THE NASDAQ STOCK MARKET LLC, ET AL., PETITIONERS v. SECURITIES AND EXCHANGE COMMISSION, RESPONDENT
No. 21-1167
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 24, 2022 Decided July 5, 2022
Consolidated with 21-1168, 21-1169
Thomas G. Hungar argued the cause for petitioners. With him on the briefs were Paul S. Mishkin, Amir C. Tayrani, Joshua M. Wesneski, Paul E. Greenwalt III, and Michael K. Molzberger. Matthew A. Kelley entered an appearance.
Tracey A. Hardin, Assistant General Counsel, Securities and Exchange Commission, argued the cause for respondent. With her on the brief were Dan M. Berkovitz, General Counsel, Michael A. Conley, Solicitor, and Emily True Parise, Senior Litigation Counsel.
Before: HENDERSON and WILKINS, Circuit Judges, and SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: The Securities Exchange Act of 1934 (Exchange Act),
As detailed infra, we grant petitioners’ three petitions as to the first challenged provision—non-SRO representation—and deny them in all other respects. Further, because the non-SRO-representation provision is not severable from the CT Plan Order, we vacate that Order in its entirety. We do, however, uphold in large part the Governance Order, which preceded the CT Plan Order and merely directed the SROs to propose an NMS plan that included the three challenged provisions.
I. BACKGROUND
A.
In 1975, the Congress sought to modernize regulation of the securities markets through the establishment of a national market system to “distribute market data economically and equally and to promote fair competition among all market participants,” NetCoalition v. SEC, 615 F.3d 525, 528 (D.C. Cir. 2010), superseded by statute as stated in NetCoalition v. SEC, 715 F.3d 342, 344 (D.C. Cir. 2013); see also Bradford Nat‘l Clearing Corp. v. SEC, 590 F.2d 1085, 1091 (D.C. Cir. 1978) (citing “operational breakdowns and economic distortions” in securities markets as impetus for reforms (quoting H.R. Rep. No. 94-229, at 91 (1975))), and its efforts culminated in the Securities Acts Amendments of 1975, Pub. L. No. 94-29, 89 Stat. 97. The Securities Acts Amendments granted the Commission “broad, discretionary powers” to ensure “maximum flexibility” in “oversee[ing] the development of a national market system” and “implement[ing] its specific components in accordance with the findings and . . . objectives” of the legislation. See S. Rep. 94-75, at 7 (1975); see also Bradford, 590 F.2d at 1091.
Of importance here, section 11A of the amended Exchange Act, Pub. L. No. 94-29, § 7, 89 Stat. 97, 111 (codified at
To this end, section 11A “authorize[s]” the Commission, “by rule or order, to authorize or require self-regulatory organizations”—a group currently comprised in large part of the various securities exchanges, including petitioners—“to act jointly with respect to matters as to which they share authority under [the Exchange Act] in planning, developing, operating, or regulating a national market system (or a subsystem thereof) or one or more facilities thereof.”
B.
At “the heart of the national market system” is the collection, consolidation and dissemination of securities market data from the various securities exchanges. H.R. Rep. No. 94-229, at 93 (1975); see also NetCoalition, 615 F.3d at 529. In 2005, the Commission adopted Regulation NMS, 70 Fed. Reg. 37,496 (June 29, 2005), in order to streamline and promote the availability of data regarding quotations for and transactions in securities. Before 2021, Regulation NMS required each securities exchange to report its “core” market data for its NMS-traded securities to one of two centralized securities information processors (SIPs), see
At present, three SRO-administered NMS plans, known as the Equity Data Plans, govern the collection, consolidation and dissemination of core market data. Two plans, referred to by the Commission as the CTA and CQ Plans, cover Tape A, the consolidated data feed for securities listed on the NYSE, and Tape B, the data feed for securities listed on exchanges other than the NYSE and Nasdaq. The third plan, referred to as the UTP Plan, covers Tape C, the data feed for securities listed on Nasdaq. A NYSE affiliate serves as the SIP for Tapes A and B and Nasdaq is the SIP for Tape C. Subscribers to a particular data feed pay fees set according to the governing Equity Data Plan. Each Equity Data Plan is controlled by an operating committee, whose voting membership is limited to the SROs participating in the particular plan. Each plan also has an
C.
