Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca5-21-60626/USCOURTS-ca5-21-60626-0/pdf.json

Parties Involved:
Alliance for Fair Board Recruitment
Petitioner
Nasdaq Stock Market, L.L.C.
Intervenor
National Center for Public Policy Research
Petitioner
Securities and Exchange Commission
Respondent

Document Text:

United States Court of Appeals

for the Fifth Circuit ____________

No. 21-60626

____________

Alliance for Fair Board Recruitment; National Center 

for Public Policy Research,

Petitioners, 

versus

Securities and Exchange Commission, 

Respondent. 

______________________________

Petition for Review of an Order of

the United States Securities and Exchange Commission

Agency No. 34-92590

______________________________

Before Stewart, Dennis, and Higginson, Circuit Judges.

Stephen A. Higginson, Circuit Judge: 

The “fundamental purpose” of the Securities Exchange Act of 1934 

(Exchange Act), codified as amended at 15 U.S.C. § 78a et seq., is to enforce

“a philosophy of full disclosure . . . in the securities industry.” Affiliated Ute 

Citizens of Utah v. United States, 406 U.S. 128, 151 (1972) (quoting SEC v. 

Capital Gains Rsch. Bureau, 375 U.S. 180, 186 (1963)); e.g., Lorenzo v. SEC, 

139 S. Ct. 1094, 1103 (2019); Kokesh v. SEC, 581 U.S. 455, 458 n.1 (2017);

SEC v. Zandford, 535 U.S. 813, 819 (2002); Cent. Bank of Denver, N.A. v. First 

Interstate Bank of Denver, N.A., 511 U.S. 164, 171 (1994); Basic Inc. v. 

Levinson, 485 U.S. 224, 230 (1988); Santa Fe Indus., Inc. v. Green, 430 U.S. 

United States Court of Appeals

Fifth Circuit

FILED

October 18, 2023

Lyle W. Cayce

Clerk

Case: 21-60626 Document: 289-1 Page: 1 Date Filed: 10/18/2023
No. 21-60626

2

462, 477-78 (1977). Consistent with this goal, Nasdaq Stock Market, LLC 

(Nasdaq) proposed a rule that would require companies listed on its stock

exchange to disclose information about their board members, as well as a rule 

that would give certain companies access to a board recruiting service. After 

the Securities and Exchange Commission (SEC or Commission) approved 

these rules, Alliance for Fair Board Recruitment (AFBR) and the National 

Center for Public Policy Research (NCPPR) petitioned for review. Because 

the SEC’s Approval Order complies with the Exchange Act and the 

Administrative Procedure Act (APA), the petitions are DENIED.

I.

A.

Nasdaq is a private company that operates a securities exchange.

Under the Exchange Act, a securities exchange must register with the SEC

as a “national securities exchange” or seek an exemption. 15 U.S.C. § 78e. 

To be registered as a “national securities exchange,” the exchange must have 

rules that “are designed to prevent fraudulent and manipulative acts and 

practices, to promote just and equitable principles of trade, . . . to remove 

impediments to and perfect the mechanism of a free and open market and a 

national market system, and, in general, to protect investors and the public 

interest.” Id. § 78f(b)(5). But the rules must not be “designed to permit 

unfair discrimination between customers, issuers, brokers, or dealers, or to 

regulate by virtue of any authority conferred by [the Exchange Act] matters 

not related to the purposes of [the Exchange Act] or the administration of the 

exchange.” Id. And the rules must not “impose any burden on competition 

not necessary or appropriate in furtherance of the purposes of [the Exchange 

Act].” Id. § 78f(b)(8).

The Exchange Act classifies “national securities exchange[s]” like 

Nasdaq as “self-regulatory organization[s]” (SROs). 15 U.S.C. § 78c(26). 

The rules of an SRO may be changed in two ways. The method at issue in 

this case, set out in 15 U.S.C. § 78s(b), permits SROs to propose their own 

Case: 21-60626 Document: 289-1 Page: 2 Date Filed: 10/18/2023
No. 21-60626

3

rules and obtain Commission approval.1 Under 15 U.S.C. § 78s(b)(1), an 

SRO must file its proposed rule with the SEC, and the SEC must publish 

notice of the proposed rule and provide an opportunity for comment. After 

notice and comment, the SEC must either approve or disapprove the rule. 

