good morning your honor please the court my name is steven the dell falling lardner and i represent the plaintiff appellants the district court decision below dismissing this case for failure to exhaust mistreated remedies should be reversed for two fundamental reasons first exhaustion of remedies is neither necessary nor appropriate for the action involved was for profit private business activity and second there is no administrative remedy here to exhaust because the seas rules of practice preclude review of this matter and the f c c is not authorized by the exchange act to adjudicate damages claims or war damages critically the district court's decision is directly at odds with the second ninth and eleven circuits all of which uniformly held that the test of whether an exchange is activity is regulatory in nature and thereby deserving of the protection of the exhaustion and immunity doctrines turns upon whether or the exchanges in so acting quote stand in the shoes of us you see performing functions that the f c c itself would otherwise be performing here the district court erred by relying on the fact that these programs these payment for full programs were implemented pursuant to the as he sees rule making process but what the court ignored was the fact that in the rule making submissions these exchanges and in and concomitant releases the c all acknowledged that these programs were competitive responses to an ever more ferociously competitive marketplace and the programs were designed and had the function of luring order flow from  exchanges to the exchange in question and thereby drive additional profits our volume revenues by definition this conduct is business activity and indeed in connection with these rule making proposals and in its own two thousand and four concept release the exchanges and the f c c all acknowledged that these programs posed potential conflicts with the exchanges regulatory obligations various exchanges commented that their fear was that these programs by incenting the or the order flow to lift to an exchange by the payment of rebates would undermine price competition they made the point that the exchange that the market makers on the exchange should be incented to drive order flow to that exchange by aggressive quotations aggressive price competition and best execution and that by skewing the incentives and drawing order flow to that exchange by the payment of rebates there was at least a cut the threat that these important functions would be undermined and so in these will making proposals the exchanges went to some lengths to explain that even though these these programs were designed to drive order flow and grow profits managed properly and surveilled properly they could be rendered consistent with the exchanges duties under the exchange and ah the district court it did not mention any of these concerns at all and simply relied upon the fact that these were submitted as rule making proposals and have been labeled by the exchanges as rules but the district court failed to note that in two recent cases face book case out of out of the southern district of new york and often with fines out of who ruled that it is the substance and not the form that governs the determination of whether the activity is regulatory and entitled to the special protections that are normally only accorded to state actors or self regulatory agencies acting in their stead in those cases the court said that the rutan will making perceval is irrelevant to the decision as to whether the exchanges were entitled to protection accorded to state actors rather the question is whether the exchanges in conducting these activities were acting in the shoes of the f c c and doing what the f c c itself would otherwise have done was made of those whose cases are in the context of immunity not exhaustion or your honor facebook was in the context of immunity but i don't find was dealt with both immunity and exhaustion and those two cases along with weissman really address the pivotal point which was that whether we're talking about immunity or exhaustion the threshold consideration is whether the action involved is for profit business activity or truly regulatory activity because the exchanges are only entitled to the protection of either doctrine if in fact their conduct is or is regulatory activity carried out in the regulatory capacity and those exchanges apartment those courts may death point that these special protections are only afforded to the exchanges where they're acting as regulators in this case the exchanges make an this case by the way make the same argument that they made in those other cases which is that there they should be deserving of the protection afforded to state actors if their business conduct is related to or incident to were somehow consistent with their regulatory obligations these arguments were explicitly made explicitly rejected by those courts who all noted that if in fact they went down that slippery slope there was no limiting principle because virtually every activity on the part of the exchange would be somehow related to and hopefully consistent with its regulatory obligations and by about it by adopting the exchanges proposed formula but what the end result would be that virtually any action taken by the exchange even action to driven so which is to drive their profits would end up getting the of the immunity and exhaustion protection that is only afforded to state actors or those acting in their shoes importantly here the one other thing that the district court ignored was the fact that the i c c adopted its rules of practice pursuant to the requirements of the administrative