UNITED STATES v. NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., ET AL.
No. 73-1701
SUPREME COURT OF THE UNITED STATES
Argued March 17, 1975—Decided June 26, 1975
422 U.S. 694
Lee Loevinger argued the cause for appellees. With him on the brief for appellees Bache & Co., Inc., et al., were Owen M. Johnson, Jr., and David J. Saylor. Briefs were filed by Joseph B. Levin, Lloyd J. Derrickson, and
Walter P. North argued the cause for the Securities and Exchange Commission as amicus curiae urging affirmance. With him on the brief was Lawrence E. Nerheim.
Opinion of the Court by MR. JUSTICE POWELL, announced by MR. JUSTICE BLACKMUN.
This appeal requires the Court to determine the extent to which the regulatory authority conferred upon the Securities and Exchange Commission by the Maloney Act,
I
An “investment company” invests in the securities of other corporations and issues securities of its own.1
Shares in an investment company thus represent proportionate interests in its investment portfolio, and their value fluctuates in relation to the changes in the value of the securities it owns. The most common form of investment company, the “open end” company or mutual fund, is required by law to redeem its securities on demand at a price approximating their proportionate share of the fund‘s net asset value at the time of redemption.2 In order to avoid liquidation through redemption, mutual funds continuously issue and sell new shares. These features—continuous and unlimited distribution and compulsory redemption—are, as the Court recently recognized, “unique characteristic[s]” of this form of investment. United States v. Cartwright, 411 U. S. 546, 547 (1973).
The initial distribution of mutual-fund shares is conducted by a principal underwriter, often an affiliate of
The distribution-redemption system constitutes the primary market in mutual-fund shares, the operation of which is not questioned in this litigation. The parties agree that
Although a significant secondary market existed prior to enactment of the Investment Company Act, little presently remains. The United States agrees that the Act was designed to restrict most of secondary market trading, but nonetheless contends that certain industry practices have extended the statutory limitation beyond its proper boundaries. The complaint in this action alleges that the defendants, appellees herein, combined and agreed to restrict the sale and fix the resale prices of mutual-fund shares in secondary market transactions between dealers, from an investor to a dealer, and between investors through brokered transactions.5 Named as defendants are the National Association of Securities Dealers (NASD),6 and certain mutual funds,7 mutual-fund underwriters,8 and securities broker-dealers.9
The United States charges that these agreements violate
Count I charges a horizontal combination and conspiracy among the members of appellee NASD to pre-
After carefully examining the structure, purpose, and history of the Investment Company Act,
The position of the United States in this appeal can be summarized briefly. Noting that implied repeals of the antitrust laws are not favored, see, e. g., United States v. Philadelphia National Bank, 374 U. S. 321, 348 (1963), the United States urges that the antitrust immunity conferred by
II
A
The Investment Company Act of 1940 originated in congressional concern that the Securities Act of 1933,
The Act vests in the SEC broad regulatory authority
B
The most thorough description of the sаles and distribution practices of mutual funds prior to passage of the
Prior to 1940 the basic framework for the primary distribution of mutual-fund shares was similar to that existing today. The fund normally retained a principal underwriter to serve as a wholesaler of its shares. The principal underwriter in turn contracted with a number of broker-dealers to sell the fund‘s shares to the investing public.15 The price of the shares was based on the fund‘s net asset value at the approximate time of sale, and a sales commission or load was added to that price.
