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From Securities Regulation Daily, April 30, 2013

Court Lacked Jurisdiction to Review SEC’s Refusal to Suspend SRO Fee Rules

By John M. Jascob, J.D.

A District of Columbia circuit panel has held that it lacked jurisdiction to review the SEC's refusal to suspend the rules set by three securities exchanges for the acquisition of proprietary market data. Two trade associations, NetCoalition and the Securities Industry and Financial Markets Association, had challenged the SEC's failure to suspend rule changes by NASDAQ, NYSE Arca, and NASDAQ OMX PHLX that increased the fees charged for the exchanges' non-core market data products. The appellate panel held, however, that Congress had removed the court's jurisdiction to review the SEC's inaction on the rule proposal when the Dodd-Frank Act amended Section 19(b)(3)(C) of the Exchange Act. Accordingly, the court dismissed the trade associations' petitions (NetCoalition v. SEC, April 30, 2013, Henderson, K.).

Statutory construction. The trade associations had argued that Section 19(b)(3)(C) only prohibits judicial review of an SEC suspension order and therefore, by negative implication, leaves a failure to suspend unaffected. The appellate court stated, however, that the language of the statute makes clear that Congress has withdrawn the court’s authority under Exchange Act Section 25(a)(1) to review “Commission action” pursuant to Section 19(b)(3)(C). Although noting that the earlier, modified references to “such action” refer only to suspension, the appellate court reasoned that to read “Commission action pursuant to this subparagraph” in the last sentence of Section 19(b)(3)(C) as applying only to a suspension would be to ignore Congress’s decision to leave the phrase “Commission action” in that sentence otherwise unmodified. The court assumed, therefore, that Congress’s decision not to modify “Commission action” so as to indicate that the phrase is limited to suspension was intentional. Accordingly, the appellate panel applied the jurisdictional bar of Exchange Act Section 19.

Availability of judicial review. The appellate court stated that its reading of the text of Section 19(b)(3)(C) was further bolstered by the availability of judicial review down the road. Consistent with the presumption of judicial review of agency action, the appellate panel observed that it has long allowed the availability of other avenues of review to affect the court’s assessment of its own jurisdiction. The court noted that Section 19(b)(3)(C) provides that any proposed SRO rule change may be enforced by the SRO to the extent it is not inconsistent with the applicable provisions of both the Exchange Act and federal and state law. This language suggests, therefore, that judicial review, if available, is to occur at the enforcement stage. As the SEC also maintained during the proceeding that Section 19(d) of the Exchange Act provides for review at the enforcement stage, the court stated that it would take the Commission at its word to make the Section 19(d) process available to parties seeking review of unreasonable fees charged for market data, thereby opening the gate to judicial review.

The case is No. 10-1421.

Attorneys: Roger D. Blanc (Willkie Farr & Gallagher, LLP) for NetCoalition. Kevin John Campion (Sidley Austin, LLP) for Securities Industry and Financial Markets Association. Michael Andrew Conley for the SEC.

Companies: NetCoalition; Securities Industry and Financial Markets Association

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