] Speaker 02:
That the commission- Yes, this question was supposed, and we put aside the tick size.

[00:26:18] Speaker 02:
change, which seems to me to be a pretty significant development.

[00:26:21] Speaker 02:
But just putting that to aside for a second, suppose that nobody challenged the pilot program and the pilot program operated as envisioned.

[00:26:31] Speaker 02:
And then based on the information that was gotten in the pilot program, the commission adopts a permanent change in the access.

[00:26:39] Speaker 02:
At that point, does FOX require that as a preamble statement to the

[00:26:45] Speaker 02:
change in the access fee that the agency says, we know that in the pilot program, we thought we needed to get more information.

[00:26:55] Speaker 02:
We've now gotten that information, and that's why we feel comfortable as a result of the pilot program.

[00:27:00] Speaker 02:
And that's why we now feel comfortable instituting a change in the access fee.

[00:27:04] Speaker 02:
Yes, that is reasoned decision.

[00:27:07] Speaker 02:
Isn't it just obvious?

[00:27:09] Speaker 02:
I mean, I'm not sure what the point is of acknowledging something

[00:27:14] Speaker 02:
that just seems like that was the design all along.

[00:27:17] Speaker 02:
I mean, of course it could do it.

[00:27:19] Speaker 02:
It's not harmful to do it.

[00:27:21] Speaker 02:
But I'm not sure I understand what's particularly meaningful about doing this, about doing it.

[00:27:27] Speaker 04:
Because the regulated community and courts need to know why the commission is comfortable reaching a decision today.

[00:27:34] Speaker 02:
And you have, there's 150 pages of explanation about why the commission is reaching the conclusion that it is.

[00:27:43] Speaker 04:
but the commission didn't explain what is different, what had changed, what is available to it today that was not available to it in 2018.

[00:27:51] Speaker 04:
Why was it that in 2018?

[00:27:52] Speaker 01:
That's on the face of the record.

[00:27:53] Speaker 01:
You admitted that the new studies are there and the tick size changes there.

[00:27:58] Speaker 04:
With respect to the tick size, let me address.

[00:28:01] Speaker 01:
I'm saying that, I mean, it's like right there on the face.

[00:28:03] Speaker 01:
I'm worried about your, that your position might mean every time an agency issues an NPRM,

[00:28:09] Speaker 01:
When it then makes its final rule, as part of its final rule, it has to say, back in our notice of proposed rulemaking, we solicited people's views on this issue so that we could make a more informed decision.

[00:28:22] Speaker 01:
We are now acknowledged that we had that prior position.

[00:28:26] Speaker 01:
And we are now saying, we have enough information.

[00:28:28] Speaker 01:
Thank you very much.

[00:28:29] Speaker 01:
And now we're going to make a permanent decision.

[00:28:30] Speaker 01:
You're saying Fox requires that?

[00:28:33] Speaker 04:
I'm saying that Fox requires reason

[00:28:35] Speaker 01:
No, that's not, there's nothing on, is there anything unreasoned about doing an NPRM, getting the information, doing notice and comment, doing a final rule that's fully justified in the record without, without including a line that says, by the way, we acknowledge that at the time of our NPRM, we didn't yet have the information we wanted to make a decision.

[00:28:59] Speaker 01:
the NPRM is not a policy, but what reason decision-making even in that setting would require is- How was the statement here that we need more information, a policy in a way that, because they did keep getting the information, but how is that a policy in a way that an NPR, lots of NPRMs will say, we solicit the industry's views, we solicit the public's views on X or Y question as we go through this process.

[00:29:27] Speaker 01:
We understand there's differing views.

[00:29:29] Speaker 01:
How is it different?

[00:29:30] Speaker 04:
The fee pilot was final agency action that sought to deliver a exogenous shock to the securities market so that the commission could gather data that it lacked in 2018.

[00:29:43] Speaker 01:
And what we are asking the commission to do... Is it the purpose of an NPRM to gather information that the agency lacks to make a final agency decision?

[00:29:53] Speaker 01:
It is, Your Honor, and I would... I'm just worried, like, there's a lot of NPRMs and then final rules out in this world where the final rule doesn't make the sort of confession of lack of sufficient information that you seem to say Fox requires.

[00:30:08] Speaker 04:
In a reasoned final rule in that context, Your Honor, the agency would say, here's the data we gathered.