Although prior to 1940 the primary distribution system for mutual-fund shares was similar to the present one, a number of conditions then existed that largely disappeared following passage of the Act. The most prominently discussed characteristic was the “two-price system,” which encouraged an active secondary market under conditions that tolerated disruptive and discriminatory trading practices. The two-price
The two-price system did not benefit the investing public generally. Some of the mutual funds did not explain the system thoroughly, and unsophisticated investors probably were unaware of its existence. See id., at 867. Even investors who knew of the two-price system and understood its operation were rarely in a position to exploit it fully. It was possible, however, for a knowledgeable investor to purchase shares in a rising market at the current price with the advance information that the next day‘s price would be higher. He thus could be guaranteed an immediate appreciation in the market value of his investment,16 although this ad-
The two-price system often afforded other advantages to underwriters and broker-dealers. In a falling market they could enhance profits by waiting to fill orders with shares purchased from the fund at the next day‘s anticipated lower price. In a similar fashion, in a rising market they could take a “long рosition” in mutual-fund shares by establishing an inventory in order to satisfy anticipated purchases with securities previously obtained at a lower price. Investment Trust Study pt. III, pp. 854-855. In each case the investment company would
the hope of encouraging the purchase of shares. Id., at 864. See Hearings on S. 3580 before a Subcommittee of the Senate Committee on Banking and Currency, 76th Cong., 3d Sess., pt. 1, p. 138 (1940) (hereinafter 1940 Senate Hearings).
As a result, an active secondary market in mutual-fund shares existed. Id., at 865-867. Principal underwriters and contract broker-dealers often maintained inventory positions established by purchasing shares through the primary distribution system and by buying from other dealers and retiring shareholders.18 Additionally, a “bootleg market” sprang up, consisting of broker-dealers having no contractual relationship with the fund or its principal underwriter. These bootleg dealers purchased shares at a discount from contract dealers or bought them from retiring shareholders at a price slightly higher than the redemption price. Bootleg dealers would then offer the shares at a price slightly lower than that required in the primary distribution system, thus “initiating a small scale price war between retailers and tend[ing] to disrupt the established offering price.” Id., at 865.
The issues presented in this litigation revolve around subsections (d) and (f) of
III
A
The District Court‘s decision reflects an expansive
Appellees’ reliance on the statutory reference to “person” in defining dealer adds little to the analysis, for the Act defines “broker,” “investment banker,” “issuer,” “underwriter,” and others to be “persons” as well. See
Even if we assume, arguendo, that the statutory definition is ambiguous, we find nothing in the contemporaneous legislative history of the Investment Company Act to justify interpreting
suggests only that
The prohibition against insider trading would seem adequately served by the first clause of
This history perhaps explains the dearth of discussion relating to
But concluding that protection of the primary distribution system is a purpose of
“In my opinion the term ‘dealer,’ as used in section 22 (d), refers to the capacity in which a broker-dealer is acting in a particular transaction. It follows, therefore, that if a broker-dealer in a particular transaction is acting solely in the capacity of agent for a selling investor, or for both a selling investor and a purchasing investor, the sale may be made at a price other than the current offering price described in the prospectus. . . .
“On the other hand, if a broker-dealer is acting for his own account in a transaction and as principal
sells a redeemable security to an investor, the public offering price must be maintained, even though the sale is made through another broker who acts as agent for the seller, the investor, or both.
“As section 22 (d) itself states, the offering price is not required to be maintained in the case of sales in which both the buyer and the seller are dealers acting as principals in the transaction.” Investment Company Act, Rel. No. 78, Mar. 4, 1941, 11 Fed. Reg. 10992 (1941).
This substantially contemporaneous interpretation of the Act has consistently been maintained in subsequent SEC opinions, see Oxford Co., Inc., 21 S. E. C. 681, 690 (1946); Mutual Funds Advisory, Inc., Investment Company Act Rel. No. 6932, p. 3 (1972). The same position was asserted in a recent staff report, see 1974 Staff Report 105 n. 2, 107 n. 2, and 109, was relied on by the SEC in its subsequent decision to encourage limited price competition in brokered transactions,31 and is advanced by it as
B
The substance of appellees’ position is that the dealer prohibition of
Implied antitrust immunity is not favored, and can be justified only by a convincing showing of clear repugnancy between the antitrust laws and the regulatory sys
We therefore hold that the price maintenance mandate of
IV
Our determination that the restrictions on the secondary market are not immunized by
Section 22 (f) authorizes mutual funds to impose
Our examination of the language and history of
A
Unlike
The Study indicates, moreover, that a number of funds had begun to deal with these problems prior to passage of the Act. And while their methods may have included the imposition of restrictive legends on the face of the certificate, see n. 35, supra, they were by no means confined to such narrow limits. A number of funds imposed controls on the activities of their principal underwriters, see Investment Trust Study pt. III, pp. 868-869; and in some instances the funds required the underwriters to impose similar restrictions on the dealers, see id., at 869, or entered into these restrictive agreements with the dealers themselves, id., at 870-871.