procedures act and as the supreme court stated in morden versus ruiz any agency that adopts administrative procedures must abide by them where individual rights are at risk under rule for twenty exchanges laid out exactly what kind of exchange or s r o activities they would infect review and they are all typically damages such as this the probable reason for that is that under the exchange at the f c c is not authorized to award damages no court has ever ruled to the exchange that the f c c has that power every court that has been asked to address it doesn't preclude that but the problem your honor is that under administrative review ministry reviews presupposes some role for the aggrieved party who has some protections some right some opportunity to vindicate their rights to present evidence would be discordant but by its nature normally means discouraging funds wrongfully withheld the exchanges have made the point and federally that they have passed those funds and they no longer possess them so this quarter it may not even bit be available at all if it is we will never know sitting here today whether it could ever make us whole because we have no ability to understand or to know whether the exchange would pursue it probably whether the f c c would pursue it and what the amount of discourse meant would end up being but the fundamental problem with that your honor is that underlying the whole concept of administrative review is that the aggrieved party actually has a right to seek review of it on its own with certain procedural protections will i with it with the condition that if the i c c failed to do so or fail to obtain discouragement in the in the in the full amount or fail to pay over all of it's my clients with the understanding my clients could then pursue their rights is needed or to recover whatever damages if it ever occurred to run its course in the meantime justice delayed justice to the latest justice denied for a million with the term yes i don't know why what i what i think is important stress here as well because i think there is some confusion arising from the briefing here it is important to understand what is going on in today's marketplace because the exchanges have argued that that they are somehow serving to perfect the market by virtue of these programs i know first of all that every court that has been confronted with that argument has peers made the point that perfecting or facilitating the market is not a regulatory activity we have cited those cases in our brief so from a threshold point is that doesn't const regulatory to be in the first place but just so the court understands the national market system was developed in the seventy's and eighty's because congress perceived that there was a malays in the market due to a lack of competition today's programs are not i emphasize not about growing the pie in other words if we think of all the open interest in the options market as a pipe chart in all the options trading in the national market see it as part of that pie  for well this is not about growing the size of the pie this is about each exchange fighting with the other exchanges to get a bigger piece of that pie these exchanges by virtue of these programs we hope to lure order flow away from the other exchanges at the chip at the expense of those exchanges and thereby grow their volume their revenue and their profits so it's important to understand that is why exchanges with the time that these promote interest in presenting these programs only one of the exchanges here even mentioned the word liquidity but it's important understand that when we talk about liquidity if we're talking about the overall great depth of market in the national market system that is good morning him it was the court douglas hanken from baker botts and although i only represent the n y s e entities and the i o c entities i will be arguing on behalf of all of the defendants i'd like to start your honour's with two brief pick ups from m presentation the first one is a comment that he made and he said we don't know what would happen if the f c c were to get into this and that's really one of the key points that i think the court needs to keep in mind in addressing all of the various issues that have been presented to it we do not know what the f c c would do because the plaintiffs never asked and the plaintiffs never went to the f c c and plaintiffs never gave the f c c the opportunity to do the f c c is job specific job under the thirty four act which is to regulate and oversee the securities markets and one of the very specific things that is committed to the f c c these jurisdiction in the first instance is to make sure that the  an assertion that the s r o is weren't following their own rules and we also don't know what to do what the f c c would do about the elephant in the room which is the subject for now mr bell didn't mention in his presentation at all the fact that the reason that we're here is because for a period of seven years the subject firm which is the plaintiff has a nation of that entity miss market all of its orders as customer orders and that the exchanges did not know that those are orders were mis marked and so under the p f o f rules there as they were required to do when those orders came in as customer orders the s r o is charged with the payment for order fl questions here are not just what would the f c c do with respect to the accusation that the soros violated their own rules because under the rules as they're written the different the question is what would the i c c say about the subject firm and both of those are questions that the c has never been asked to