The SEC “shall approve a proposed rule change of a self-regulatory 

organization if it finds that such proposed rule change is consistent with the 

requirements of this chapter and the rules and regulations issued under this 

chapter that are applicable to such organization.” 15 U.S.C. 

§ 78s(b)(2)(C)(i) (emphasis added). If the SEC does not make such a 

finding, it must disapprove the proposed rule. 15 U.S.C. § 78s(b)(2)(C)(ii).

B.

On December 4, 2020, Nasdaq filed proposed rule changes to address 

board diversity. See Notice of Filing of Proposed Rule Change to Adopt 

Listing Rules Related to Board Diversity, Release No. 34-90574, 85 Fed. Reg. 

80,472 (Dec. 11, 2020); Notice of Proposed Rule Change to Adopt Listing

Rule IM-5900-9 to Offer Certain Listed Companies Access to a 

Complimentary Board Recruit Solution to Help Advance Diversity on 

Company Boards, Release No. 34-90571 (Dec. 4, 2020). The SEC solicited

comments on the proposed rules and received many, including from 

NCPPR.

2

On February 26, 2021, Nasdaq submitted a letter in response to 

comments received and filed a superseding amendment with modifications 

_____________________

1 The SEC may also “abrogate, add to, and delete from” the rules of an SRO by 

following the process set out in 15 U.S.C. § 78s(c).

2 See U.S. Secs. & Exch. Comm’n, Comments on NASDAQ Rulemaking (last 

modified Aug. 6, 2021), https://www.sec.gov/comments/sr-nasdaq-2020-

081/srnasdaq2020081.htm; Justin Danhof & Scott Shepard, Nat’l Ctr. for Pub. Pol’y Res., 

Re: File Number SR-NASDAQ-2020-081 (Dec. 30, 2020),

https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-8259890-

227947.pdf.

Case: 21-60626 Document: 289-1 Page: 3 Date Filed: 10/18/2023
No. 21-60626

4

and clarifications to the proposed rules based on those comments.3 AFBR 

filed a seventy-eight-page opposition to the proposed rules.4

The proposed rules included two parts: (1) a “Board Diversity 

Proposal” (Disclosure Rule) and (2) a “Board Recruiting Service Proposal”

(Recruiting Rule) (collectively, the Rules). Release No. 34-92590, 86 Fed. 

Reg. 44,424-25 (Aug. 12, 2021) (Approval Order) (footnote omitted). As the 

SEC explained:

Under the Board Diversity Proposal, the Exchange proposes to 

require each Nasdaq-listed company, subject to certain 

exceptions, to publicly disclose in an aggregated form, to the 

extent permitted by applicable law, information on the 

voluntary self-identified gender and racial characteristics and 

LGBTQ+ status (all terms defined below) of the company’s 

board of directors. The Exchange also proposes to require each 

Nasdaq-listed company, subject to certain exceptions, to have, 

or explain why it does not have, at least two members of its 

board of directors who are Diverse, including at least one 

director who self-identifies as female and at least one director 

who self-identifies as an Underrepresented Minority or 

LGBTQ+. Under the Board Recruiting Service Proposal, the 

Exchange proposes to provide certain Nasdaq-listed 

companies with one year of complimentary access for two users 

to a board recruiting service, which would provide access to a 

_____________________

3 See Jeffrey S. Davis, Senior Vice President, Senior Deputy Counsel, Nasdaq, 

Response to Comments and Notice of Filing of Amendment No. 1 of Proposed Rule 

Change to Adopt Listing Rules Related to Board Diversity (Feb. 26, 2021), 

https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-8425992-

229601.pdf

4 See All. for Fair Bd. Recruitment, Comments Submitted on Behalf of Alliance for 

Fair Board Recruitment (Apr. 6, 2021), https://www.sec.gov/comments/sr-nasdaq-2020-

081/srnasdaq2020081-8639478-230941.pdf. 

Case: 21-60626 Document: 289-1 Page: 4 Date Filed: 10/18/2023
No. 21-60626

5

network of board-ready diverse candidates for companies to 

identify and evaluate. 

Id.

Under the proposed rules, 

“Diverse” would be defined to mean an individual who selfidentifies in one or more of the following categories: (i) Female, 

(ii) Underrepresented Minority, or (iii) LGBTQ+. . . . 

