Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-03698/USCOURTS-ca8-14-03698-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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United States Court of Appeals

For the Eighth Circuit

___________________________

No. 14-3698

___________________________

Automated Matching Systems Exchange, LLC

lllllllllllllllllllll Plaintiff - Appellant

v.

United States Securities and Exchange Commission; Stephen Luparello, in his

official capacity as Director of the Division of Trading and Markets

lllllllllllllllllllll Defendants - Appellees

___________________________

No. 15-2448

___________________________

Automated Matching Systems Exchange, LLC

lllllllllllllllllllllPetitioner

v.

United States Securities and Exchange Commission; Stephen Luparello, in his

official capacity as Director of the Division of Trading and Markets

lllllllllllllllllllllRespondents

____________

Petition for Review of an Order of the

 Securities & Exchange Commission

____________

Appellate Case: 14-3698 Page: 1 Date Filed: 06/20/2016 Entry ID: 4414302 
 Submitted: February 9, 2016

 Filed: June 20, 2016

____________

Before SHEPHERD, BEAM, and KELLY, Circuit Judges.

____________

SHEPHERD, Circuit Judge.

Automated Matching Systems Exchange, LLC (“AMSE”) appeals a final

agency order by the Securities and Exchange Commission (“the Commission”),

denying AMSE’s application for a limited volume exemption from registration as a

national securities exchange under § 5 of the Securities Exchange Act of 1934 (“the

Act”), 15 U.S.C. § 78a et. seq., and the district court’s dismissal of AMSE’s 1

complaint for lack of jurisdiction. Finding that the Commission reasonably

concluded that the Act does not permit an exempt exchange to operate with the selfregulatory powers AMSE proposed in its application, and that the district court lacked

jurisdiction to consider AMSE’s claims, we affirm.

2

I.

In December 2013, AMSE began communicating with the Commission

regarding AMSE’s interest in applying for a limited transaction volume exemption

from registration as a national securities exchange under §78e of the Act. It filed an

application in March 2014. In April 2014, the Commission staff returned the

The Honorable Karen E. Schreier, United States District Court Judge for the

1

District of South Dakota. 

Because this court issatisfied that the Commission reasonablydenied AMSE’s

2

application for exemption, we need not determine whether AMSE may qualify as an

“exchange.”

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application as defective. In May 2014, the Commission staff discussed with AMSE

the return of its application and the Commission staff’s concerns. 

In June 2014, AMSE filed suit against the Commission and its Director of the

Division of Trading and Marketsin federal district court. In its suit, AMSE requested

that the district court compel the defendants to “either grant [the] application or

institute proceedings on why it should be denied.” AMSE also filed a motion for a

preliminary injunction requesting the same relief. Later in June 2014, the

Commission staff and AMSE reached an agreement regarding the processing of

AMSE’s application. AMSE revised its application, and the Commission published

the application for comment. In September 2014, AMSE filed an amended complaint

with the district court. The Commission moved to dismiss the complaint and the

district court granted the motion, concluding that there was no final order and that

exclusive jurisdiction to consider such claims laid with the appellate court.

In October 2014, the Commission issued an order instituting proceedings to

determine whether to grant or deny AMSE’s revised application for exemption. SEC.

Release No. 34-73419, 79 Fed. Reg. 64421-02 (Oct. 29, 2014). In the order, the

Commission expressed concerns regarding whether the proposed model fit under the

definition of “exchange,” as used in § 3(a)(1) of the Act. In November 2014, AMSE

filed amendments. In its application, AMSE referred to itself as a “self-regulatory

organization” (“SRO”) as defined in the Act and proposed to exercise a broad range

of self-regulatory powers. In December 2014, the Commission published notice of

the amendments for public comment. See A.R. 507-516. In the notice, the

Commission stated that it was considering denialfor the previously stated reasons and

because AMSE’s intention to exercise the broad powers of an SRO, while operating

under the limited-volume exemption from registration, was contrary to the Act. 