In view of the history of the Investment Company Act, we find no justification for limiting the range of possible transfer restrictions to those that appear on the face of the certificate. The bootleg market was primarily a problem of the distribution system, and bootleg dealers found a source of supply in the contract dealers as well as in retiring shareholders. See id., at 865. Moreover, the Study indicates that part of the bootleg distribution system consisted of “trading firms” that served as wholesalers of mutual-fund securities in much the same fashion as the principal underwriters. These trading firms primarily purchased and sold shares to and from other dealers, Investment Trust Study pt. II, p. 327, frequently offering them at a price slightly lower than
The bootleg market was a complex phenomenon whose principal origins lay in the distribution system itself. In view of this history, limitation of the industry‘s ability, subject of course to SEC regulation, to reach these problems at their source would constitute an inappropriate contraction of the remedial function of the statute.36 Indeed, in view of the role of trading firms and interdealer transactions in the maintenance of the bootleg market, the narrow interpretation of
Together,
We find support for our interpretation of
Section 22 (f) as originally introduced would have authorized the SEC to promulgate rules, regulations, or orders prohibiting restrictions on the redeemability or transferability of mutual-fund shares. Congressional consideration of that provision raised some question whether existing restrictions on transferability and negotiability would remain valid unless specifically disapproved by the SEC.38 The compromise provision, which
Thus
The Commission repeatedly has recognized the role of private agreements in the control of trading practices in the mutual-fund industry. For example, in First Multifund of America, Inc., Invеstment Company Act Rel. No. 6700 (1971), [1970-1971 Transfer Binder] CCH Fed. Sec. L. Rep. ¶ 78,209, p. 80,602, it looked to restrictive agreements similar to those challenged in this litigation to ascertain an investment advisor‘s capacity in a particular transaction. At no point did it intimate that those agreements were not legitimate.39 Likewise,
We conclude, therefore, that the vertical restrictions sought to be enjoined in Counts II-VIII are among the kinds of agreements authorized by
The agreements questioned by the United States restrict the terms under which the appellee underwriters and broker-dealers may trade in shares of mutual funds. Such restrictions, effecting resale price maintenance and concerted refusals to deal, normally would constitute per se violations of
The SEC, the federal agency responsible for regulating the conduct of the mutual-fund industry, urges that its authority will be compromised seriously if these agreements are deemed actionable under the Sherman Act.41 We agree. There can be no reconciliation of its authority under
V
It remains to be determined whether the District Court properly dismissed Count I of the Government‘s complaint, which charged activities allegedly constituting a horizontal conspiracy between the NASD and its members to “prevent the growth of a secondary dealer market and a brokerage market in the purchase and sale of mutual fund shares.” App. 9.
The precise nature of the allegations of the complaint are obscured by subsequent concessions made by the Government to the District Court and reiterated here. It is clear, however, that Count I alleges activities that are neither required by
Count I originally appeared to be a general attack on the NASD‘s role in encouraging the restrictions on secondary market activities challenged in the remainder of the Government‘s complaint. The acts charged in Count I focused in large part on NASD rules, and on information distributed by that association to its members.42
The SEC, in its exercise of authority over association rulеs and practices, is charged with protection of the public interest as well as the interests of shareholders, see, e. g.,
We further conclude that the Government‘s attack on NASD interpretations of those rules cannot be maintained under the Sherman Act, for we see no meaningful distinction between the Association‘s rules and the manner in which it construes and implements them. Each is equally a subject of SEC oversight.