“Female” would be defined to mean an individual who selfidentifies her gender as a woman, without regard to the 

individual’s designated sex at birth; “Underrepresented 

Minority” would be defined to mean an individual who selfidentifies as one or more of the following: Black or African 

American, Hispanic or Latinx, Asian, Native American or 

Alaska Native, Native Hawaiian or Pacific Islander, or Two or 

More Races or Ethnicities; and “LGBTQ+” would be defined 

to mean an individual who self-identifies as any of the 

following: Lesbian, gay, bisexual, transgender, or as a member 

of the queer community.

Id. at 44,425 n.18.

On August 6, 2021, the SEC issued an Approval Order, approving the 

proposed rule changes. See id. at 44,424-25. The SEC found that the Board 

Diversity Proposal “would establish a disclosure-based framework for 

Nasdaq-listed companies that would contribute to investors’ investment and 

voting decisions.” Id. at 44,428. The SEC recognized that “the proposal 

may have the effect of encouraging some Nasdaq-listed companies to 

increase diversity on their boards” but concluded that “the proposed rules 

do not mandate any particular board composition.” Id. Companies that

failed to meet the objectives set forth in the proposed rule could nonetheless

comply with the rule by explaining why the company does not meet the 

Case: 21-60626 Document: 289-1 Page: 5 Date Filed: 10/18/2023
No. 21-60626

6

objectives, “and the Exchange would not assess the substance of the 

company’s explanation.” Id. Moreover, as explained in the Approval Order:

[W]hile there would be costs to listing elsewhere, companies 

that object to providing any explanation can choose instead to 

list on a different exchange. No company is required to list on 

Nasdaq. Rather, exchanges compete for listings, with four 

exchanges that currently list securities of operating companies 

and nine exchanges that have rules for the listing of issuers on 

the exchange. Listing exchanges compete with each other for 

listings in many ways, including listing fees, listing standards, 

and listing services. In approving proposed rule changes 

relating to complimentary services that exchanges offer to 

issuers, including issuers that switch listing markets, the 

Commission has also explained that exchanges are responding 

to competitive market pressures. . . . [T]he current proposals 

may provide another way in which the exchanges compete for 

listings.

Id. The SEC ultimately concluded the proposed rules were consistent with 

the Exchange Act and approved the Rules. Id. at 44,432-33.

On August 10, 2021, AFBR petitioned this court for review of the 

Approval Order. On September 8, 2021, this court granted Nasdaq leave to 

intervene on behalf of the SEC. On October 27, 2021, NCPPR’s petition was 

transferred from the Third Circuit to this court. 

Petitioners contend that the Rules violate the First and Fourteenth 

Amendments to the U.S. Constitution and violate the SEC’s statutory 

obligations under the Exchange Act and the APA.

Case: 21-60626 Document: 289-1 Page: 6 Date Filed: 10/18/2023
No. 21-60626

7

II.

We turn first to petitioners’ constitutional claims.5

 We review 

constitutional objections to agency actions de novo. See Emp. Sols. Staffing 

Grp. II, L.L.C. v. Off. of Chief Admin. Hearing Officer, 833 F.3d 480, 484 (5th 

Cir. 2016); Trinity Marine Prods., Inc. v. Chao, 512 F.3d 198, 201 (5th Cir. 

2007). 

In general, the Constitution only appliesto state action. This doctrine 

“distinguishes the government from individuals and private entities,” and 

“[b]y enforcing that constitutional boundary[,] . . . protects a robust sphere 

of individual liberty.” Manhattan Cmty. Access Corp. v. Halleck, 139 S. Ct. 

1921, 1928 (2019). 

Petitioners have two state-action theories: first, that Nasdaq is itself a 

government entity bound by the Constitution; and second, that Nasdaq’s 

Rules in this case are attributable to the government such that constitutional 

restraints apply. Neither prevails.

_____________________

5 As a threshold matter, the parties dispute whether NCPPR has standing. In its 

opening brief, NCPPR addressed standing only by stating that “NCPPR is a non-profit

organization incorporated in Delaware and located in Washington, D.C. It both holds stock 

and exercises its voting rights in Nasdaq-listed companies.” The SEC argues that this 

statement fails to demonstrate standing because statements by counsel in briefs are not 

evidence, Skyline Corp. v. NLRB, 613 F.2d 1328, 1337 (5th Cir. 1980), and, even if such 

statements were evidence, “NCPPR does not state what Nasdaq-listed companies it owns 

stock in, whether those companies already meet Nasdaq’s diversity objectives, or how they 

plan to respond to the rules.” The SEC thus argues that NCPPR has forfeited the issue of 

its standing, and “only the arguments raised by AFBR are properly before the Court.” In 

its reply brief, NCPPR argues that it has not forfeited standing, and attaches a declaration 

by Scott Shepard, the director of NCPPR’s Free Enterprise Project, stating in part that 

NCPPR “held shares in about 30 Nasdaq-listed companies.” We opt to consider NCPPR’s 

declaration submitted in reply, because it appears that NCPPR’s cursory treatment of 

standing in its opening brief is explained by “a good-faith (though mistaken) belief that 

standing would be both undisputed and easy to resolve.” Ctr. for Biological Diversity v. 