A.R. 509-511. In response, AMSE submitted amendments changing the language to

refer to AMSE as a “limited volume exempt regulatory organization,” but not

modifying its proposed powers in any way. A.R. 720-1004.

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In June 2015, the Commission issued a final order denying AMSE’s

application for exemption. A.R.1014. The order identified AMSE’s intention to

“possess the broad regulatory powers and responsibilities that are reserved to [SROs],

while simultaneously seeking exemption from registration as an exchange” as its

“fatal flaw.” A.R. 1009, 1015. It noted that AMSE referred to itself in “terms that 3

pertain only to SROs under the Act,” including AMSE’s statement that its rules

would be filed under § 19(b) of the Act, which controls the filing of rules by an SRO. 

A.R. 1011. Further, AMSE’s rules stated that “its disciplinary decisions and access

decisions would be subject to agency review under the Act, where such review is

available only for the activities of SROs under § 19 of the Act,” and “implie[d] that

it falls generally within the category of an SRO and that it would exercise authority

as such.” A.R. 1011. Notably, the Commission found that AMSE asserted that “its

members would hold a status under the Act that is only conferred on members of

SROs.” A.R. 1011. Also concerning to the Commission was AMSE’s proposal to

require its members and associated persons “to recognize AMSE as being required

to discipline themfor violations ofthe Act,including through: expulsion;suspension;

limitation of activities, functions, and operation; fines; censure; suspension or bar

from association with an AMSE member; or any other sanction determined in

AMSE’s discretion for violations of the Act.” A.R. 1014. The Commission

concluded that the exercise of such powers by an exempt exchange would be

inconsistent with the Act and public interest.

The order also expressed concern whether AMSE’s proposed business model 3

would meet the definition of an exchange under § 3(a)(1) of the Act.

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II.

A.

The Administrative Procedure Act provides that the Commission’s legal

conclusions are entitled to deference unless they are “arbitrary, capricious, an abuse

of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Under

Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., we defer to an

agency’s reasonable interpretation of a statute that it is charged with administering

if the statute is ambiguous, or the interpretation is consistent with the plain meaning

of the statute. 467 U.S. 837 (1984). This means that “[i]f the intent of Congress is

clear, that isthe end of the matter; for the court as well asthe agency, must give effect

to the unambiguously expressed intent of Congress.” Id. at 842-43. If Congressional

intent is not clear, the agency’s reasonable interpretation of the ambiguous statute

must control. Id. at 843.

Where a party challengesthe Commission’s denial of an exemption, our review

is “highly deferential.” Copley Fund, Inc. v. S.E.C., 796 F.3d 131, 135 (D.C. Cir.

2015). The court will “set aside the Commission’s denial of an exemption only if the

agency’s reasons are so insubstantial as to render that denial an abuse of discretion.”

Id. (internal quotations omitted). “An agency’s strict construction of a general rule

in the face of waiver requests is insufficient evidence of an abuse of discretion.”

Universal City Studios LLLP v. Peters, 402 F.3d 1238, 1242 (D.C. Cir. 2005). “[W]e

review de novo the district court’s dismissal of an action for lack of jurisdiction.” 

Kennedy v. Ferguson, 679 F.3d 998, 1001 (8th Cir. 2012).

B.

Because the Commission is charged with administering the Act and has shown

consistency in its interpretation of it, we defer to the Commission’s reasonable

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Appellate Case: 14-3698 Page: 5 Date Filed: 06/20/2016 Entry ID: 4414302 
interpretation. See Chevron, 467 U.S. at 843-844. We find that the Commission’s 4

determination that it does not have the authority under the Act to permit an exempt

exchange to exercise powers and responsibilities reserved for an SRO to be

reasonable.

The Act controls what types of entities can operate as a securities exchange.