[00:30:15] Speaker 04:
This is why it enables us to reach a final decision about this question.

[00:30:20] Speaker 01:
Isn't a final decision in the pilot rule other than

[00:30:23] Speaker 01:
We've decided to do a pilot study.

[00:30:25] Speaker 04:
There was a final decision.

[00:30:27] Speaker 01:
To do a pilot study.

[00:30:28] Speaker 01:
To get information we don't have.

[00:30:30] Speaker 04:
To determine whether there was a problem worthy of regulation.

[00:30:35] Speaker 04:
Which means that when the Commission, six years later, determines that there is supposedly a problem here, that reducing the access fee cap will... He means supposedly.

[00:30:46] Speaker 01:
I thought people broadly agreed they had to reduce it, at least because of the tick size.

[00:30:51] Speaker 04:
Yes, Your Honor.

[00:30:52] Speaker 01:
Including your clients or most of your clients?

[00:30:55] Speaker 04:
We agree that to a common... It's not supposed to change.

[00:30:59] Speaker 04:
Your Honor, the exchanges don't agree with the commission's assessment of the supposedly adverse consequences of the exchanges fee and rebate model to be sure if the commission is going to move forward with a reduction in the

[00:31:13] Speaker 04:
tick size increment, then there does need to be a reduction in the fee cap so that the fee cap does not exceed half of the minimum pricing increment, but with respect to the tick size reduction.

[00:31:28] Speaker 02:
So yeah, I want you to get a tick size reduction and just a gateway to that.

[00:31:31] Speaker 02:
Can I just ask you, suppose that at the beginning of the rule, the agency had said in 2018, we proposed a pilot program and the DC circuit and its infinite wisdom vacated the

[00:31:43] Speaker 02:
authority to undertake the pilot program.

[00:31:46] Speaker 02:
For the following reasons, we now institute a change in the access fee.

[00:31:51] Speaker 02:
Reason number one, we have to make a change in the access fee because the tick size is changing.

[00:31:55] Speaker 02:
And then for the reasons to be explained in the following dozens of pages, we arrive at the following figures for the access fee that results from the need to do it by virtue of changing the tick size.

[00:32:06] Speaker 02:
Would that have been enough for cost purposes?

[00:32:10] Speaker 04:
I think that's close.

[00:32:11] Speaker 04:
I think the commission would also need to say what is new in this record that we didn't have in 2018 that allows us when they say the following reasons.

[00:32:22] Speaker 02:
The reasons that are set already set out in the world include.

[00:32:25] Speaker 02:
information that's come to light.

[00:32:27] Speaker 02:
I don't think you disagree with that, that it includes information that was not in the record for 2018 and anybody who reads that will reach that result.

[00:32:37] Speaker 02:
So it sounds to me like that kind of statement at the beginning of the rule would have been enough to address the Fox concern.

[00:32:45] Speaker 04:
That would be an acknowledgement of the commission's prior position.

[00:32:50] Speaker 04:
I would

[00:32:51] Speaker 04:
suggests that the commission also would need to specifically address what is this new evidence and why did it enable the commission to reach a determination about these issues that it wanted to study that it could not reach back in 2018.

[00:33:08] Speaker 04:
Why is this new study

[00:33:11] Speaker 04:
sufficient for the commission to determine that reducing the access fee cap will reduce transaction costs when, in 2018, it looked at this issue and could not make a determination?

[00:33:22] Speaker 02:
Suppose that then we come to the tick size question.

[00:33:25] Speaker 02:
So everybody agrees that something new happened in between 2018 and this rule, which is that there was a decision made to change the tick size.

[00:33:34] Speaker 02:
Because that wasn't part of the pilot.

[00:33:36] Speaker 02:
So now that the commission's made the decision to change the tick size, which nobody challenges,

[00:33:42] Speaker 02:
then there has to be a change in the access fee.

[00:33:44] Speaker 02:
So then we're just talking about the degree of the change.

[00:33:48] Speaker 02:
So that seems like a pretty significant difference from a pilot program to decide a possible change in an access fee to a certain need to change the access fee because an unchallenged decision has been made to move the tick size.

[00:34:05] Speaker 04:
Commission is trying to reimagine and reconceptualize the access fee rule when it suggests that all that is going on here is a reduction in the fee cap to accommodate the new sub-penny pricing increment.

