THE NASDAQ STOCK MARKET, LLC, PETITIONER v. SECURITIES AND EXCHANGE COMMISSION, RESPONDENT SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION, INTERVENOR
No. 18-1292
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 18, 2020 Decided June 5, 2020
Consolidated with 18-1293 On Petitions for Review of an Order of the Securities and Exchange Commission
Thomas G. Hungar argued the cause for petitioner The NASDAQ Stock Market LLC. On the brief were Eugene Scalia, Amir C. Tayrani, Jacob T. Spencer, Daniel G. Swanson, and Stephen D. Susman.
Douglas W. Henkin argued the cause for petitioner NYSE Arca, Inc. With him on the briefs was Richard M. Zuckerman.
Dominick V. Freda, Assistant General Counsel, Securities and Exchange Commission, argued the cause for respondent. With him on the brief were Michael A. Conley, Solicitor, and Benjamin Vetter, and Dina B. Mishra, Senior Counsel.
Carter G. Phillips argued the cause for intervenor. With him on the brief were Michael D. Warden, Eric D. McArthur, and David J. Feith.
Benjamin Beaton was on the brief for amici curiae Bloomberg L.P., et al. in support of respondent and intervenor.
Hyland Hunt and Ruthanne M. Deutsch were on the brief for amicus curiae Investors Exchange LLC in support of respondent and intervenor.
Before: MILLETT and WILKINS, Circuit Judges, and SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WILKINS.
NetCoalition v. S.E.C., 715 F.3d 342, 343 (D.C. Cir. 2013) (”NetCoalition II“). However, we noted in NetCoalition II the Commission‘s position that these fees might be challengeable under
Today, we hold that Section 19(d) is not available as a means to challenge the reasonableness of generally-applicable fee rules. Section 19(d)‘s text does not contemplate challenges to generally-applicable fee rules, and the remedy and notice provisions are incompatible with a challenge to fee rules that do not target specific individuals or entities. Exercising jurisdiction under
I.
The petitioners in this case—NYSE Arca, Inc. and Nasdaq Stock Market, LLC (“the Exchanges“)—are national securities exchanges under the Exchange Act, which governs the major securities markets in the United States. As such, they are quasi-
governmental entities called “self-regulatory organizations,” or SROs. See
The rule changes at issue here involve fees that the Exchanges charge for their “depth-of-book” data, which “consists of outstanding limit orders to buy stock at prices lower than, or to sell stocks at prices higher than, the best prices on each exchange.” NetCoalition I, 615 F.3d at 529-30. This data “allows a trader to gain background information about the ‘liquidity’ of a security on a particular exchange, i.e., the degree to which his total sale or purchase price will differ from what he would receive if the entire trade were made at the prevailing best prices.” Id. at 530. Two industry groups – the Respondent-Intervenor in this case, Securities Industry and Financial Markets Association (SIFMA), and a now-disbanded group called NetCoalition – challenged the Exchanges’ fees, but the Commission upheld them as fair and reasonable under the Exchange Act using a “market-based” approach. Id. at 532. The industry groups sought review, and in NetCoalition I we upheld the Commission‘s “market-based” approach for assessing the fairness and reasonableness of fees, but remanded because the record lacked sufficient support for the Commission‘s conclusion that market forces actually constrained the Exchanges’ pricing. Id. at 539-44.
While NetCoalition I was pending, Congress passed the Dodd-Frank Act, which overhauled the process for the filing
and approval of SRO rule changes. Before the Dodd-Frank Act, “the Exchange Act required the Commission to approve a change in market data fee rules before
After we decided NetCoalition I, the Exchanges filed new rule changes to the fee structure for their depth-of-book data products, and the Commission rejected SIFMA‘s and NetCoalition‘s request to suspend the rules. NetCoalition II, 715 F.3d at 344. SIFMA and NetCoalition then petitioned our Court for review, but we dismissed their petitions in NetCoalition II, concluding that we lack jurisdiction over the Commission‘s decision not to suspend a rule change. Id. at 344, 354. Specifically, we held that the Commission‘s decision not to suspend a rule change qualifies as unreviewable “Commission action” under
Relevant here, we noted that our holding was “bolstered by the availability of judicial review down the road,” pointing to the Commission‘s position that aggrieved parties could challenge the fee rules before the Commission at the “enforcement stage” under Section 19(d). Id. at 352. Section 19(d) allows aggrieved parties to challenge an SRO action that, among other things, “prohibits or limits [them] in respect to access to services offered by” the SRO.