5

15 U.S.C. § 78a, et seq. Under it, an exchange may operate if it “(1) is registered as

a national securities exchange under section 78f of this title, or (2) is exempted from

such registration upon application by the exchange because, in the opinion of the

Commission, by reason of the limited volume of transactions effected on such

exchange, it is not practicable and not necessary or appropriate in the public interest

or for the protection of investors to require such registration.” § 78e. Alternatively,

an entity can register as a broker-dealer and comply with Regulation Alternative

Trading System(“ATS”), exempting itfromthe definition of “exchange.” Regulation

of Exchanges and Alternative Trading Systems, 63 Fed. Reg. 70844-01 (Dec. 22,

1998).

When an exchange registers as a national securities exchange, it also becomes

an SRO. § 78c(a)(26). As an SRO, Congress delegates it “certain quasigovernmental functions and responsibilities,” “fundamental to the enforcement ofthe

The Act’s language provides strong support for the Commission’s 4

interpretation, but because the Commission’s interpretation is reasonable, we will

proceed assuming that the Act is ambiguous on this point.

Under the Act, “[t]he term ‘exchange’ means any organization, association, 5

or group of persons, whether incorporated or unincorporated, which constitutes,

maintains, or provides a market place or facilities for bringing together purchasers

and sellers of securities or for otherwise performing with respect to securities the

functions commonly performed by a stock exchange as that term is generally

understood, and includes the market place and the market facilities maintained by

such exchange.” § 78c(a)(1).

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Appellate Case: 14-3698 Page: 6 Date Filed: 06/20/2016 Entry ID: 4414302 
federal securities laws.” 63 Fed. Reg. at 70881. A registered national securities

exchange enforces compliance ofits members and associated persons with its internal

rules, as well as with federal securities laws and rules and regulations thereunder. 

§ 78f(b)(6); § 78s(g)(1). It “must maintain procedures to surveil for securities law

violations, such as insider trading and manipulation on the exchange” and examine

its members for compliance with securities laws, Commission rules and regulations,

and its own rules. 63 Fed. Reg. at 70881; § 78f(b). A registered national securities

exchange must also discipline its members and persons associated with its members

when it finds a violation. § 78f(b)(6)-(7). Its rules must address a variety of subjects

and be designed to achieve certain goals. These subjects include membership, fair

representation in governance, and burdens on competition. § 78f(b)(2)-(3), (8). The

goals include prevention of fraudulent or manipulative acts and practices, promotion

of trade, and prevention of unfair discrimination. § 78f(b)(5). The rules must not be

designed to regulate matters unrelated to the purposes of the Act orthe administration

of the national securities exchange under the authority of the Act. § 78f(b)(8). 

Because registered national securities exchanges, acting as SROs, wield such

extensive and important powers, the Commission is statutorily obligated to exercise

oversight. § 78f(b). This includes ensuring that registered national securities

exchanges are capable of performing quasi-governmental responsibilities and that

their self-regulation powers are exercised in a manner consistent with the public

interest and protection of investors. § 78f(b)(1). In 1975, Congress amended the Act

to ensure that registered national securities exchanges “follow effective and fair

procedures . . . and that the Commission’s oversight powers are ample and its

responsibility to correct self-regulatory lapses is unmistakable.” S. Rep. No. 94-75,

at 23 (1975). This extensive oversight includes the ability to approve or disapprove

proposed rule changes; abrogate, add or delete from a registered national securities

exchange’s rule; review a final disciplinary sanction imposed by a registered national

securities exchange or a denial of access; and “suspend for a period . . . or to censure

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Appellate Case: 14-3698 Page: 7 Date Filed: 06/20/2016 Entry ID: 4414302 
or impose limitations upon the activities, functions, and operations” of a registered

national securities exchange. § 78s(b)-(e), h(1), h(4).

If an entity meets the definition of “exchange,” but wishes to operate without

registering as a national securities exchange, it must either obtain an exemption as a

limited-volume exchange or register as a broker-dealer and comply with Regulation

ATS. 63 Fed. Reg. at 70848. Under the Regulation ATS alternative, the entity would

be required to be regulated by an SRO. 63 Fed. Reg. at 70857 (“Any national

securities exchange [choosing to operate as an alternative trading system] would, of

course, be required to give up its SRO functions and privileges, and to register as a

broker-dealer and become a member of a national securities association or other

SRO.”). An ATS may neither set rules governing conduct of subscribers other than

their conduct trading on that system, nor discipline subscribers other than through

exclusion from trading. 17 C.F.R. § 242.300(a)(2). Regulation ATS states that “any

system exercising self-regulatory powers, such as regulating its members’ or

subscribers’ conduct when engaged in activities outside of that trading system, must

register as [a national securities] exchange or be operated by a national securities

association [and] will not be permitted the option of registering as a broker-dealer.” 