EPA, 937 F.3d 533, 542 n.4 (5th Cir. 2019). And Shepard’s declaration suffices to establish 

NCPPR’s standing to sue. 

Case: 21-60626 Document: 289-1 Page: 7 Date Filed: 10/18/2023
No. 21-60626

8

A.

First, NCPPR contends that Nasdaq itself “is a state actor constrained 

to act within constitutional bounds because it is a creature of federal law, 

serves federal interests, and is controlled by a federal agency.” This theory 

turns not on the SEC Approval Order, but rather on Nasdaq’s characteristics

and its relationship to the SEC. In accord with the many courts that have 

considered this question, we hold that Nasdaq is not a state actor.

Nasdaq is a private entity. It is a private limited liability company 

wholly owned by Nasdaq, Inc., a publicly traded corporation. Nasdaq’s

board of directors is selected by its broker-dealer members and by Nasdaq, 

Inc., and companies wishing to list on Nasdaq do so by entering into contracts 

with Nasdaq. While Nasdaq must register with and is heavily regulated by 

the SEC, the Supreme Court has made clear that a private entity does not 

become a state actor merely by virtue of being regulated. “[T]he ‘being 

heavily regulated makes you a state actor’ theory of state action is entirely 

circular and would significantly endanger individual liberty and private 

enterprise.” Halleck, 139 S. Ct. at 1932.

Based on similar facts, our fellow circuits have found that SROs 

registered with the SEC are private entities, not state actors. For instance, 

the Second Circuit has determined, and subsequently affirmed in several 

decisions, that SROs are not state actors. In Desiderio v. NASD, Inc., 191 F.3d 

198, 206 (2d Cir. 1999), a plaintiff claimed that her constitutional rights were 

violated by the mandatory arbitration clause in a form used by the National 

Association of Securities Dealers, Inc. (NASD), a “self-regulatory private 

corporation registered with the [SEC] as a national securities association.” 

Id. at 201. The court held that the plaintiff’s “constitutional arguments all 

fail because the requisite state action is absent.” Id. at 206. In reaching this 

conclusion, the Second Circuit held that the NASD is a private entity: 

The NASD is a private actor, not a state actor. It is a private 

corporation that receives no federal or state funding. Its 

Case: 21-60626 Document: 289-1 Page: 8 Date Filed: 10/18/2023
No. 21-60626

9

creation was not mandated by statute, nor does the government 

appoint its members or serve on any NASD board or 

committee. Moreover, the fact that a business entity is subject 

to ‘extensive and detailed’ state regulation does not convert 

that organization’s actions into that of the state. . . . Indeed, we 

have already ruled that the New York Stock Exchange—a selfregulatory private organization like the NASD—is not a state 

actor.

Id. (citations omitted); see also D.L. Cromwell Invs., Inc. v. NASD Regulation, 

Inc., 279 F.3d 155, 162 (2d Cir. 2002) (“It has been found, repeatedly, that 

the NASD itself is not a government functionary.” (collecting cases)); 

Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 138 (2d Cir. 2002) (“It is clear that 

NASD is not a state actor and its requirement of mandatory arbitration is not 

state action.”). Other circuits have reached similar conclusions. See Epstein 

v. SEC, 416 F. App’x 142, 148 (3d Cir. 2010) (unpublished) (“Epstein cannot 

bring a constitutional due process claim against the NASD, because the 

NASD is a private actor, not a state actor.” (cleaned up)); First Jersey Secs., 

Inc. v. Bergen, 605 F.2d 690, 698 (3d Cir. 1979) (noting that “Congress 

preferred self-regulation by a private body over direct involvement of a 

governmental agency”); Jones v. SEC, 115 F.3d 1173, 1183 (4th Cir. 1997) 