[00:34:18] Speaker 04:
To be sure, with a half-penny pricing increment, the fee cap needed to be reduced to 25 mils so that it was not more than half of the sub-penny pricing increment.

[00:34:32] Speaker 04:
But the commission reduced the access

[00:34:35] Speaker 04:
fee cap all the way down to 10 mils.

[00:34:38] Speaker 02:
So if they had just reduced it to 25 mils and didn't say anything about the pilot program, you would have been fine with that.

[00:34:44] Speaker 02:
There's no Fox issue.

[00:34:46] Speaker 04:
If the commission had said we are reducing to 25 mils to accommodate the new sub-penny pricing increment, that was the end of the story, then yes, there would be no Fox issue.

[00:34:57] Speaker 04:
The problem here is that the commission explains it is reducing the fee cap for two reasons.

[00:35:02] Speaker 04:
At JA99, the commission says, quote, to accommodate the proposed smaller minimum pricing increments,

[00:35:09] Speaker 04:
under proposed Rule 612, as well as to address the distortions that have developed under the access fee caps, the commission proposed to reduce Rule 610C's 30 mil cap.

[00:35:23] Speaker 04:
So there are two policy objectives here.

[00:35:26] Speaker 04:
One is to accommodate the new sub-prenty pricing increment.

[00:35:30] Speaker 04:
The other is to address supposed distortions to the market from the current exchange fee and rebate model.

[00:35:37] Speaker 04:
Those are the same alleged distortions that the commission could not determine in 2018.

[00:35:43] Speaker 02:
It just strikes me as quite different to say on one hand, without a compelled need to change the access fee, we want to study whether a change to the access fee is warranted.

[00:35:54] Speaker 02:
And if so, how much that's 2018.

[00:35:57] Speaker 02:
And then later to say, well, we have to change the access fee.

[00:36:01] Speaker 02:
Everybody knows that it's got to go down to at least 25 bills.

[00:36:05] Speaker 02:
And at that point,

[00:36:06] Speaker 02:
we should go ahead and just figure out what the best access fee is, because we don't have a choice about whether we're going to change it.

[00:36:12] Speaker 02:
That strikes me as quite different.

[00:36:14] Speaker 02:
And then to acknowledge, just to have what seems to me to be a fairly boilerplate acknowledgment at the outset that we, in a different context when there wasn't a need to change the fee altogether, we concluded that we weren't sure that the fee needed to be changed, and if so, by how much.

[00:36:28] Speaker 02:
And so we wanted further study.

[00:36:29] Speaker 02:
Now that we have to change the access fee no matter what, we're just acting on the best information we have, see all the stuff we're going to do.

[00:36:35] Speaker 02:
to build out, and here's what we arrive at.

[00:36:37] Speaker 04:
The problem is that the reduction from 25 mills, which is half of the subpenny pricing increment, down to 10 mills, was animated by the commission's concerns about supposed distortions in the market attributable to the fee and rebate model of exchanges.

[00:36:56] Speaker 04:
And the commission catalogs those concerns at length in footnote 380 at JA 122.

[00:37:04] Speaker 04:
States.

[00:37:05] Speaker 04:
These concerns include, for example, undermining price transparency, introducing unnecessary complexity through the proliferation of new exchange order types and order routing strategies, added market fragmentation, creating or exacerbating potential conflicts of interest between brokers and their customers, and in NMS stocks that are tick constrained,

[00:37:27] Speaker 04:
assessing a higher cost to liquidity demanders.

[00:37:31] Speaker 04:
Those are the issues that the Commission tried to study in 2018.

[00:37:36] Speaker 04:
And when it determined here to reduce the access fee cap all the way down to 10 mils, it needed to acknowledge its prior uncertainty and explain what had changed.

[00:37:52] Speaker 04:
And the fact that the Commission here is trying to re-characterize

[00:37:57] Speaker 04:
the access fee rule as animated solely by the new sub-penny pricing increment is not borne out by the record.

[00:38:06] Speaker 04:
Last thing I'll say is that even if the commission has statutory authority, even if it's satisfied the change in position doctrine, the reduction to 10 mills is not supported by the record because it rests on an inapt analogy

[00:38:20] Speaker 04:
to alternative trading systems, which are materially different from exchanges, and because there is not sufficient evidence in the record to substantiate that alternative trading systems actually charge 10 mils as their average execution fee.