Since the adoption of Regulation NMS, the Commission has observed two notable changes regarding the structure of the equity markets. First, although securities exchanges were once nonprofit entities mutually owned by their members—meaning those companies whose stock is traded on the exchange—they are now, generally speaking, demutualized and for-profit entities owned by shareholders that sell proprietary-data products. These proprietary-data products often contain exchange-specific data that goes beyond the best bid and best offer quotes contained in the core data feeds and are generally delivered much faster than the core data feeds, thereby resulting in what the Commission characterizes as a “two-tiered market-data environment.” Notice of Proposed Order Directing the Exchanges and the Financial Industry Regulatory Authority to Submit a New National Market System Plan Regarding Consolidated Equity Market Data, 85 Fed. Reg. 2,164, 2,169 (Jan. 14, 2020) (Proposed Governance Order). Second, the emergence of “exchange groups”—multiple exchanges operating under the same corporate umbrella—has “consolidat[ed] much of the voting power and control of the Equity Data Plans” and resulted in uniform voting by blocs of four or five votes. Id. at 2,168. The Commission also observed that these exchange groups—which could command a majority of votes on the Equity Data Plans’ operating committees—are the “primary producers of exchange proprietary data products.” Id. at 2,175. The Commission concluded that the confluence of these two developments has created and exacerbated conflicts of interests between exchanges’ business interests and
In response to these perceived deficiencies in the Equity Data Plans, the Commission issued its Proposed Governance Order, which proposed to direct the SROs to formulate and propose a single “New Consolidated Data Plan” (later renamed the CT Plan) to replace the three Equity Data Plans. See generally Proposed Governance Order, 85 Fed. Reg. 2,164. Despite largely leaving the formulation of the CT Plan up to the SROs, the Commission set out three governance features. First, the CT Plan‘s operating committee would include representatives of six classes of equity market participants: institutional investors, broker-dealers with a predominantly retail investor customer base, broker-dealers with a predominantly institutional investor customer base, securities market-data vendors, issuers of NMS stock and retail investors. Id. at 2,179. These representatives would serve as voting members on the operating committee administering the CT Plan, collectively controlling one-third of the committee‘s voting power—using fractional votes to preserve the ratio. Id. at 2,180-81.
Second, the Commission recommended allocating the votes held by the SROs according to an SRO‘s corporate affiliation. Each “exchange group” (later called SRO Groups), defined as “multiple exchanges operating under one corporate umbrella,” id. at 2,168, and “unaffiliated SRO,” meaning an SRO not affiliated with another SRO, id. at 2,175 n.140, would be granted one vote on the operating committee, id. at 2,175. Each exchange group or unaffiliated SRO would have an additional vote if it has a “consolidated equity market share”
Third, the Commission proposed requiring that the CT Plan administrator be “independent,” meaning “not . . . owned or controlled by a corporate entity that separately offers for sale” its own proprietary-data products. Id. at 2,183. The independence requirement would preclude both of the current Equity Data Plan administrators—the NYSE and Nasdaq—from subsequently serving as the CT Plan administrator.
After notice and comment, the Proposed Governance Order was finalized and approved without material change. See Governance Order, 85 Fed. Reg. 28,702. The SROs complied with the Governance Order, submitting a proposed CT Plan that included the three features proposed by the Commission,
In August 2020, the Commission approved the proposed CT Plan. See CT Plan Order, 86 Fed. Reg. 44,142. Petitioners timely filed for review, challenging the three Commission-recommended features. Petitioners also filed with the Commission a motion to slay the CT Plan Order, which the Commission denied. Petitioners then filed for and received a stay from this Court. See Order, Nasdaq Stock Mkt. LLC v. SEC, No. 21-1167 (D.C. Cir. Oct. 13, 2021). We have jurisdiction of their challenge pursuant to section 25(a) of the Exchange Act. See
II. ANALYSIS
Petitioners’ challenge reaches both the Commission‘s interpretation of section 11A of the Exchange Act as well as its decisionmaking given the record and comments before it. As to the former, we review using the familiar Chevron two-step framework. See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984). At step one, we ask “whether the agency-administered statute is ambiguous on the precise question at issue.” Eagle Pharms., Inc. v. Azar, 952 F.3d 323, 330 (D.C. Cir. 2020) (internal quotation marks omitted) (quoting Guedes v. Bureau of Alcohol, Tobacco, Firearms & Explosives, 920 F.3d 1, 28 (D.C. Cir. 2019)). If not, we assume at step two that the “Congress has empowered the agency to resolve the ambiguity” and accordingly defer to the agency‘s interpretation so long as it is a reasonable construction of the statute. Util. Air Reg. Grp. v. EPA, 573 U.S. 302, 315 (2014).