(“While the NASD is a closely regulated corporation, it is not a 

governmental agency, but rather a private corporation organized under the 

laws of Delaware. As such, it is highly questionable whether its disciplinary 

action of members, even if it is considered to be a quasi-public corporation, 

can implicate the Double Jeopardy Clause.”); Bernstein v. Lind-Waldock & 

Co., 738 F.2d 179, 186 (7th Cir. 1984) (explaining that a securities or 

commodity exchange is not “an arm of the federal government” because 

“the purpose of the federal law is to strengthen the power and responsibility 

of the exchange in performing a policing function that preexisted federal 

regulation,” and ultimately holding that “the action of the Mercantile 

Exchange was not the action of the federal government for purposes of the 

Case: 21-60626 Document: 289-1 Page: 9 Date Filed: 10/18/2023
No. 21-60626

10

due process clause of the Fifth Amendment”); Rosee v. Bd. of Trade of City of 

Chi., 311 F.2d 524, 526 (7th Cir. 1963) (“The activities of the [Chicago] 

Board of Trade. . . do not fall within the category of governmental action.”); 

Galuska v. N.Y. Stock Exch., 210 F.3d 374, 2000 WL 347851, at *2 (7th Cir. 

2000) (stating in dicta that the “NYSE is not a governmental actor subject to 

the Constitution’s mandates”); Duffield v. Robertson Stephens & Co., 144 F.3d 

1182, 1200-02 (9th Cir. 1998), overruled on other grounds by EEOC v. Luce, 

Forward, Hamilton & Scripps, 345 F.3d 742 (9th Cir. 2003) (considering 

NASD and NYSE’s arbitration rules and concluding that there was no state 

action); Roberts v. AT&T Mobility LLC, 877 F.3d 833, 843 (9th Cir. 2017) 

(approvingly citing Duffield’s reasoning on state action).6

Petitioners are incorrect that our court departed from this line of 

authority in Intercontinental Industries, Inc. v. American Stock Exchange, 452 

F.2d 935 (5th Cir. 1971). In that case, petitioner Intercontinental Industries, 

Inc. (INI) asked the court “to review an order of the [SEC] granting the 

American Stock Exchange the right to strike the common stock of INI from 

listing and registration on the Exchange.” Id. at 937. INI argued that the 

procedure followed by the SEC and the Exchange was one that “denied [INI] 

the full and fair hearing demanded by the due process of the Constitution.” 

_____________________

6 Petitioners filed a 28(j)-letter directing this court to a three-sentence order from 

a split D.C. Circuit panel, which granted an emergency injunction prohibiting the Financial 

Industry Regulatory Authority (“FINRA”) from expelling one of its members pending

appeal. See Alpine Securities Corp. v. Financial Industry Regulatory Authority, No. 23-5129 

(D.C. Cir. July 5, 2023). In addition to the different procedural posture of that case (an 

injunction pending appeal) and the fact that it involves a different organization, the D.C. 

Circuit appeal relates to an enforcement proceeding, which is not at issue here. To the 

extent that Petitioner relies on the reasoning identified in one judge’s concurrence—that 

FINRA may be a state actor—that view represents the opinion of one judge at a preliminary 

stage of a case, prior to merits briefing, involves a wholly separate issue—an expedited 

enforcement action adjudicated by FINRA—and contradicts decades of case law across 

circuits. See discussion supra II.A.

Case: 21-60626 Document: 289-1 Page: 10 Date Filed: 10/18/2023
No. 21-60626

11

Id. at 940. Before reaching the merits of INI’s due-process claim, the court 

said:

[T]he Exchange’s position that constitutional due process is 

not required since the Exchange is not a governmental agency 

is clearly contrary to numerous court decisions. See Burton v. 

Wilmington Parking Authority, 365 U.S. 715 (1961); Colon v. 

Tompkins Square Neighbors, Inc., 294 F. Supp. 134 (S.D.N.Y. 

1968); McQueen v. Druker, 438 F.2d 781 (1st Cir. 1971). The 

intimate involvement of the Exchange with the [SEC] brings it 

within the purview of the Fifth Amendment controls over 

governmental due process.

