38 F.4th 1126
D.C. Cir.2022Background
- The SEC issued a Governance Order (May 2020) directing self-regulatory organizations (SROs, i.e., national exchanges) to propose a single consolidated tape plan (CT Plan) to replace three existing Equity Data Plans; it specified three governance features (non-SRO voting representatives, SRO-group voting, and an independent administrator).
- The SROs submitted a CT Plan incorporating the Commission’s features; the SEC approved it in the CT Plan Order (Aug. 2021).
- A coalition of exchanges associated with Nasdaq, NYSE, and Cboe (petitioners) challenged the CT Plan Order under the APA and the Exchange Act, seeking review in the D.C. Circuit; the court stayed implementation pending review.
- Petitioners raised three principal challenges: (1) the inclusion of non-SRO voting representatives on the CT Plan operating committee, (2) grouping affiliated SROs for voting and an ‘‘augmented majority’’ rule, and (3) requiring an ‘‘independent’’ plan administrator (excluding incumbent exchange administrators who sell proprietary data).
- The D.C. Circuit upheld the SRO-group voting and the independent-administrator requirement as reasonable, but held the inclusion of non-SRO voting members unlawful under Chevron step two and vacated the CT Plan Order in full because that provision was not severable; it severed only the non-SRO directive from the antecedent Governance Order and left the rest intact.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC permissibly authorized non-SRO voting members on CT Plan operating committee | Inclusion exceeds SEC authority under §11A and Rule 608; Congress limited joint action to SROs | §11A is ambiguous; SEC reasonably filled gap to improve data governance and include market participants | Court: SEC interpretation unreasonable at Chevron step two; non-SRO voting members invalid |
| Whether SEC permissibly grouped affiliated SROs for vote allocation and used augmented-majority voting | Grouping denies individual SROs equal treatment and thwarts ‘‘acting jointly’’ under §11A | Text of §11A doesn’t mandate one‑vote‑per‑SRO; grouping addresses bloc voting and concentrated power | Court: Grouping and augmented majority are lawful and not arbitrary or capricious |
| Whether SEC permissibly required an independent CT Plan administrator (excluding incumbent exchange administrators that sell proprietary data) | Requirement is unnecessary, speculative, and ignores loss of institutional expertise | Independence addresses inherent conflict of interest and protects confidential SIP subscriber data; SEC can adopt prophylactic rule | Court: Independent-administrator requirement is reasonable and upheld |
| Severability: If non-SRO provision unlawful, what remedies? | Sever only offending provision; leave remainder of CT Plan intact | CT Plan’s features are interconnected; enforcement of remaining provisions would be unworkable | Court: Non-SRO provision not severable from CT Plan Order — vacated CT Plan Order in entirety; severed only that provision from Governance Order |
Key Cases Cited
- NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010) (describing NMS objectives and market-data framework)
- Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (U.S. 1984) (two‑step deference to agency statutory interpretation)
- Motor Vehicle Manufacturers Association v. State Farm, 463 U.S. 29 (U.S. 1983) (arbitrary and capricious review and required reasoning)
- Ethyl Corp. v. EPA, 51 F.3d 1053 (D.C. Cir. 1995) (use of expressio unius canon in statutory interpretation)
- Halverson v. Slater, 129 F.3d 180 (D.C. Cir. 1997) (expressio unius applied to delegation limits)
- TRW Inc. v. Andrews, 534 U.S. 19 (U.S. 2001) (anti‑surplusage principle)
- Epsilon Electronics, Inc. v. U.S. Dep’t of Treasury, 857 F.3d 913 (D.C. Cir. 2017) (severability — agency intent and whether remaining provisions can function)
- Carlson v. Postal Regulatory Commission, 938 F.3d 337 (D.C. Cir. 2019) (severability and whether an order can sensibly function without stricken provision)