In addition, we may set aside a Commission order if it is found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
Petitioners challenge the Commission‘s CT Plan Order and Governance Order on three grounds: First, the Commission exceeded its authority under both section 11A of the Exchange Act and Rule 608 of Regulation NMS by placing representatives of non-SROs on the CT Plan‘s operating committee as voting members. Second, the Commission‘s decision to group SROs based on corporate affiliation for voting purposes is contrary to law, as it prevents SROs from “act[ing] jointly” to effectuate the CT Plan, and it is otherwise arbitrary and capricious by failing to explain adequately the Commission‘s departure from its past practice of treating affiliated and unaffiliated SROs the same. Third, the Commission‘s requirement that the administrator of the CT
A. Non-SRO Membership on CT Plan Operating Committee
To begin, the Commission does not argue that its interpretation of section 11A of the Exchange Act as permitting non-SRO representation on the CT Plan operating committee is necessarily compelled by the statute; the Commission instead argues that the “Congress has not ‘directly spoken to th[is] precise’ issue.” See Resp‘t Br. 29 n.3 (alteration in original) (quoting City of Clarksville v. FERC, 888 F.3d 477, 482 (D.C. Cir. 2018)); see also Oral Arg. Tr. 19:25-20:1 (Commission is “not arguing that the statute is clear at Chevron [step one]”); id. at 20:15-18 (“[I]n the [1975] [A]mendments, Congress very specifically did not make a decision as to the precise manner in which the national market system was going to be structured.”).
Our ordinary course of action would be to first determine whether section 11A is, as the Commission suggests, silent or ambiguous as to non-SRO representation issue; if so, we would then assess whether the Commission‘s permissive interpretation, as embodied in the various orders at issue, is reasonable. See Chevron, 467 U.S. at 842-43. Occasionally, however, we have assumed arguendo that a statute is ambiguous or silent and proceeded to the second step of the Chevron analysis. See, e.g., Good Fortune Shipping SA v. Comm‘r, 897 F.3d 256, 261 (D.C. Cir. 2018); Lubow v. U.S. Dep‘t of State, 783 F.3d 877, 884 (D.C. Cir. 2015); U.S. Postal Serv. v. Postal Regul. Comm‘n, 599 F.3d 705, 710 (D.C. Cir. 2010); see also Babbitt v. Sweet Home Chapter of Cmtys. for a Great Or., 515 U.S. 687, 703 (1995). We do so here, confident in doing so because the Commission has failed to demonstrate that its construction of section 11A is reasonable.3
At Chevron step two, we ask whether the agency‘s interpretation is “arbitrary or capricious in substance, or manifestly contrary to the statute.” Good Fortune Shipping, 897 F.3d at 261 (quoting Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 53 (2011)); see also Village of Barrington v. Surface Transp. Bd., 636 F.3d 650, 665 (D.C. Cir. 2011) (asking “whether the [agency] has reasonably explained how the permissible interpretation it chose is ‘rationally related to the goals of the statute’” (quoting AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 388 (1999))). Importantly, “[t]he reasonableness of an agency‘s construction depends on the construction‘s fit with the statutory language as well as its conformity to statutory purposes.” Abbott Labs. v. Young, 920 F.2d 984, 988 (D.C. Cir. 1990) (internal quotation marks omitted); see also Van Hollen v. FEC, 811 F.3d 486, 492 (D.C. Cir. 2016) (“The starting place for any Chevron Step Two inquiry is the text of the statute.”).