address the other thing that i would like to address in the first instance briefly is mr bell statement that the idea that perfecting markets and fostering competitions amongst exchanges is not a regulatory function and that's more in fact it is such a significant regulatory function that it's specifically set forth as one of the goals of section six of the thirty four act every role tha doesn't fulfill those obligations so those are directly part of what at the f c c is charged overseeing and the asteroids are charged with doing in terms of developing a national market system under the thirty four act there's nothing more regulatory and that to the extent that issue matters and mr bell was back and forth between exhaustion and immunity and i would point out that in two cases specifically the capital n y s e specialists the second circuit in both of those cases held that conduct designed to prevent you know to perfect the national market system is immune product and the reason it helped that is because it specifically set forth as one of the goals and section s now obviously this case is about rules governing how fees are allocated each of the exchanges has a p f oh after all as your owners have seen in the briefing those rules exist to do a number of things that congress has specified as goals under the thirty four act including enhanced thing with court in competition amongst exchanges and that was an express goal of congress when it acted the seventy five amendments and what it said was that it wanted to increase competition among the exchange so that is what congress designed the system to do its uncontested that is required by the thirty four act every role that issue in this case was submitted to the f c c and they were either  approved or allowed to go into effect without interference by the f c c it's also one contested that the f c c has devoted substantial resources to studying p f o f programs including asking for public comment on whether it should ban them entirely now there was some discussion of the document that's in the record starting at page fifty seven which is called competitive developments in the options markets in two thousand and four that was a concept to raise and i think it's very important for the court to look at that document because it shows the f c c spending an extraordinary amount of time and asking an extraordinary number of questions about these systems and the f c c specifically noted the competition for a fall amongst exchanges ha resulted in transaction fees for customers getting narrower in other words it's good for customers and what this is the f c c actually said there was that p f o f programs primarily benefit intermediaries in the first instance and that may be passed on to customers one of the other things that i'd like to point about that's point out about that's competitive developments release is something it says inside the release that didn't get a lot of attention in the briefs but i think the court should focus  on we know that the plaintiffs didn't the f c c ease of use on the issues that they're talking about now but we know that some of the plaintiffs really do know how to go and ask the f c c to do things because if you look in the competitive developments release there is a discussion of a petition filed by subsequent hanna and what that petition requested was that subsequent hanna which is one of the plaintiffs here be excluded from all payment for order flow programs and the reason that i bring this up is that c hasn't felt the need to move because remember that under the thirty four act and specifically section nineteen the f c c has the authority to abrogate amend or modify the rules of any s r o any time it sees fit when it sees fit and if it doesn't see fit to do that then it won't act and it has not acted here that is not for lack of there having been requests for it to act including specifically the ones that are mentioned from such for hannah one of the things that you will see if you look at that competitor for at that concept release is the f c c asking lots and lots of very very detailed questions about what it ought to do it studied though it got whatever responses it got to those questions and determined not manager is it possible that he he and i would reject your thinking overdue for some reason again that's one of those we don't know questions the only way to find out is to ask and in fact that's why we point out in our briefs that the way you specifically direct you to section one thousand of the thirty four act and actually both section six and section one thousand section six describes what rules can be approved and what rules have to what rules have to satisfy in order to be approved and the from that is if a rule doesn't satisfy those requirements the f c c can't approve it or if the f c c finds that it needs to make a modification to make a roll consistent with section six it has to do that under its authority under section section one thousand gives the gives the f c c the duty to make sure that as far as are following their own rules we don't know whether there is a process for doing this because it hasn't come up before  that probably reflects plaintiffs in this instance preference for trying to do things through the federal courts because frankly that's what lawyers are used to that doesn't mean that the f c c has no authority as your honor was pointing out earlier it has a broad range of authorities that it can do ranging from modifying the rules asking for discouragement all the way to what you might call the death penalty sanction of revoking in exchanges ger charter in the first registration if it fin that it's doing