962 F.3d 541
D.C. Cir.2020Background
- In December 2018 the SEC adopted Rule 610T, a one-year "Transaction Fee Pilot" that randomly assigned 1,460 NMS stocks into two test groups: one subject to a $0.0010 per-share exchange fee cap and the other to a prohibition on exchange rebates; the remaining stocks formed a control group.
- The Pilot applied only to trades executed on registered national securities exchanges (not ATSs or internalized trades), and would automatically sunset after one year unless extended.
- The SEC described the Pilot as an information-gathering experiment to "shock the market" and empirically assess the effects of fee caps and rebate bans on order routing, execution quality, and market quality.
- Petitioning exchanges (including NYSE) challenged the rule in February 2019, arguing the SEC exceeded its statutory authority, failed to satisfy statutory and APA reasoned-decisionmaking requirements, discriminated against exchanges, and failed to assess effects on efficiency, competition, and capital formation.
- The SEC conceded uncertainty about ex ante effects and acknowledged the Pilot could harm execution or market quality; the D.C. Circuit concluded the SEC lacked congressional authority to promulgate a one-off rule designed solely to gather data, and vacated Rule 610T and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to promulgate a one-off experimental rule | SEC exceeded Exchange Act authority; no express or implied delegation permits imposing costly, targeted regulatory burdens solely to collect data | SEC relied on general rulemaking powers (15 U.S.C. §78w) and argued pilot was reasonably related to statute's purposes | Court: SEC acted without delegated authority; a "one-off" pilot that shocks market to gather data exceeds the Commission's statutory authority — vacated Rule 610T |
| Requirement to assess economic effects (efficiency, competition, capital formation) and reasoned decisionmaking | SEC failed to make required §78c(f) determinations and did not reasonably weigh costs/benefits before imposing burdens | SEC said it could not reasonably estimate impacts without the data the Pilot would generate and provided qualitative discussions of costs/benefits | Court: Because SEC lacked delegated authority, it did not reach merits of arbitrary-and-capricious claim; noted SEC's failure to make statutorily required determinations was problematic |
| Alleged discrimination against exchanges (exempting off-exchange venues) | Pilot discriminates against exchanges by applying only to on-exchange trading, disadvantaging exchanges vis-à-vis ATSs | SEC justified scope as necessary for studying exchange fee/rebate models and limited Pilot design choices | Court: Found discrimination claims part of the record showing substantial burdens, but outcome rested on lack of statutory authority rather than resolving discrimination question on merits |
| Standing to challenge issuer-specific effects | Exchanges claim vacatur would redress injuries they would suffer; they may also assert harms to issuers as relevant context | SEC argued petitioners lacked standing to complain about issuer-specific harms | Court: Petitioners have Article III standing to challenge injuries to themselves; court did not rest its decision on issuer-specific harms |
Key Cases Cited
- Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (framework for judicial deference to agency statutory interpretation)
- Michigan v. EPA, 576 U.S. 743 (2015) (agency must act within statutory bounds; process must be logical and account for costs)
- Mourning v. Family Publ’ns Serv., Inc., 411 U.S. 356 (1973) (agency rules must be reasonably related to statutory purposes when acting under an empowering provision)
- Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81 (2002) (agencies may not contravene Congress’ will; limits to Mourning’s reach)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard for agency rulemaking)
- La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355 (1986) (agencies have no power absent congressional delegation)
- City of Arlington v. FCC, 569 U.S. 290 (2013) (courts must ensure agency stays within statutory authority)
- Chamber of Commerce of the U.S. v. SEC, 412 F.3d 133 (D.C. Cir. 2005) (SEC’s obligation to assess economic implications of rules)