Begin with the primary textual hook for the Commission‘s decision: section 11A(a)(3)(B) states that “[t]he Commission is authorized . . . to authorize or require self-regulatory organizations to act jointly with respect to matters as to which they share authority under [the Exchange Act] in planning, developing, operating, or regulating a national market system (or a subsystem thereof) or one or more facilities thereof.”
The Commission contends that the statutory silence allows it the discretion to direct SROs to formulate an NMS plan that permits non-SRO involvement in NMS planning and governance, albeit in a minority voting role. See Resp‘t Br. 25-26. But section 11A(a)(3)(B) specifically identifies SROs that “share authority under [the Exchange Act]” as those the Commission authorizes to “act jointly . . . in planning, developing, operating, or regulating a national market system,”
Granted, the weight of the expressio unius canon is sensitive to statutory context, especially in the administrative realm where the “Congress is presumed to have left to reasonable agency discretion questions that it has not directly resolved.” Adirondack Med. Ctr. v. Sebelius, 740 F.3d 692, 697 (D.C. Cir. 2014) (quoting Cheney R.R. Co. v. I.C.C., 902 F.2d 66, 68-69 (D.C. Cir. 1990)); see also Indep. Ins. Agents of Am., Inc. v. Hawke, 211 F.3d 638, 644 (D.C. Cir. 2000). But “where the context shows that the ‘draftsmen‘s mention of one thing, like a grant of authority, does really necessarily, or at least reasonably, imply the preclusion of alternatives,’ the canon is a useful aide.” Hawke, 211 F.3d at 644 (quoting Shook v. D.C. Fin. Resp. & Mgmt. Assistance Auth., 132 F.3d 775, 782 (D.C. Cir. 1998)).
Here, several aspects of the statutory context cut against the Commission‘s interpretation. First, the Commission‘s reading of section 11A(a)(3)(B) both to expressly identify SROs as those entities that can act jointly in developing and effectuating the national market system and to authorize by implication a non-SRO to exercise similar governance authority would render the former superfluous. See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“[A] statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.” (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001))). Further, we have observed that the canon against surplusage and the expressio unius canon “are at their zenith when they apply in tandem,” as they appear to do here. Hawke, 211 F.3d at 645. The Commission‘s only counter is that the express mention of SROs as those entities that may act jointly was to alleviate antitrust concerns. See Resp‘t Br. 36-38. But
Second, section 11A(a)(3)(B) specifies that SROs may be authorized “to act jointly with respect to matters as to which they share authority under [the Exchange Act] in planning, developing, operating, or regulating a national market system.”
In addition to section 11A(a)(3)(B), the Commission invokes section 11A(c)(1)(B), see CT Plan Order, 86 Fed. Reg. at 44,142 & n.14, 44,157; see also Resp‘t Br. 25-26, 29, 31, which provides, in relevant part:
No self-regulatory organization, member thereof, securities information processor, broker, or dealer shall . . . collect, process, distribute, publish, or prepare for distribution or publication any information with respect to quotations for or transactions in any security . . . in contravention of such rules and regulations as the Commission shall prescribe as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter to . . . assure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of information with respect to quotations for and transactions in such
securities and the fairness and usefulness of the form and content of such information[.]
But section 11A(c)(1)(B), which says nothing about the national market system or its development or operation, merely indicates that non-SROs, specifically SIPs and broker-dealers, play enough of a role in the dissemination of market data to warrant granting the Commission antifraud authority to police non-SROs. Cf.
In short, even assuming the Commission is correct that section 11A is ambiguous or silent on the issue of non-SRO representation in NMS plan governance, it nevertheless fails to anchor its interpretation to any reasonable reading of section 11A. As a result, the Commission‘s decision to include representatives of non-SROs on the CT Plan operating
B. SRO Groups
Petitioners next object to the Commission‘s decision to allocate and limit SRO votes according to an SRO‘s corporate affiliation with another SRO, arguing that the decision is contrary to section 11A and otherwise arbitrary and capricious. As explained below, we find petitioners’ arguments on this issue are without merit.