[00:38:35] Speaker 05:
Can I just have one?

[00:38:37] Speaker 05:
I need to clarify.

[00:38:38] Speaker 05:
I had thought your argument about what the change in position was a lot more specific than what we've been talking about.

[00:38:48] Speaker 05:
I thought, based on the brief,

[00:38:50] Speaker 05:
that it was page 5277 of the pilot program, they said, we are unsure if a reduction in the access fee cap will raise transaction costs.

[00:39:03] Speaker 05:
Then in this final rule here, they say, we are confident transaction costs will not go up.

[00:39:11] Speaker 05:
It was not just we abstractly need more information, and now we don't need more information.

[00:39:18] Speaker 05:
The argument is all hinged around that.

[00:39:20] Speaker 05:
that shift is that my understanding correctly.

[00:39:24] Speaker 04:
Those are all examples of where the commission in twenty eighteen looked at an issue and concluded that it needed more evidence needed to engage in study before reaching a determination and then in twenty twenty four it resolved that issue without acknowledging its prior uncertainty.

[00:39:42] Speaker 04:
and without explaining what had changed.

[00:39:44] Speaker 04:
So with respect to whether the reduced access recap would lower transaction costs for investors, whether it would divert order flow off exchange, whether it would ameliorate alleged conflicts of interest for broker-dealers, those are three examples of where the commission in 2018 could not reach a conclusion and why it decided that more study was necessary in 2018.

[00:40:11] Speaker 04:
and where in 2024, it failed to acknowledge its prior uncertainty.

[00:40:17] Speaker 04:
It failed to acknowledge its prior need for more study.

[00:40:20] Speaker 04:
Indeed, the commission did not even cite this court's fee pilot rule in the multi-hundred page access fee rule order, and it cited the

[00:40:31] Speaker 04:
acts the fee pilot rule itself only 11 times in this 200 page document, eight of which are citations to stale comment letters from the 2018 rulemaking.

[00:40:44] Speaker 04:
So there is no acknowledgement whatsoever, no substantive engagement with the record in 2018, no explanation as to why to take your example, your honor, on page 5277.

[00:40:58] Speaker 04:
of the fee pilot rule, the commission said, the commission cannot predict whether investors will face higher or lower transaction costs in this new equilibrium.

[00:41:07] Speaker 04:
And then turned around six years later at JA207 and said, the commission expects that lowering the access fee cap will result in lower transaction costs for investors.

[00:41:18] Speaker 04:
No acknowledgement, no explanation as to why this record is different.

[00:41:24] Speaker 03:
My colleagues don't have any additional questions at this point.

[00:41:26] Speaker 03:
Okay.

[00:41:26] Speaker 03:
Thank you, Mr. Chair.

[00:41:27] Speaker 03:
I will give you a little bit of time for rebuttal.

[00:41:39] Speaker 02:
From the commission now, Mr. Matrow.

[00:41:42] Speaker 06:
Thank you.

[00:41:46] Speaker 06:
Good morning and may it please the court, Daniel Matrow for the Securities and Exchange Commission.

[00:41:51] Speaker 06:
In the rulemaking below, the Commission unanimously approved a reduction in the minimum pricing increment or tick size for certain stock quotations from one penny to a half penny.

[00:42:00] Speaker 06:
Petitioners do not dispute that this widely supported tick size reduction could not be implemented without a reduction in the existing access fee cap under Rule 610C.

[00:42:11] Speaker 06:
petitioners supported reducing the access fee cap to 15 mils for stocks subject to the new half penny tick and maintaining the current 30 mil cap for stocks that remain subject to a penny tick.

[00:42:23] Speaker 06:
The commission, however, reasonably concluded that an access fee cap of 10 mils rather than 15 would more appropriately balance the competing concerns and it reasonably chose to apply the cap

[00:42:34] Speaker 06:
to all stocks priced above $1 in light of the costs and risks associated with petitioners proposed two-tier approach.

[00:42:42] Speaker 06:
Petitioners disagree with the balance that the commission struck, but they identify no valid basis to overturn it.

[00:42:48] Speaker 06:
Turning first to the statutory authority argument, petitioners do not dispute that access fee caps are needed to carry out the implementation or the commission's implementation of Section 11 Cap A's directives and that they promote the fairness and usefulness of quotation information.