63 Fed. Reg. at 70847. “This is because self-regulatory activities in the securities

markets must be subject to Commission oversight under Section 19 of the Exchange

Act.” 63 Fed. Reg. at 70847.

The Commission has discretion to grant a limited-volume exemption if it finds

that registration “is not practicable and not necessary or appropriate in the public

interest or for the protection of investors to require such registration.” § 78e. 

Limited-volume exchanges are not required to perform the quasi-governmental

functions assigned to registered national securities exchanges. § 78f(b). And

notably, they are not subject to the oversight provisions of § 78s. In the past 80 years,

the Commission has only granted two such exemptions. See Wunsch Auction Order,

S.E.C. Release No. 34-28899, 1991 WL 292060 (Feb. 20, 1991); Tradepoint Order,

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S.E.C. Release No. 34-41199, 1999 WL 152920 (Mar. 22, 1999). The Commission

has acknowledged “that the low volume exemption continues to be appropriate for

some exchanges, such as an exchange that, for example, disciplines its members

(other than by excluding them or limiting them from trading based on objective

criteria, such as creditworthiness), or has other self-regulatory attributes that exclude

it from the definition of alternative trading system, . . . and therefore preclude it from

making the choice to register as a broker-dealer.” 63 Fed. Reg. at 70848 n.33. Thus,

the self-regulating powers available to an entity under the limited-volume exemption

are, at a minimum, more expansive than those available to a broker-dealer.

Upon this foundation, we find that the Commission’s determination that it did

not have discretion to grant a low-volume exemption to AMSE because it proposed

to act as an SRO was reasonable. The Commission reasonably concluded that an

exempt exchange could not be an SRO and that permitting an exchange to wield the

6

broad powers of an SRO when the Commission is not statutorily required to exercise 7

§ 78c(a)(26) (defining SRO as “any national securities exchange, registered 6

securities association, or registered clearing agency”). 

AMSE indicated in its application that it would provide status to its broker- 7

dealer members only available to members of SROs. The Commission noted the

ways in which AMSE proposed to regulate its members and their associated persons

like an SRO: AMSE proposed to regulate its members with respect to training,

experience, and competence; financial responsibility and operational capacity; the

maintenance of books and records; business conduct; anti-money laundering

compliance programs; extension of margin or credit; custody of customer funds or

securities; fraud and manipulation; and compliance with broker best execution

obligations. It also proposed to regulate the associated persons of its members and

to require each member to establish, maintain, and enforce written supervisory

procedures, enabling the member to supervise the activities of its associated persons

and ensure their compliancewith the securities laws, rules, regulations and statements

of policy promulgated thereunder, as well as with AMSE’s rules. 

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Appellate Case: 14-3698 Page: 9 Date Filed: 06/20/2016 Entry ID: 4414302 
oversight would contradict the careful balance prescribed by Congress to protect the

8

public interest and investors. It reasoned, an entity with such power “could have a

substantial impact on the way those members engage in the securities business and

comply with the federalsecurities laws.” TheCommission’s conclusion is consistent

with the Commission’s prior reading of the Act. See 63 Fed. Reg. at 70847. Further

supporting its conclusion, the Commission noted that it had never before granted a

low-volume exemption to an exchange proposing to exercise such powers. We find

9

that the Commission’s conclusion is well-reasoned and does not constitute an abuse

of discretion.10

The Commission noted that it would lack its normal powers to “approve or 8

disapprove the proposed rule changes, abrogate, add to, or delete from an exchange

rule, review a final disciplinary sanction imposed by the exchange or any denial of

access, suspend for a period not exceeding twelve months . . . or to censure or impose

limitations upon the activities, functions, and operations ofthe exchange for specified

misconduct, or remove from office or censure any officer or director of the exchange

for specified misconduct.” (internal citations omitted). AMSE volunteersto be bound

by the same provisions, but this would only provide the Commission with oversight

at AMSE’s discretion.