1. “Contrary to Law”
To begin, petitioners make two arguments that center on the text of section 11A of the Exchange Act. First, they point to the statutory definition of “self-regulatory organization,” which includes “any national securities exchange.”
a proposal that is supported by all of the non-SRO voting representatives (a total of four-and-a-half votes), the four unaffiliated SROs, and the Nasdaq-affiliated SRO Group (with two votes for its three exchanges) would have
sufficient support to be adopted under the Commission‘s voting framework. But assuming that the nine remaining SROs opposed the proposal, the proposal would be supported by only seven out of the sixteen individual SROs.
Id. at 45. As petitioners see it, this outcome “erects a barrier to ‘joint[]’ SRO operation of the CT Plan that is incompatible with the Exchange Act.” Id. at 46 (quoting
Because we find that the Commission failed to provide a reasonable interpretation of section 11A that would permit non-SRO representation in the first place, see supra p. 12-19, we see little need to address hypothetical voting outcomes among the SRO Groups and non-SROs or whether a particular outcome would “erect[] a barrier” to joint action pursuant to section 11A, as petitioners contend.
The crux of petitioners’ remaining arguments is that section 11A(a)(3)(B) requires that each SRO, as defined in the Exchange Act, be on equal terms with respect to the governance of NMS plans, including voting. Yet nothing in section 11A appears to require the strict one-to-one voting representation by individual SROs contemplated by petitioners. For one thing, although petitioners are correct that the term “self-regulatory organization” is defined at the individual level in the definitions section of the statute, the use of its plural form in section 11A(a)(3)(B) simply establishes the universe of entities (i.e., SROs) that may be authorized by the Commission to act jointly—and no party argues that the Commission excludes any SROs from the CT Plan operating committee. Thus, the definition of “self-regulatory organization” sheds little, if any, light as to how the
Moreover, the undefined term “act jointly,” given its ordinary meaning, see Sorenson Commc‘ns, LLC v. FCC, 897 F.3d 214, 228 (D.C. Cir. 2018) (attributing to undefined statutory term “its ordinary meaning“), simply means to act cooperatively, together or in conjunction, see, e.g., Jointly, The Oxford English Dictionary (2d ed. 1989) (“[t]ogether, in union” and “[i]n conjunction, combination, or concert“); Jointly, Webster‘s Third New International Dictionary (1981) (“together” and “unitedly“); Jointly, Ballentine‘s Law Dictionary (3d ed. 1969) (“[u]nitedly” and “sharing together“). “Jointly” does not require a particular level of involvement among the individual members—such as “one SRO, one vote,” as petitioners seem to suggest—so long as all participants are involved to some degree. Section
2. Departure from Commission Precedent and Disparate Treatment
Aside from the text of section
Petitioners first cite several matters in which the Commission has required individual SROs to maintain their separate regulatory identity. See, e.g., Order Setting Aside Action by Delegated Authority and Approving Proposed Rule Change Relating to NYSE Arca Data, 73 Fed. Reg. 74,770, 74,790 (Dec. 9, 2008) (separate pools of liquidity); Order Disapproving Proposed Rule Change to Offer a Rebate Based on Members’ Aggregate Customer Volume in Multiply-Listed Options Transacted on NASDAQ OMX PHLX LLC or Its Affiliated Options Exchanges, 79 Fed. Reg. 42,578, 42,585-86 (July 22, 2014) (separate rebate schedules). But the fact that the Commission treats SROs as distinct and separate entities vis-à-vis their individual statutory and regulatory obligations does not necessarily mandate similar treatment of NMS plans where SROs act collectively to effectuate a market-wide plan. The Commission made this precise point. See CT Plan Order, 86 Fed. Reg. at 44,164 (“But both the applicable legal requirements and the function being performed here by the SROs differ in the context of the responsibility of the SROs to jointly operate the NMS plans pursuant to Section 11A of the Act and to disseminate consolidated market data, to which different SROs may contribute in varying degrees.“).