[00:43:05] Speaker 06:
They thus essentially concede in their reply brief at Footnote 2 that the commission has the authority to impose access fee caps under Section 11 Cap A and 23A1 of the Exchange Act.

[00:43:17] Speaker 06:
Instead, petitioners argue that Section 19B implicitly limits the Commission's authority under those provisions to non-exchange trading centers.

[00:43:26] Speaker 06:
But that theory finds no support in the statutory text or in any principle of statutory interpretation.

[00:43:33] Speaker 06:
Section 19B requires the Commission to determine whether exchange-initiated rules, including fee rules, are consistent with certain baseline statutory requirements, in which case the Commission must approve them.

[00:43:46] Speaker 06:
and it sets forth certain procedures for commission review of exchange proposed rules.

[00:43:53] Speaker 06:
But those procedures are not the exclusive mechanism by which the commission may regulate exchange fees.

[00:43:59] Speaker 06:
Section 19B sets the floor on commission oversight of exchange fees, not the ceiling.

[00:44:06] Speaker 06:
We know that because the very next provision, Section 19C, broadly empowers the commission to abrogate or modify exchange rules on its own initiative

[00:44:16] Speaker 06:
through a different set of procedures, as it deems necessary or appropriate to further the purposes of the Act.

[00:44:22] Speaker 06:
And Section 19C, as Your Honor pointed out, expressly states that it does not limit any rulemaking authority granted elsewhere in the Act.

[00:44:32] Speaker 06:
So Section 19B,

[00:44:34] Speaker 06:
can't plausibly be read to limit the Commission's authority in Section 11 CAPA to adopt market-wide regulations.

[00:44:42] Speaker 06:
Those provisions encompass a broader range of market participants and are intended to serve fundamentally different statutory purposes.

[00:44:50] Speaker 06:
And I think it's important to point out that the Commission Rule 610C does not just cover exchanges, it intentionally covers all trading centers.

[00:45:00] Speaker 06:
that could potentially post displayed protected quotations.

[00:45:07] Speaker 06:
It prevents any trading center, not just exchanges, from charging fees beyond the cap to access those particular types of quotations.

[00:45:22] Speaker 06:
And so the implication of petitioner's theory is that in order to reach

[00:45:29] Speaker 06:
all of the set of potential trading centers in the national market system, the commission would have to proceed under a patchwork of different provisions with different procedures.

[00:45:40] Speaker 06:
Section 19C for exchanges, non-exchange trading centers under 11 CAPA, which is inconsistent both with Congress's intent.

[00:45:50] Speaker 06:
11 CAPA provide for equal regulation of all market participants in the national market system.

[00:45:58] Speaker 06:
And it's just inconsistent with the text and the purpose of 11CAPA.

[00:46:06] Speaker 05:
Can I ask a clarifying question about the change in position argument?

[00:46:09] Speaker 05:
So is your position that the SEC had some kind of materially new information and data, or is it more just that

[00:46:23] Speaker 05:
that conducted new and more extensive analysis and reached different conclusions than it did in 2019.

[00:46:30] Speaker 06:
Some of both, Your Honor.

[00:46:31] Speaker 06:
There was definitely additional empirical data that it considered, additional comments, additional information that it took into account.

[00:46:38] Speaker 06:
But it also did a significant amount more analysis.

[00:46:42] Speaker 05:
And I think the reason is the materially new information that

[00:46:48] Speaker 05:
I'm not saying this was required.

[00:46:50] Speaker 05:
I just didn't see an emphasis on.

[00:46:52] Speaker 05:
I mean, the whole point of the pilot was to get more hard data, and you couldn't do that.

[00:46:56] Speaker 06:
Yeah, so I don't want to overstate that or suggest that it was all based on new data.

[00:47:02] Speaker 06:
But of course, you've got the new comments.

[00:47:03] Speaker 06:
You've got data, considering data about ATS fees that are charged.

[00:47:10] Speaker 06:
Comments in the ATS fee.

[00:47:12] Speaker 06:
You've got financial information from the exchanges that helped to determine.

[00:47:15] Speaker 06:
But ultimately, the TIA.

[00:47:17] Speaker 01:
Well, it has some economic studies that were new.

[00:47:19] Speaker 06:
You had some economic studies, and certainly the Commission itself did what the Commission said in the TFP that it could have done.