Only two such exemptions have been granted in the past 80 years, Tradepoint 9

and Wunsch Auction. These exemptions were conditioned upon their agreement to

enforce internal rules, but not the Act. See Tradepoint Order, 1999 WL 152920, at

*4, *9 (“[I]f Tradepoint were to register as a national securities exchange under the

Exchange Act, it would be required to become a self-regulatory organization, [and]

to file copies of proposed rules with the Commission for approval or disapproval.”);

Wunsch Auction Order, 1991 WL 292060, at *3, *5, *6-*7 (“[T]he Commission

believes that it would be so disproportionately burdensome to compel WASI to

satisfy all of the regulatory requirements imposed upon registered national securities

exchanges under the Act as to be impracticable.”). 

AMSE also alleges that the Commission breached an implied duty of good 10

faith by failing to “confer[] with applicants and make[] suggestions in appropriate

cases for amendments and supplemental information.” See 17 C.F.R. § 202.3(b)(2). 

AMSE failsto provide any authority indicating thatsuch conferring isrequired orthat

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III.

Finally, AMSE argues that the district court erred in determining that it did not

have jurisdiction to hear AMSE’s claims alleging procedural deficiencies in the

Commission’s work or AMSE’s claim for a declaratory judgment. AMSE’s first

amended claimto the district court alleged thatCommission staff contravened the Act

by violating AMSE’s “right” to confer with Commission staff and to “amend or

supplement its application” accordingly. However, the Act states that “[a] person

aggrieved by a final order of the Commission . . . may obtain review of the order in

the United States Court of Appeals.” § 78y(a)(1). See, e.g., N.Y. Republican State

Comm. v. SEC, 799 F.3d 1126, 1132 (D.C. Cir. 2015) (finding that the United States

Courts of Appeals hold exclusive jurisdiction to hear challenges to an order issued

by the agency); Altman v. SEC, 768 F. Supp. 2d 554, 558 (S.D.N.Y. 2011) aff’d, 687

F.3d 44 (2d Cir. 2012) (“[The United States Courts of Appeals’] jurisdiction is

exclusive.”). As is the case here, “where a statute commits final agency action to

review by the Court of Appeals, the appellate court has exclusive jurisdiction to hear

suits seeking relief that might affect its future statutory power ofreview.” Telecomm.

Research & Action Ctr. v. FCC, 750 F.2d 70, 72 (D.C. Cir. 1984). Thus, the district

court correctly found that it lacked jurisdiction. Additionally, AMSE’s Count II

claim for declaratory relief, asking the court to find that AMSE is an “exchange” or

permitting it to operate withoutregistering, would certainly interfere with thisCourt’s

jurisdiction and require the district court to make a determination that Congress has

committed to the Commission. See § 78e (stating that a proposed exchange can be

exempt if “in the opinion of the Commission . . . it is not practicable and not

necessary or appropriate.”). AMSE has failed to establish circumstances permitting

for district court review.

the Commission had a responsibility to inform AMSE of the maximum selfregulatory powers that it could exercise while still qualifying for a low-volume

exemption. The Commission reasonably concluded that its staff may identify when

such conferring is appropriate. Further, Commission staff did consult with AMSE.

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IV.

For the foregoing reasons, we deny AMSE’s petition for review and affirm the

district court’s judgment. Additionally, this court denies AMSE’s Motion to

Supplement the Administrative Record and Second Motion to Supplement the

Administrative record.

11

______________________________

AMSE has failed to satisfy the court that the additional proposed evidence is 11

both material and that there were reasonable grounds for failing to provide it earlier. 

15 U.S.C. § 78y(a)(5).

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