Predictably, SIFMA then challenged the fees under Section 19(d). The Exchanges sought dismissal of the challenges, arguing that generally-applicable fee filings cannot constitute “prohibit[ions] or limit[ations]” on access under Section 19(d), because that provision is limited to review of actions targeting specific members. The Commission rejected that argument and referred the matter to an ALJ to decide whether the Exchanges’ fee rules constitute a “limit” on access to their services within the meaning of Section 19(d). After a five-day hearing, the ALJ ruled for the Exchanges, concluding that the pricing for depth-of-book data is subject to significant competitive forces. SIFMA sought review, and the Commission reversed the ALJ‘s decision. The Exchanges have timely petitioned for review from our Court.
II.
The first issue presented is the only one we decide today: whether the Commission erred in concluding that a generally-applicable fee rule may be challenged as a “limit[ation]” on “access to services” under
In order to answer that question, we must first determine what standard of review to apply.
When reviewing an agency‘s construction of a statute it administers, we ask “whether Congress has directly spoken to the precise question at issue.” Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43. But “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency‘s answer is based on a permissible construction of the statute.” Id. at 843. If the agency‘s interpretation is reasonable, we usually defer to it. See id. But a “reasonable statutory interpretation must account for both the specific context in which language is used and the broader context of the statute as a whole.” Util. Air Regulatory Grp. v. E.P.A., 573 U.S. 302, 321 (2014) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997)). “A statutory provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme[,] because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.” Id. (internal quotation marks omitted). Therefore, an “agency interpretation that is ‘inconsistent with the design and
structure of the statute as a whole’ . . . does not merit deference.” Id. (quoting Univ. of Texas Sw. Med. Ctr. v. Nassar, 570 U.S. 338, 353 (2013) (alterations omitted)).
There is no dispute that Section 19(d) is “silent” about whether charging a fee qualifies as a “limit[ation]” on “access to services.” See Chevron, 467 U.S. at 843. But the Exchanges argue that the Chevron framework does not apply, because other agencies also interpret this provision. Indeed, we have held that “[w]hen a statute is administered by more than one agency, a particular agency‘s interpretation is not entitled to Chevron deference,” Proffitt v. F.D.I.C., 200 F.3d 855, 860 (D.C. Cir. 2000), and it is undisputed that the Comptroller of the Currency, the Board of Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation also administer Section 19(d), see
We note at the outset that NetCoalition II does not dictate our Section 19(d) determination. Our discussion of Section 19(d) in NetCoalition II is dicta, because our conclusion that the Commission‘s nonsuspension of fees was unreviewable did not turn on the availability of a Section 19(d) challenge down the road. See Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 67 (1996) (“[I]t is not only the result but also those portions of the opinion necessary to that result by which we are bound.“); Gersman v. Grp. Health Ass‘n, Inc., 975 F.2d 886, 897 (D.C. Cir. 1992) (analysis that “is not determinative of the result . . . must be deemed not a holding“). Instead, we declared that “the text of section 19(b)(3)(C) is clear” that we lack jurisdiction to review the nonsuspension of fees. 715 F.3d
at 352;
With the question now squarely before us, we turn to the relevant text.
First, Section 19(d)(1) reads:
If any [SRO] imposes any final disciplinary sanction on any member thereof or participant therein, denies membership or participation to any applicant, or prohibits or limits any person in respect to access to services offered by such organization or member thereof or if any [SRO] . . . imposes any final disciplinary sanction on any person associated with a member or bars any person from becoming associated with a member, the [SRO] shall promptly file notice thereof with the appropriate regulatory agency for the [SRO] and (if other than the appropriate regulatory agency for the [SRO]) the appropriate regulatory agency for such member, participant, applicant, or other person. The notice shall be in such form and contain such information as the appropriate regulatory agency for the [SRO], by rule, may
prescribe as necessary or appropriate in furtherance of the purposes of this chapter.
Second, Section 19(d)(2) allows for Commission review of an exchange‘s action under Section 19(d)(1):
Any action with respect to which a[n] [SRO] is required by [Section 19(d)(1)] of this subsection to file notice shall be subject to review by the appropriate regulatory agency for such member, participant, applicant, or other person, on its own motion, or upon application by any person aggrieved thereby filed within thirty days after the date such notice was filed with such appropriate regulatory agency and received by such aggrieved person, or within such longer period as such appropriate regulatory agency may determine.
The Respondents’ theory of review goes something like this: The Exchanges’ fee rules are a “limit[ation]” on SIFMA‘s “access to services,”
entity.” NYSE Arca‘s Opening Br. at 27. The Exchanges are closer to the mark.
It is conceivable that a fee may act as a “limit” on access to services under Section 19(d). But not every fee is, by mere virtue of being a fee, challengeable as a “limit” on access to exchange services under Section 19(d). Rather, we hold that for a fee rule to be challengeable under Section 19(d), it must, at a minimum, be
First and foremost, the text of Section 19(d) does not evince an intent by Congress to allow challenges to generally-applicable fee rules.