[00:47:27] Speaker 06:
In the TFP, I think it's important to step back and recognize the Commission didn't take any policy positions.

[00:47:35] Speaker 06:
It didn't take any view on the need for regulation.

[00:47:39] Speaker 06:
or the market effects of the requirements that it was imposing.

[00:47:43] Speaker 06:
The only conclusion that it drew then was that the empirical evidence on the likely market effects of the TFP was uncertain.

[00:47:52] Speaker 06:
The Commission hasn't changed its view now on the certainty of the empirical evidence that was before it in the TFP.

[00:48:00] Speaker 06:
But then, because it didn't have a regulatory impetus, the Commission responded to that uncertainty

[00:48:07] Speaker 06:
by trying to gather additional data.

[00:48:09] Speaker 06:
It recognized, and this is on page 5248 of the TFP release, it recognized that it could have taken a position on those issues based on economic theory and its own judgment and expertise, but it chose not to.

[00:48:23] Speaker 06:
This court then held that it lacked the authority to do that, to impose new regulatory requirements without taking a position on those kinds of issues.

[00:48:31] Speaker 06:
But that uncertainty that it had in the TFP was not an important aspect of the problem or a relevant factor that it had to consider here in deciding what the appropriate fee cap reduction was in response to the tick reduction.

[00:48:47] Speaker 06:
First, because it didn't change its view on the certainty of the Emirate empirical evidence that was before it in TFP.

[00:48:54] Speaker 06:
It just faced with the need to reduce the access fee caps to accommodate the tick size reduction.

[00:49:02] Speaker 06:
It undertook the analysis that it didn't do in 2019, applying its best judgment to determine

[00:49:08] Speaker 06:
the likely market effects of a change in fee reduction and what the right fee reduction would be based on economic principles, theory, and the available evidence, including old evidence and new evidence.

[00:49:22] Speaker 06:
So it didn't go on the relevant questions from uncertainty to certainty, as petitioners would have it.

[00:49:29] Speaker 06:
It went from taking no position on those relevant issues to taking a position.

[00:49:34] Speaker 06:
And the other thing I'd point out is that

[00:49:37] Speaker 06:
petitioners allied the significant differences between the two initiatives.

[00:49:41] Speaker 06:
We've talked about some of them, but even with respect to the requirements they imposed, the two initiatives were materially different.

[00:49:51] Speaker 01:
What if an agency in one year says, we're getting requests, impeding information from all different parties on a really important policy change, but we do not have the information we need

[00:50:07] Speaker 01:
We think the only reliable way, the only way that will effectively work for us to get that information, hard to access information, is to conduct this pilot program.

[00:50:19] Speaker 01:
And the court says you can't do that pilot program.

[00:50:23] Speaker 01:
And then a few years later, the agency says, OK, got a few more comments, found a study here or there.

[00:50:31] Speaker 01:
We're going forward.

[00:50:32] Speaker 01:
It doesn't acknowledge.

[00:50:34] Speaker 01:
its prior statements that the only effective and reliable way to get that information is through a process that they're not lawfully allowed to do.

[00:50:42] Speaker 01:
Would they have to at that point, if they had made those kinds of statements?

[00:50:45] Speaker 01:
I'm not saying that's what you did here.

[00:50:47] Speaker 01:
At some point, if an agency says, we can't rule-make unless we have this information, rule-makes without that information needs to acknowledge that.

[00:51:00] Speaker 06:
Yeah, I mean, I think that would be certainly more a closer case under Fox or more similar to Fox where, you know, if an agency says, unlike what it said here, but if an agency were to say, you know,

[00:51:15] Speaker 06:
There's no plausible way of justifying regulation in this space under the data that we have available.

[00:51:22] Speaker 06:
The empirical data just can't, regardless of any new circumstances, then that I think is something the commission or an agency may well have to address.

[00:51:35] Speaker 06:
But it's important to recognize that it wouldn't be

[00:51:38] Speaker 06:
an increased evidentiary burden that, as petitioners would have it, it wouldn't be that the agency would then really have to identify new empirical evidence.

[00:51:49] Speaker 06:
This court and the Supreme Court have said that agencies can proceed in the face of regulatory uncertainty.

[00:51:54] Speaker 06:
What Fox says is that the inconsistency would have to provide a reasonable explanation for why it's departing from its previous statement.