Id. at 941. The court also listed examples illustrating the SEC’s statutory

relationship with the American Stock Exchange. Id. at 941 n.9. But in the 

fifty years since Intercontinental was written, the law upon which this passage 

relied has changed. Intercontinental invokes Burton v. Wilmington Parking 

Authority, where the Supreme Court attributed state action to a private entity 

because the state had “so far insinuated itself into a position of 

interdependence” with a private entity that “it must be recognized as a joint 

participant in the challenged activity.”7

 365 U.S. 715, 725 (1961). This no

longer reflects the governing standard. As the Supreme Court explained in 

American Manufacturers Insurance Co. v. Sullivan, “Burton was one of our 

early cases dealing with ‘state action’ under the Fourteenth Amendment, 

and later cases have refined the vague ‘joint participation’ test embodied in 

that case.” 526 U.S. 40, 57 (1999). Specifically, after the Supreme Court’s 

decisions in Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974), RendellBaker v. Kohn, 457 U.S. 830 (1982), and Blum v. Yaretsky, 457 U.S. 991 

(1982), state action requires “affirmative” state “encouragement”—thus, 

_____________________

7 The other two cases cited by Intercontinental, Colon v. Tompkins Square Neighbors, 

Inc., 294 F. Supp. 134, 137-38 (S.D.N.Y. 1968), and McQueen v. Druker, 438 F.2d 781, 782-

84 (1st Cir. 1971), also rely on Burton. 

Case: 21-60626 Document: 289-1 Page: 11 Date Filed: 10/18/2023
No. 21-60626

12

joint participation exists where private acts “not only contribute[] to, but also 

[a]re indispensable elements in, the financial success of a governmental 

agency.” Frazier v. Bd. of Trs. of Nw. Miss. Reg’l Med. Ctr., 765 F.2d 1278, 

1286-88 (5th Cir.) (citations omitted), amended in part, 777 F.2d 329 (5th Cir. 

1985). And as we explain, supra Section II.B, under the modern doctrine, the 

government did not act jointly with the SEC in this case.

Moreover, this passage in Intercontinental is dicta. 452 F.2d at 941. 

The court clarified that “rather than decide” whether the exchange was a 

state actor, the court took no position on the issue. See id. Indeed, the court 

went on to reject INI’s due-process arguments on the merits.8 Id. at 942–43. 

Because the state-action observation was not a necessary component of the 

court’s holding, the language on which petitioners rely is dicta. See In re 

Hearn, 376 F.3d 447, 453 (5th Cir. 2004) (noting that “obiter dictum” is a 

“judicial comment made during the course of delivering a judicial opinion, 

but one that is unnecessary to the decision in the case and therefore not 

precedential” (quoting Black’s Law Dictionary 1100 (7th ed. 1999)). 

Judge Friendly recognized as much a few years after Intercontinental was 

decided, characterizing the statement as dictum and casting doubt on the 

proposition in light of intervening Supreme Court precedent. See United 

States v. Solomon, 509 F.2d 863, 871 (2d Cir. 1975) (“We need not here decide 

whether stock exchanges may be subject to some due process requirements 

for certain types of action as stated in dictum in Intercontinental 

_____________________

8 In Rooms v. SEC, the Tenth Circuit made a similar move, pretermitting the stateaction question in the context of a due-process challenge to SEC action. There, the 

petitioner argued to the Tenth Circuit that the SEC had violated his due-process rights by 

upholding a permanent bar that the NASD National Adjudicatory Council imposed on him 

as a sanction for misconduct. 444 F.3d 1208, 1212, 1213–14 (10th Cir. 2006). The court 

stated that “[d]ue process requires that an NASD rule give fair warning of prohibited 

conduct before a person may be disciplined for that conduct” and concluded that, 

“[b]ecause Mr. Rooms had fair notice that his conduct was contrary to [one of NASD’s 

rules], we reject his due process argument.” Id. at 1214. But the court did not discuss state 

action, much less explain if NASD’s rules constituted state action. 

Case: 21-60626 Document: 289-1 Page: 12 Date Filed: 10/18/2023
No. 21-60626

13

Industries . . . , although the recent decision in Jackson v. Metropolitan Edison 

Co., 419 U.S. 345 (1974), would suggest the need for some caution on this 

score.”). 

AFBR asserts that this court has cited Intercontinental “for its 

constitutional holding” in two subsequent cases, and that these cases are

therefore “independent precedents” that bind us on the state-action 

question presented here. But even assuming that Intercontinental is good law, 

these cases do not turn Intercontinental’s dicta into precedent. AFBR first 

cites Harding v. American Stock Exchange, Inc., 527 F.2d 1366 (5th Cir. 1976). 