enough bad things not and not applying its rules so what the plaintiffs need to do and didn't try to do and certainly haven't done is show that there's no adequate remedy for them before the f c c and if the taken up to the circuit to a circuit court and they would actually have their choice of circuits under section twenty five for them to say no you do have jurisdiction you should have done something different here so and that was going to be one of the things i was going to say next that is uncontested that the f c c could eliminate these rules entirely if it wanted to it's also uncontested that it was the subject firms responsibility to market supporters correctly in the first instance and that didn't end it during this period of time the exchanges didn't know that they were mis marked so it's uncontested therefore that the exchanges p f oac rules required these fees to be charged on customer orders to put it differently based on the orders what they look like when they came in the exchanges actually would have been violating their own rules had they not charged the fees that are at issue here and it's and it is as mr bell said uncontested that we don't have these fees anymore they've been passed on as the rules require and so we're here for some strange reason the plaintiffs decided to sue the exchanges they didn't sue the subject firm in any form we don't know why mr pradelle hasn't said anything about that in the complaint in the briefs before the district court in the room before this court or in his argument they didn't ask us to see to take action against anyone or review the exchanges performance of their duties in any way and by the way that's something that one has to assume the exchange that has the f c c would take quite seriously in fact the plaintiffs didn't use the thirty four act review process at all even though as i mentioned several minutes ago at least suspect hannah knew how to bring things to the attention of the f c c about these rules  and we're here because the exchanges twice removed complaints to the district court and the district court denied remap now let me address exhaustion because there's some back and forth and some confusion is between exhaustion and immunity and the key issue for exhaustion is whether there's an opportunity for administrator for you that's the question the question isn't are the rules regulatory under some definition of that word it's not anything else it's is there a path to review and we know that there is because we know that this is a subject that the f c c is intensely interested in standards for example the first the first second circuit opinion and standard there were three unfortunately but the first one is an example of a situation where it was what you might call a nonstandard no pun intended type of scenario where the issue was amendment of the exchanges of and of an s r o as bylaws and the plaintiffs in that case claimed c couldn't address that there was no basis there was no path for appeal and the court said no on the last yeah you were required to exhaust and dismissed for that reason ten month is also an example of a situation where there was potentially not a clear path but the third circuit said no you need to exhaust and that's exactly what we have here that system calls for the f c c to be the primary arbiter of whether as far as have complied with their own rules and that's not been done here and that system leaves no place for the trial courts here now i want to get into preemption and immunity which are really separate issues although they all function together to fulfill the what congress intended through the one nine hundred seventy five amendments immunity preemption exhaustion they reinforce each other probably is the best way to think about it they arise from different sources and they are different and they sometimes have different outcomes but with respect to claims against s r o zip as the d c circuit explained in series seven they do often produce the same outcomes now with respect to preemption although the plaintiffs try to dress up their claims as state law claims what they're really trying to do here is in force their view of how the exchanges p f are after rules should have worked there really is no question that despite the modifications that they made to take out the allegations in the complaint that they were trying to enforce rules those were just strike outs from the from the initial complaint that's really the goal here the goal is to enforce those rules and instead they changed it from enforcing the rules to enforcing the p programs and asking for a declaration that these particular transactions were outside the p f or out programs and that attempt fails for two different reasons the first reason it fails is because there is no private right of action under state law or federal law spicer held for violation or alleged violations of s our roles and second the thirty four act itself preempts any kinds of cause of action under state law because it provides the exclusive basis for review here and if plaintiffs don't like those remedies the ones that congress created then that means that their beef is with congress and that's exactly what the southern search what the d c circuit held in series seven and then we get to immunity and for the same reason exchanges are up for similar reasons the exchanges are immune and the test here is whether what the exchanges are doing is under the aegis of the thirty four act if i concerns the implementation operation or interpretation of their rules every court to address that issue has held that the exchanges are immune when there is a challenge under these circumstances