[00:52:05] Speaker 06:
And here, the commission provided extensive discussion of why it was acting, why it needed to do a fee cap reduction here to accommodate the tick size.

[00:52:15] Speaker 06:
And that made it a fundamentally different context from the TFP, where the commission didn't have any particular regulatory impetus.

[00:52:28] Speaker 06:
that it needed to respond to, and so it chose to do a data gathering experiment.

[00:52:34] Speaker 06:
But that didn't foreclose it from regulating based on its own reasonable predictive judgments and its own best analysis of the likely effects of a feed cap reduction.

[00:52:49] Speaker 05:
So one of the examples they offer are these statements in the pilot program that it is uncertain whether a fee cap reduction is going to increase transaction costs.

[00:53:01] Speaker 05:
And then in this rule, there's a conclusion that the reduction in the access fee cap is not going to increase transaction costs.

[00:53:10] Speaker 05:
And I think their sort of common sense point is you ought to acknowledge that you were uncertain before.

[00:53:17] Speaker 05:
explain how you got from point A to point B.

[00:53:20] Speaker 05:
What's the concrete kind of example?

[00:53:23] Speaker 05:
What's the response?

[00:53:24] Speaker 06:
I think the difference is that in TFP, the commission made clear that the question it was focusing on, because it didn't have a regulatory impetus, was whether the empirical evidence before it resolves the debate among commenters, whether the empirical evidence was sufficient alone to determine what the likely effects of the TFP would be.

[00:53:48] Speaker 06:
And the commission said,

[00:53:49] Speaker 06:
You know, we're not prepared to say that the evidence is certain on that.

[00:53:55] Speaker 06:
The empirical evidence is uncertain on that issue.

[00:53:57] Speaker 06:
But it did recognize, again, on 5248 of that release, that it could have gone ahead and taken a position on that issue, on the likely effects on transaction costs or

[00:54:10] Speaker 06:
On order flow based on its best judgment based on its expertise, but it didn't do that it didn't need to do that it turned out that that was you know this is this court said that it couldn't do that it couldn't then impose burdens without taking that position.

[00:54:25] Speaker 06:
The commission here, in a very different context, with a specific regulatory impetus, where it had to reduce the fee, had to determine what the right fee, what the appropriate fee reduction would be, then had no choice to throw up its hands.

[00:54:43] Speaker 06:
But heeding the lesson of the court's decision in the TFP case, did the analysis that it didn't, the further analysis that it didn't do in TFP,

[00:54:52] Speaker 06:
and determined to the best of its ability what the likely impact on transaction fee costs and

[00:55:00] Speaker 06:
and order flow is.

[00:55:01] Speaker 06:
And again, and the other point I'd make on that is just to emphasize the differences between the two initiatives that bear on the analysis of market effects.

[00:55:14] Speaker 06:
So like, take for example, the commission's conclusion that the rules here will reduce transaction costs for some stocks,

[00:55:23] Speaker 06:
Some of that reduction comes from stocks priced below $1, which were not a part of the TFP experiment.

[00:55:30] Speaker 06:
And the rest come from tick constrained stocks above $1, where the commission concluded that the fee reduction would result in lower costs for investors.

[00:55:42] Speaker 06:
TFP had no reason to focus on tick restrained stocks in its analysis because tick reduction was not part of the experiment.

[00:55:55] Speaker 06:
And similarly, the commission concluded here that for non-tick-constrained costs above $1,

[00:56:01] Speaker 06:
And that would offset the cost of access fees to investors.

[00:56:09] Speaker 06:
And so that's why changes in fees and rebates won't affect the cost to investors for those stocks.

[00:56:18] Speaker 06:
But that type of adjustment can't happen if rebates are banned, which the TFTP did for some stocks.

[00:56:28] Speaker 06:
And then again, and the last thing on that is here, the commission found that the tick size reduction

[00:56:33] Speaker 06:
would itself reduce transaction costs and drive additional order flow to exchanges, offsetting any potential effects on the reduction in supply of liquidity for constrained stocks.

[00:56:47] Speaker 06:
And so that was another difference that the commission emphasized is offsetting impacts that was not an issue in the TFP.

[00:56:57] Speaker 06:
And then

[00:56:59] Speaker 06:
And then I think it's telling the petitioners don't identify any flaw in the commission's application of the economic principles that it looked to to make a determination.