Finally, we hold that the Government‘s additional challenges to the alleged activities of the membership of the NASD designed to encourage the kinds of restraints averred in Counts II-VIII likewise are precluded by the regulatory authority vested in the SEC by the Maloney and Investment Company Acts. It should be noted that the Government does not contend that appellees’ activities have had the purpose or effect of restraining competition among the various funds.44 Instead, the Government urges in Count I that appellees’ alleged conspiracy was designed to encourage the suppression of intrafund secondary market activities, precisely the restriction that the SEC consistently has approved pursuant to
There can be little question that the broad regulatory authority conferred upon the SEC by the Maloney and Investment Company Acts enables it to monitor the activities questioned in Count I, and the history of Commission regulations suggests no laxity in the exercise of this authority.45 To the extent that any of appellees’ ancillary activities frustrate the SEC‘s regulatory objectives it has ample authority to eliminate them.46
Here implied repeal of the antitrust laws is “necessary to make the [regulatory scheme] work.” Silver v. New York Stock Exchange, 373 U. S., at 357. In generally similar situations, we have implied immunity in particular and discrete instances to assure that the federal agency entrusted with regulation in the public interest could carry out that responsibility free from the disruption of conflicting judgments that might be voiced by courts exercising jurisdiction under the antitrust laws. See
Affirmed.
MR. JUSTICE WHITE, with whom MR. JUSTICE DOUGLAS, MR. JUSTICE BRENNAN, and MR. JUSTICE MARSHALL join, dissenting.
The majority repeats the principle so often applied by this Court that “[i]mplied antitrust immunity is not favored, and can be justified only by a convincing showing of clear repugnancy between the antitrust laws and the regulatory system.” Ante, at 719-720. That fundamental rule, though invoked again and again in our decisions, retained its vitality because in the many instances of its evocation it was given life and meaning by a close analysis of the legislation and facts involved in the particular case, an analysis inspired by the “felt indispensable role of antitrust policy in the maintenance of a free economy....” United States v. Philadelphia National Bank, 374 U. S. 321, 348 (1963). Absent that inspiration the principle becomes an archaism at best, and no longer reflects the tense interplay of differing and at times conflicting public policies.
Although I do not disagree with much of the Court‘s opinion in its construction of §§ 22 (d) and (f) of the
I
If Congress itself expressly permits or directs particular private conduct that would otherwise violate the antitrust laws, it can be safely assumed that Congress has made the necessary policy choices and preferred to permit rather than to prevent the acts in question. There is no dispute in this case, for example, that compliance with § 22 (d)‘s requirement that open-end funds and dealers sell at the public offering price is not subject to attack under the antitrust laws.
It also happens that in subjecting areas of commercial activity to regulation, Congress frequently authorizes a regulatory аgency to approve certain kinds of transactions if they conform to the appropriate regulatory standard such as the “public interest” or the “public convenience and necessity” and correspondingly provides that, when approved, those transactions will be immune from attack under the antitrust laws. Section 414 of the Federal Aviation Act of 1958, 72 Stat. 770,
The courts have, of course, recognized express exemptions such as these; but the invariable rule has been “that exemptions from antitrust laws are strictly construed,” FMC v. Seatrain Lines, Inc., 411 U. S. 726, 733 (1973), and that exemption will not be implied beyond that given by the letter of the law. In Seatrain the Maritime Commission was authorized by statute to approve and immunize from antitrust challenge seven categories of agreements between shipping companies, including agreements “controlling, regulating, preventing, or destroying competition.” The Court, construing narrowly the category arguably embracing the merger agreement under considerаtion, held that merger agreements between shipping companies were not subject to approval by the Commission and consequently were not entitled to exemption under the antitrust laws.
