889 F.3d 837
7th Cir.2018Background
- After this Court's decision in Citadel Securities, LLC v. CBOE, market-makers filed a petition with the SEC alleging that CBOE and Nasdaq improperly charged Payment-for-Order-Flow (PFOF) fees over a ~10-year period and sought an accounting and damages/disgorgement.
- The SEC ordered briefing on its jurisdiction and concluded it lacked authority to adjudicate a private-party billing dispute seeking damages.
- The SEC reasoned Section 19(h)(1) authorizes discretionary enforcement proceedings against exchanges (not private-party damages claims) and Section 19(d) applies only to limited access/discipline matters and did not fit the petition.
- The SEC noted the Exchange Act authorizes civil penalties and disgorgement in certain contexts but does not authorize the SEC to award private-party damages.
- CBOE appealed the SEC’s dismissal; Market Makers and Nasdaq intervened. The district court had previously stayed a removed state-court action pending appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CBOE has standing to appeal the SEC order | CBOE: not aggrieved because SEC dismissed petition | SEC/Market Makers: CBOE is aggrieved because it sought SEC action and got less than requested | Held: CBOE is "aggrieved" and has appellate jurisdiction; adverse effect in fact suffices |
| Whether SEC has jurisdiction under Section 19(h)(1) to hear a private damages petition | Market Makers: SEC has authority to review alleged exchange rule violations (per Citadel I) | SEC/CBOE: 19(h)(1) authorizes discretionary enforcement against exchanges, not private-party damages awards | Held: SEC reasonably concluded 19(h)(1) does not authorize SEC to adjudicate private-party damages claims |
| Whether SEC has jurisdiction under Section 19(d) for this petition | Market Makers: petition invokes SEC review of exchange conduct | SEC/CBOE: 19(d) covers limited review (discipline, access to services) and requires prompt filing; petition alleges a billing/refund claim not within 19(d) | Held: SEC reasonably concluded 19(d) does not encompass the Market Makers’ refund/damage claim |
| Whether this holding conflicts with this Court’s Citadel I decision | Market Makers: Citadel I indicates SEC review of PFOF fee allegations | CBOE: Citadel I requires SEC jurisdiction here | Held: Court reads Citadel I as limited (exhaustion context); it does not foreclose SEC’s reasonable conclusion that the Act doesn’t authorize adjudication of this private damages petition |
Key Cases Cited
- Citadel Securities, LLC v. Chicago Board Options Exchange, Inc., 808 F.3d 694 (7th Cir. 2015) (prior opinion addressing exhaustion and SEC review of PFOF allegations)
- Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (two-step framework for judicial review of agency statutory interpretation)
- City of Arlington v. FCC, 569 U.S. 290 (2013) (agency interpretations of their jurisdiction receive Chevron-style deference)
- Nat'l Cable & Telecommunications Ass'n v. Brand X Internet Services, 545 U.S. 967 (2005) (if statute ambiguous and agency’s construction reasonable, court must accept it)
- Richards v. NLRB, 702 F.3d 1010 (7th Cir. 2012) (definition of "aggrieved" for appellate standing review)
- Oil, Chemical & Atomic Workers Local Union No. 6-418 v. NLRB, 694 F.2d 1289 (D.C. Cir. 1982) (a party is aggrieved if it receives less than it requested)