[00:57:11] Speaker 06:
It doesn't identify any empirical evidence that contradicts it.

[00:57:15] Speaker 06:
It just points back sort of circularly to the commission chose not to take a position in the TFP, and it should have, and it needed to.

[00:57:27] Speaker 06:
you know, distinguish that situation, which is distinguishable on its face because it was just, um, for all the reasons that we've discussed.

[00:57:34] Speaker 03:
Um, make sure my colleagues don't have additional questions for you, Mr Metro.

[00:57:41] Speaker 06:
Okay.

[00:57:41] Speaker 06:
Well, thank you, Your Honours.

[00:57:43] Speaker 03:
Thank you, Mr Metro.

[00:57:48] Speaker 03:
Mr Tehrani will give you three minutes for rebuttal.

[00:57:52] Speaker 03:
Thank you, Your Honour.

[00:57:54] Speaker 04:
The fundamental change in position, the unacknowledged change in position by the commission, was that in 2018, it declared that it did not know whether there was a problem posed by the exchange's fee and rebate model that was worthy of regulation.

[00:58:11] Speaker 04:
It silently changed course in 2024 without acknowledging its prior uncertainty, without acknowledging this court's decision, and without explaining what

[00:58:23] Speaker 04:
was new in this record that supported its conclusion that the exchanges fee and rebate model does, in the commission's view, pose a problem that requires reform.

[00:58:38] Speaker 04:
With respect to the question of whether there is a policy here, absolutely there is a policy embodied in the

[00:58:46] Speaker 04:
fee pilot rules decision to proceed with study rather than regulation.

[00:58:51] Speaker 04:
But I would submit that the question of whether there's a policy or not is something of a red herring because what we are focused on here is a fundamental principle of reason decision making.

[00:59:03] Speaker 04:
And when an agency six years after declaring uncertainty about fundamental aspects of the securities market changes course

[00:59:12] Speaker 04:
and purports to declare with confidence certainty on issues as to which it could not previously reach a decision, a reasoned decision maker, a reasoned agency would acknowledge its prior uncertainty.

[00:59:29] Speaker 01:
Imagine, and I know this is not your position or your view of this case at all, but imagine an agency has said in one year, we gotta get it, we can't regulate this issue without getting a lot more information.

[00:59:40] Speaker 01:
We just don't have information to resolve

[00:59:43] Speaker 01:
The competing views were here.

[00:59:44] Speaker 01:
We just don't have it.

[00:59:46] Speaker 01:
And then six years later, wow, they've got like seven economic Nobel laureates.

[00:59:55] Speaker 01:
They've got congressional research service studies.

[00:59:59] Speaker 01:
They've got volumes.

[01:00:01] Speaker 01:
They've got an eight volume federal register record of evidence that uniformly points to

[01:00:11] Speaker 01:
the need to regulate and what the regulation should be.

[01:00:14] Speaker 01:
I'm not saying that's the case at all.

[01:00:16] Speaker 01:
But you had a record that unquestionably adequately explained and justified both the change and the nature of the change, the line that was drawn.

[01:00:31] Speaker 01:
And no one was challenging that.

[01:00:34] Speaker 01:
No one was challenging that the decision was thoroughly reasoned and thoroughly explained.

[01:00:41] Speaker 01:
If they never mentioned their prior statements, back then they didn't have information and they needed to get it, would the rule need to be thrown out?

[01:00:52] Speaker 04:
Yes, because an agency must display awareness.

[01:00:56] Speaker 01:
What does that add?

[01:00:57] Speaker 01:
How does that make their decision more reasonable?

[01:01:00] Speaker 04:
It shows that the agency is

[01:01:03] Speaker 04:
attentive to the course of its decision making process and it allows courts and commenters to perfectly reasonably.

[01:01:12] Speaker 01:
So you're saying this is a whole level, no matter how reasonably explained and throw the record is there's just another requirement to have an opening sentence that says before we started our investigative process, we told you we didn't have enough information.

[01:01:26] Speaker 04:
Yes, because that's a fundamental indication of reasoned, careful,

[01:01:32] Speaker 04:
considered decision-making required by Fox, required by this court's precedent, and required by the APA.

[01:01:40] Speaker 02:
Thank you, counsel.

[01:01:41] Speaker 02:
Thank you to both counsel.

[01:01:42] Speaker 02:
We'll take this case under submission.