Absent express immunization or its equivalent, private business arrangements are not exempt from the antitrust
“[A] Commission determination of ‘public interest, convenience, and necessity’ cannot either constitute a binding adjudication upon any antitrust issues that may be involved in the Commission‘s proceeding or serve to exempt a licensee pro tanto from the antitrust laws, and... these considerations alone are dispositive of this appeal.” Id., at 353.
In California v. FPC, 369 U. S. 482 (1962), the question was whether the authority in the Federal Power Commission to approve mergers in the public interest foreclosed antitrust challenge to an approved
Under these and other cases it could not be clearer that “[a]ctivities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws,” id., at 372, and that agency approval of particular transactions does not itself confer antitrust immunity.
The foregoing were the governing principles both before and after Silver v. New York Stock Exchange, 373 U. S. 341 (1963). There, stock exchange members were directed to discontinue private wire service to two nonmember broker-dealers, who were given no notice or opportunity to be heard on the discontinuance. The latter brought suit under §§ 1 and 2 of the Sherman Act, but the Court of Appeals held that the stock exchanges had been exempted from the antitrust laws by the Securities Exchange Act of 1934. This Court reversed. The Act contained no express immunity, and immunity would be implied “only if necessary to make the Securities Exchange Act work, and even then only to the minimum extеnt nec-
Such a different case, we said, was before us in Ricci v. Chicago Mercantile Exchange, 409 U. S. 289, 302 (1973). That case arose in the context of the Commodity Exchange Act. We held that a district court entertaining a private antitrust action should stay its hand while the Commodity Exchange Commission exercised whatever jurisdiction it might have to adjudicate specific claims of violation of exchange rules; but that adjudication, we said, was not a substitute for antitrust enforcement, and the fact that the Commission had jurisdiction to approve or disapprove the challenged conduct and might hold the conduct to be consistent with exchange rules would not, in itself, answer the immunity question. Id., at 302-303, n. 13.
On occasion, however, Congress has authorized an agency to adjudicate the legality of specifically defined transactions or commercial behavior in accordance with a competitive standard inconsistent with the controlling criteria under the antitrust laws. In these circumstances, the
Gordon v. N. Y. Stock Exchange, Inc., ante, p. 659, decided today, is another instance where Congress has provided an administrative substitute for antitrust enforcement. Section 19 (b) of the Securities Exchange Act of 1934, 48 Stat. 898, as amended,
“The aim and result of every price-fixing agreement, if effective, is the elimination of one form of competition. The power to fix prices, whether reasоnably exercised or not, involves power to control the market and to fix arbitrary and unreasonable prices. The reasonable price fixed today may through economic and business changes become the unreasonable price of tomorrow. Once established, it may be maintained unchanged because of the absence of competition secured by the agreement for a price reasonable when fixed. Agreements which create such potential power may well be held to be in themselves unreasonable or unlawful restraints, without the necessity of minute inquiry whether a particular price is reasonable or unreasonable as fixed and without placing on the government in enforcing the Sherman Law the burden of ascertaining from day to day whether it has become unreasonable through the mere variation of economic conditions.” United States v. Trenton Potteries Co., 273 U. S. 392, 397-398 (1927).
Thus Congress could not have anticipated that the antitrust laws would apply to stock exchange price fixing approved by the Commission. In this respect, there is a “plain repugnancy between the antitrust and regulatory provisions,” United States v. Philadelphia National Bank, supra, at 351 (footnote omitted).