Indeed, Section 19(d) makes no mention of fees at all. Unlike Section 19(b), which governs the effectiveness of rule filings and expressly references the “changing [of] a due, fee, or other charge,”
Even assuming, however, that some fees are challengeable under Section 19(d), the text indicates that they must at least be targeted at specific people. The Respondents maintain that any fee rule, even a universally applicable one, is challengeable under Section 19(d) as a limitation on services. See SEC‘s Resp. Br. at 29-30 (arguing that the term “limits” on “access to services” includes fees, because “[i]n common parlance, placing conditions—such as costs, fees, or prices—upon a person‘s access to something is said to limit that access,” and
that “[c]harging fees ‘curtail[s] or reduce[s] in quantity or extent’ access to the fee-based services” (some alterations in original) (quoting WEBSTER‘S NEW COLLEGIATE DICTIONARY 667 (1977))); SIFMA‘s Resp. Br. at 21 (“The Exchanges never explain why Congress would be less concerned with SRO action limiting access for an entire group than with action limiting it for a specific party.“). We think the text says otherwise.
Section 19(d) speaks to “limits [on] any person” with regard to accessing the SRO‘s services. See
The Commission‘s counterarguments are not persuasive. The Commission contends that the term “limits” would have no substantive meaning if market-data fees were not included.
See SEC‘s Resp. Br. at 30 (arguing that excluding generally-applicable fees from the purview of Section 19(d) would treat “limits” as coextensive with “prohibits” and thus render the term “limits” surplusage). But courts have interpreted this term to apply outside the context of fees, such as to an SRO‘s decision
The Commission also relies on National Ass‘n of Securities Dealers, Inc. v. S.E.C., where we held that “the Commission [had] quite properly concluded” that a securities information processor‘s challenged fee proposal “constituted an improper prohibition or limitation of access to services” under Section 11A(b)(5). 801 F.2d 1415, 1419 (D.C. Cir. 1986) (interpreting
Looking beyond the text, the structure of the Exchange Act renders the Commission‘s interpretation unreasonable. See Util. Air Regulatory Grp., 573 U.S. at 321.
For one thing, an exchange‘s notice obligations under Section 19(d) would be unworkable with regard to generally-applicable fee rules. Section 6(d) requires that, in advance of any “limit[ation]” on “access to services,” the exchange must “notify such person of, and give him an opportunity to be heard upon, the specific grounds for denial, bar, or prohibition or limitation under consideration[.]”
The Commission insists that the Exchanges could satisfy their Section 19(d) notice obligations merely by complying with the filing requirements in Section 19(b)(3)(A),
It goes without saying that an immediately-effective fee change cannot plausibly be “under consideration,” see
obligations under Section 19(d), an exchange considering a generally-applicable fee rule would need to “contact customers that it believe[s] might not be able to afford a product to inform them that their access to the product would be limited”
In addition to unworkable notice obligations, reading Section 19(d) to allow challenges to generally-applicable fee rules would be incompatible with the statutory remedy.
Under Section 19(f), if the Commission concludes that an SRO‘s Section 19(d) limitation violates the Exchange Act, the Commission must provide a two-part remedy. First, it must “set aside the action” of the SRO.
proposed fee (inevitably inviting another denial-of-access application from SIFMA), or cease offering [the products] altogether.” Nasdaq‘s Opening Br. at 31.
In short, based on the text and structure of the Exchange Act, we conclude that Section 19(d) is not available as a means to challenge generally-applicable fee rules. The text contemplates action targeted at individuals. And under the Respondents’ reading, SROs would be required to undertake onerous Section 6 proceedings, with the specter of further proceedings under Section 19(d) in order to implement a generally-applicable change in fees. We think that such a scheme would be at odds with the Dodd-Frank Act‘s objective of “[s]treamlining” the filing procedures. See S. REP. NO. 111-176, at 106 (2010).
Before concluding, we note that our decision today is consistent with the presumption favoring judicial review of agency action. See NetCoalition II, 715 F.3d at 352. SIFMA argues that “if review [of market-data fees] were unavailable under Section 19(d), the Commission could insulate [them] from any judicial review simply through inaction.” SIFMA‘s Resp. Br. at 19-20. But this fear is unfounded. As the Respondents acknowledged during oral argument, Oral Arg. Rec. at 1:11:47-1:12:25, 1:50:21-1:50:40, a party may petition the Commission under Section 19(c) to amend an SRO‘s fee rule through notice-and-comment rulemaking.
(explaining that our Court may “review agency action, including an
III.
Accordingly, we grant the petitions for review, vacate the Commission‘s decision, and remand for proceedings consistent with this opinion.
So ordered.