Petitioners next point to the Commission‘s past practice of treating SROs individually with respect to earlier NMS plan operating committees. See, e.g., Order Approving the National Market System Plan Governing the Consolidated Audit Trail, 81 Fed. Reg. 84,696, 84,948 (Nov. 23, 2016). We have often recognized that an agency must acknowledge and explain its departure from past policy. See Sw. Airlines Co. v. FERC, 926 F.3d 851, 856 (D.C. Cir. 2019). “A central principle of
Here, the Commission easily cleared the “not . . . especially high bar” of acknowledging and explaining its departure. Sw. Airlines, 926 F.3d at 856. It acknowledged comments about the differing treatment of SROs for voting, recognized that “the Commission‘s treatment of corporate affiliations varies based on the particular facts and circumstances” and took into account corporate affiliation for voting “[b]ecause of the concentrated power affiliated SROs exert in the governance structure of consolidated equity market data, as demonstrated by the indisputable fact that affiliated SROs vote as blocs.” CT Plan Order, 86 Fed. Reg. at 44,164. The Commission iterated its findings that “[i]ndividual exchanges that historically had only one vote on NMS plans are now a part of groups that can control blocs of four or five votes,” id., and that “in its oversight of the Equity Data Plans, [it] is unaware of an individual affiliated exchange member’ ever having ‘cast its vote differently than the votes cast by its affiliated exchanges,‘” id. (quoting Governance Order, 85 Fed. Reg. at 28,713), in support of its decision to use group-based voting. The Commission also stated its “belie[f] that reallocating votes by SRO Group should help to ensure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of” NMS market data. Id.
As their final argument, petitioners object to the Commission‘s decision on the ground that it subjects affiliated SROs to less favorable treatment than unaffiliated SROs, without adequate explanation. As a general principle, agency
C. Independent Administrator
Petitioners’ final objection is to the Commission‘s decision that the CT Plan administrator must be “independent“—meaning “not . . . owned or controlled by a corporate entity that, either directly or via another subsidiary, offers for sale its own [proprietary-data products].” CT Plan Order, 86 Fed. Reg. at 44,195. The Commission supported the independence requirement by noting that “an entity that acts as
Petitioners first contend that the Commission failed to substantiate its “purely theoretical” concern that a CT Plan administrator could misappropriate confidential information, such as by pointing to a plan administrator‘s past misconduct or by highlighting the shortcomings of existing safeguards. Pet‘rs Br. 54. Granted, an agency is generally on sounder footing when it “act[s] upon the basis of empirical data.” Chamber of Com. of U.S. v. SEC, 412 F.3d 133, 142 (D.C. Cir. 2005). But an agency “need not—indeed cannot—base its every action upon empirical data” and may, “depending upon the nature of the problem, . . . be ‘entitled to conduct . . . a general analysis based on informed conjecture.‘” Id. (quoting Melcher v. FCC, 134 F.3d 1143, 1158 (D.C. Cir. 1998)). Here, the Commission highlighted a plausible conflict of interest: the potential misuse of “sensitive SIP customer information of significant commercial value” by administrators that sell competing market data products. CT Plan Order, 86 Fed. Reg. at 44,195-96 (quoting Governance Order, 85 Fed. Reg. at 28,722). In support, the Commission invoked its experience in overseeing the existing Equity Data Plans as well as industry comments supporting the separation of the plan administrator‘s regulatory responsibilities from an exchange‘s commercial
Petitioners next fault the Commission for not extending the independent administrator requirement to non-SRO data vendors, even though those vendors sell market data products and could have similar conflicts of interest. See Pet‘rs Br. 54-56. But “an agency need not target every danger in order to target any danger,” Am. Coal Co. v. Fed. Mine Safety and Health Rev. Comm‘n, 796 F.3d 18, 29 (D.C. Cir. 2015), and instead “may marshal their limited resources by pursuing their goals ‘as priorities demand,‘” id. (quoting Nat‘l Cong. of Hispanic Am. Citizens (El Congreso) v. Marshall, 626 F.2d 882, 888 (D.C. Cir. 1979)). Here, the Commission explicitly acknowledged that it “chose to address one substantial, inherent conflict of interest” in imposing the independent administrator requirement but permits the CT Plan operating