The rule of law that should be applied in this case, therefore, as it comes to us from these precedents, is that, absent an express antitrust immunization conferred
II
Section 22 (f) of the Investment Company Act provides that “[n]o registered open-end company shall restrict the transferability or negotiability of any security of which it is the issuer except in conformity with the statements with respect thereto contained in its registration statement nor in contravention of such rules and regulations as the Commission may prescribe in the interests of the holders of all of the outstanding securities of such investment company.” The majority concludes from these words and their sparse legislative history that the “funds and the SEC” have the authority to impose “SEC-approved restrictions on transferability and negotiability,” ante, at 724, 725, including the restrictions involved here effecting resale price maintenance and concerted refusals to deal, all aimed at stifling competition that might come from the secondary market. The majority concludes that “[t]here can be no reconciliation of [SEC] authority... to permit these and similar restrictive agreements” with their illegality under the Sherman Act and that therefore “the antitrust laws must give way if the regulatory scheme established by the Investment Company Act is to work.” Ante, at 729, 730.
For several reasons, the majority‘s conclusions are infirm under the controlling authorities. It is plain
It is immediately obvious that the majority has failed to heed the teaching of our cases in several respects. It ignores the rule that “exemptions from antitrust laws are strictly construed” and that implied exemptions are “‘strongly disfavored.‘” FMC v. Seatrain Lines, Inc., 411 U. S., at 733. Lurking in the prohibition of § 22 (f) against any restrictions on “transferability or negotiability” except those stated in the registration statement, the Court discovers the affirmative power to impose resale price maintenance restrictions, as well as the authority to engage in concerted refusals to deal and similar practices wholly at odds with the antitrust laws. Never before has the Court labored to find hidden immunities from the antitrust laws; and the necessity for the effort is itself at odds with our precedents.
The Court‘s holding that Commission approval automatically brings with it antitrust immunity is also contrary to those cases which have consistently refused to equate agency power to approve conduct with an exemption under the antitrust laws. Those cases, as demonstrated above, uniformly held that actual agency
Here, the Court finds authority in open-end funds, subject to Commission approval, to impose restrictions on “negotiability and transferability“; construes those words generously to include price fixing and concerted boycotts; and then concludes that Commission approval—rather, its failure to disapprove—automatically and without more confers antitrust immunity on the selling practices followed by the particular open-end funds in this case. This result disregards the fact that there is no express provision for immunity in the statute, no direction to the Commission to consider competitive factors, no statutory standard provided for the Commission to follow with respect to competition in the investment company business, no indication that the Commission has considered the competitive impact of the restrictions at issue here, and no other basis for concluding that Congress intended the unilateral business judgment of an investment company, followed by Commission approval, to substitute for and supplant the antitrust laws.
The position of the Securities and Exchange Commission, as described and embraced by the Court, is that “its authority will be compromised” if industry practices which the Commission has the power to approve are subject to scrutiny under the antitrust laws. See ante, at 729. But the Commission has made no effort to analyze and
“The Commission vigorously argues that such agreements can be interpreted as falling within the third category—which concerns agreements ‘controlling, regulating, preventing, or destroying competition.’ Without more, we might be inclined to agree that many merger agreements probably fit within this category. But a broad reading of the third category would conflict with our frequently expressed view that exemptions from antitrust laws are strictly construed, see, e. g., United States v. McKesson & Robbins, Inc., 351 U. S. 305, 316 (1956), and that ‘[r]epeals of the antitrust laws by implication from a regulatory statute are strongly disfavored, and have only been found in cases of plain repugnancy between the antitrust and regulatory provisions.’ United States v. Philadelphia National Bank, 374 U. S. 321, 350-351 (1963) (footnotes omitted). As we observed only recently: ‘When... relationships are governed in the first instance by business judgment and not regulatory coercion, courts must be hesitant to conclude that Congress intended to override the fundamental national policies embodied in the antitrust laws.’ Otter Tail Power Co. v. United States, 410 U. S. 366, 374 (1973). See also Silver v. New York Stock Exchange, 373 U. S. 341 (1963); Pan American World Airways, Inc. v. United States, 371 U. S. 296 (1963); California v. FPC, 369 U. S. 482 (1962); United States v. Borden Co., 308 U. S. 188 (1939). This principle has led us to construe the Shipping Act as conferring only a ‘limited antitrust exemption’ in light of the fact that ‘antitrust laws represent a fundamental national economic policy.’ Carnation Co. v. Pacific Westbound Conference, 383 U. S., at 219, 218.” 411 U. S., at 732-733 (footnotes omitted).