where they are looking i could go on but i'm getting relatively close to the end of my time so unless the court has further questions i think i'll rest on our problem is you did you raise preemption below we did raise preemption below and as we noted in our brief it was  it was responded to specifically by the defendant by the plaintiffs in their briefs in the district court as preemption so they are and we argued for preemption they argued against preemption it happens that the district court didn't it didn't effectively the same thing you know whether whether we say that or whether one says that the thirty four act or kluge the cause of action or preempt that it's effectively the same thing it bars the plaintiff from asserting that cause of action in the guise of a state law claim cannot provide compensation then there is no administrative remedy to exhaust the point that you were making in that case was that even if there is a process when there isn't in this case the f c c is not authorized by the exchange  damages the second circuit noted in the barbara case that they are that they have no power to do that is a year and a half the exchange has not been able to find a single case showing you that the f c c has ever done it or has the power to do it so any legitimate question here is to whether the i c c will in fact reject this matter because under more versus ruiz the united states supreme court said that when individual rights are involved the administrative agencies must follow their procedures argue that we never went to the s c c suggesting to this court that we should have gone to the i c c i would just point out to you that the exchanges already took action the exchanges are suggesting that somehow it is up to us to somehow pursue and make things right with the subject firm but the exchanges already filed enforcement proceedings each one of them against the subject firm in their particular respect the at the exchanges were actually acting in their regulatory capacity they did what they thought was right it didn't include anyone else a medley any redress to us but they took their action there's no reason for us to go to the i c c because the u s he sees stand then in that regard the exchanges already took action that actually was within run or we would be because of our the fact that our clients are market makers we have known information whatsoever about what the subject from did or did not to other than what was set forth in the enforcement decisions by the exchanges in fact that is what triggered this whole process in the enforcement actions the exchanges made findings that the subject firmat improperly mark their orders which meant that necessarily that the exchanges were charging us for years that were not actually part of the program and not eligible for the program so we don't know what the what the subject from get it into our view judgment it is simply that the exchanges promise to do one thing to charges only for eligible orders they did another in understand or contract state law we are there for a title to relief i'm preemption let me just make a couple points there preemption if you search their briefs you will find no mention of the word preemption it's not in their briefs at all it was not made at that at the lower court level but even if it were i refer this court to two two to two decisions to the subject second circuit decision and barbara versus new york stock exchange where contrary to what counsel told you the second circuit was reviewing state law claims in which the plaintiffs were alleging a violation of the new york stock exchange rules those rules were actually were actually intrinsically regulatory they had to do with actions taken against the the the the barber court said that even though these are state law claims premised on violations of exchange rules because there was no implied part a right of action for the violation of those rules because these were made under state law there was not a federal question presented and we provided you with many cases that could come to the same conclusion in this court's decision and why god you made the point on the on deck ace involve the homeowners loan act and the office of thrift supervision and you made the point that where the statute doesn't allow for a quick private right of action and doesn't authorize the agency to award compensation to a customer in a claim against the bill the lending agency the lending entity that spoke clearly the card was not congress's intent to occupy the whole field of legislation if that is exactly analogous to this case where the exchange act does not authorize the f c c to award damages the f c c has no rule that would they were allowed in to review this and there's no implied part a right of action this case is squarely within this court's decision and why god finally on immunity what the exchanges fail to point out is that in the cases that n y c specialist case but w decision in the eleventh circuit and sparta surgical the the threshold question isn't how they came out it is what tests did they use and i and i and i hasten to point out here that in weissman face book an opulent  confronted with programs or activities that the courts found were designed to attract order flow to the exchange and all of those course using almost exactly the same language was that when the exchange attempts to attract order flow and revenues to itself in no one's interest but it's all it is not standing in the shoes of the f c c the f c c would never prefer one exchange over another it would never attempt to lower order flow from one exchange to another at the expense of the other exchange i'm out of time