Third, and finally, petitioners assert that the Commission failed to consider whether “more good than harm will come” from an independent administrator requirement that excludes incumbent administrators that possess institutional knowledge and expertise—the NYSE and Nasdaq. See Pet‘rs Br. 56-57 (quoting Md. Peoples Counsel v. FERC, 761 F.2d 768, 779 (D.C. Cir. 1985)); cf. Michigan v. EPA, 576 U.S. 743, 753 (2015) (“[R]easonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions.” (emphasis in original)). But the Commission acknowledged this argument in the CT Plan Order and reasoned that any loss in incumbent experience would be mitigated by the “broad range of financial service firms, unaffiliated with an SRO,” capable of serving as plan administrator and by the current administrators’ abilities to “advise and facilitate the onboarding process of the new Administrator.” CT Plan Order, 86 Fed. Reg. at 44,196-97. It further concluded any lingering “costs” resulting from a loss of expertise or experience are “justified because the inherent
D. Severability Vel Non
Because we conclude that only one component of the Commission‘s orders is invalid, there is the resulting question of severability. The APA defines “agency action” as “the whole or a part of an agency rule [or] order,”
Moreover, permitting the remaining provisions of the CT Plan to take effect raises the question whether the CT Plan could “function sensibly.” Carlson, 938 F.3d at 351 (quoting Sorenson Commc‘ns, 755 F.3d at 710). For example, the CT Plan, as proposed and approved by the Commission, requires that representatives of non-SROs hold one-third of the voting power on the committee and that committee approval under its “augmented majority” voting structure requires a “two-thirds majority of all votes on the operating committee” alongside “a majority of the SRO . . . votes.” CT Plan Order, 86 Fed. Reg. at 44,165; see also id. at 44,213 (CT Plan § 4.3(b)). Yet, if we were to invalidate the non-SRO representation provision and leave the remainder of the CT Plan intact, that would result in
The Commission, for its part, pays little more than lip service to our concern that severing parts of the CT Plan Order would render the plan unworkable. It first makes the unsupported statement that, if one of the challenged provisions of the CT Plan is found to be unlawful, “the remaining provisions could ‘function sensibly.‘” Resp‘t Br. 56 (quoting Carlson, 938 F.3d at 351-52). As explained above, we struggle to see how that is the case. The Commission then invokes the severability provision included in the CT Plan itself, which states that “any determination that any provision of the CT Plan is invalid or unenforceable shall not affect the validity or enforceability of any other provisions of the CT Plan, all of which shall remain in full force and effect.” CT Plan Order, 86 Fed. Reg. at 44,207. But “the ultimate determination of severability will rarely turn on the presence or absence” of a severability clause. Cmty. for Creative Non-Violence v. Turner, 893 F.2d 1387, 1394 (D.C. Cir. 1990) (quoting United States v. Jackson, 390 U.S. 570, 585 n.27 (1968)). Instead, we look to agency intent and whether the valid portions can function absent the invalid portions, id.; doing so, we conclude that the CT Plan, as currently constructed, would be unworkable if we simply severed the provision requiring non-SRO representation.
As to the Governance Order, it does not commit the Commission to any particular NMS plan or plan feature and is instead “no more than a call for a proposal that would then be subject to further notice, comment, and revision.” Nasdaq, 1 F.4th at 37; see also Order Denying Stay, 85 Fed. Reg. 36,921, 36,922 (June 18, 2020) (describing Governance Order as “first step toward establishing a new governance structure“). It was based on its lack of finality that we dismissed as premature petitioners’ earlier challenge to the Governance Order. Nasdaq, 1 F.4th at 39. In line with this understanding of the Governance Order, we see no need to vacate those portions that direct the SROs to include plan features we have found permissible. We therefore sever only those parts of the Governance Order directing petitioners to include non-SRO representation in its proposed plan, leaving the remainder in place.
For the foregoing reasons, we grant the petitions for review as to the inclusion of non-SROs on the CT Plan‘s operating committee as voting members and vacate the CT Plan Order in its entirety. With respect to the Governance Order, we vacate only those portions authorizing the invalid non-SRO representation, leaving the remainder of the Governance Order intact.
So ordered.