III
Exempting the NASD from antitrust scrutiny based on the existence of Commission power to approve or disapprove NASD rules is likewise unacceptable under our cases for very similar reasons. The majority relies on Hughes Tool Co. v. Trans World Airlines, 409 U. S. 363 (1973), and Pan American World Airways v. United States, 371 U. S. 296 (1963). But in Hughes exemption for the transactions there involved was based on the express immunities conferred by § 414 of the Federal Aviation Act; and in Pan American immunity followed from the Board‘s authority to adjudicate unfair competitive practices in accordance with the distinctive competitive standard Congress itself supplied in the regulatory statute. Nothing comparable is to be found in the relevant provisions of the statutes involved here.
It is especially interesting to find the Court on the one hand concluding that the selling practices under scrutiny here are essential to the working of the statutory scheme but on the other hand recognizing that the Commission itself has requested that the NASD rules be amended to prohibit agreements between underwriters and broker-dealers that preclude broker-dealers, acting as agents, from matching orders to buy and sell fund
The majority‘s opinion, as a whole, seems to me to reject the basic position found in our cases that “antitrust laws represent a fundamental national economic policy....” Carnation Co. v. Pacific Conference, 383 U. S. 213, 218 (1966). I cannot follow that course and accordingly dissent.
Notes
“(1) is or holds itself out as being engaged primarily, or pro-
“(2) is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or
“(3) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer‘s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.”
This broad definition is qualified, however, by a series of specific exemptions. See
Management investment companies whose securities lack this redeemability feature are defined as “closed end” companies,
Subsequent to the filing of the United States’ complaint some 50 private suits purporting to be class actions under
“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . . Every person who shall make any contract or engage in any combination or conspiracy declared by sections 1 to 7 of this title to be illegal shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding fifty thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.”
“(a) each broker/dealer must maintain the public offering price in any brokerage transaction in which it participates involving the purchase or sale of shares of the Fidelity Funds; and
“(b) each broker/dealer must sell shares of the Fidelity Funds only to investors or the fund and purchase such shares only from investors or the fund.” App. 10-11.
Count VI, in addition to charging restrictive agreements similar to the above, alleged that appellee Wellington, a principal underwriter, agreed to act only as an agent of the appropriate mutual fund in all transactions with the broker-dealers. Id., at 15.
The alleged effect of the restrictive agreement charged in ¶ (a) was to inhibit the growth and development of a brokerage market in mutual-fund shares. The alleged effect of the restriction identified in ¶ (b), by contrast, was to inhibit interdealer transactions and thus to restrict the growth and development of a secondary dealer market. App. 11.
Shortly after enactment of the Investment Company Act the NASD proposed, and the SEC approved, a rule establishing twice-daily pricing. See National Association of Securities Dealers, Inc., 9 S. E. C. 38 (1941). Twice-daily pricing reduced the time period in which persons could engage in riskless trading and correspondingly decreased the potential for dilution. The Commission subsequently provided full protection against the dilutive effects of riskless trading. In late 1968 it exercised its authority under
“No registered investment company shall sell any redeemable security issued by it to any person except either tо or through a principal underwriter for distribution or at a current public offering price described in the prospectus, and, if such class of security is being currently offered to the public by or through an underwriter, no principal underwriter of such security and no dealer shall sell any such security to any person except a dealer, a principal underwriter, or the issuer, except at a current public offering price described in the prospectus.”
“[A]ny person regularly engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, insurance company, or investment company, or any person insofar as he is engaged in investing, reinvesting, or trading in securities, or in owning or holding securities, for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business.”
A “broker,” by contrast, is defined to be:
“[A]ny person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank or any person solely by reason of the fact that such person is an underwriter for one or more investment companies.”