In Harding, the plaintiffs brought various claims against the American Stock 

Exchange for suspending the trading of its stock and for applying to delist its 

stock from the exchange. Id. at 1366–67. In affirming the district court’s 

dismissal of the action, the court held that plaintiffs lacked a federal cause of 

action for their constitutional due-process challenge. Id. at 1370. The court 

then wrote, in a footnote: “We note that [the plaintiff] could have raised 

alleged due process violations in an appeal from the SEC delisting order 

under [15 U.S.C. § 78y]” and cited Intercontinental. Id. at 1370 n.5. This 

passing remark about a hypothetical challenge not before the court has no 

precedential effect. See In re Hearn, 376 F.3d at 453.

Second, AFBR cites North Alabama Express, Inc. v. United States, 585 

F.2d 783 (5th Cir. 1978). There, the court cited Intercontinental, among other 

cases, for the proposition that “[i]n the administrative context, due process 

requires that interested parties be given a reasonable opportunity to know the 

claims of adverse parties and an opportunity to meet them.” Id. at 786. The 

court then explained that these requirements are embodied in certain 

sections of the Interstate Commerce Act. Id. There is no mention of 

Intercontinental’s state-action language, much less a statement or even 

insinuation that stock exchanges are state actors by virtue of their 

relationship to the SEC. This case too fails to give binding effect to the 

passage in question from Intercontinental.

Case: 21-60626 Document: 289-1 Page: 13 Date Filed: 10/18/2023
No. 21-60626

14

The Supreme Court’s Amtrak cases do not help the petitioners either. 

In Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (1995), and 

Department of Transportation v. Association of American Railroads, 575 U.S. 43 

(2015), the Supreme Court examined whether Amtrak qualifies as a state 

actor for constitutional purposes. Holding that it does, the Court in Lebron 

wrote that where “the Government creates a corporation by special law, for 

the furtherance of governmental objectives, and retains for itself permanent 

authority to appoint a majority of the directors of that corporation, the 

corporation is part of the Government for purposes of the First 

Amendment.” 513 U.S. at 400. The Court elaborated in American Railroads: 

Given the combination of these unique features and its 

significant ties to the Government, Amtrak is not an 

autonomous private enterprise. Among other important 

considerations, its priorities, operations, and decisions are 

extensively supervised and substantially funded by the political 

branches. A majority of its Board is appointed by the President 

and confirmed by the Senate and is understood by the 

Executive to be removable by the President at will. Amtrak was 

created by the Government, is controlled by the Government, 

and operates for the Government’s benefit. Thus, in its joint 

issuance of the metrics and standards with the FRA, Amtrak 

acted as a governmental entity for purposes of the 

Constitution’s separation of powers provisions.

575 U.S. at 53–54.

Nasdaq is different. Although Nasdaq and other SROs must register 

with the SEC, they were not created by the government. See Free Enter. Fund 

v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 484-85 (2010) (explaining that, 

although SROs are “subject to Commission oversight,” they are not 

“Government-created, Government-appointed” entities). Nor does Nasdaq 

operate under the direction or control of the SEC in the manner described in 

Lebron and American Railroads. Its board members are not appointed or 

Case: 21-60626 Document: 289-1 Page: 14 Date Filed: 10/18/2023
No. 21-60626

15

confirmed by government officials, nor are they removable by the 

government. And although SROs must register with and have their rules 

approved by the SEC, it is well established that “being regulated by the State 

does not make one a state actor.” Halleck, 139 S. Ct. at 1932; see also Jackson, 

419 U.S. at 350 (explaining that even where “many particulars” of a private 

company’s business are “subject to extensive state regulation,” the company

does not become a government entity). So Nasdaq bears no resemblance to 

Amtrak. See Perpetual Sec., 290 F.3d at 138 (“It is clear that NASD is not a 

state actor and its requirement of mandatory arbitration is not state 

action. . . . Lebron is clearly distinguishable; Amtrak, the corporation at issue 

in Lebron, was created by the government ‘by special law for the furtherance 

of government objectives,’ and the government ‘retain[ed] for itself 

permanent authority to appoint a majority of the directors of’ Amtrak. There 

is no commonality between NASD and Amtrak.” (alteration in original) 

(citation omitted)). Indeed, Nasdaq has fewer government ties than other 

entities the Supreme Court has held not to be state actors. See, e.g., San 

Francisco Arts & Athletics, Inc. v. U.S. Olympic Comm., 483 U.S. 522, 542-44 

(1987) (holding that a federally chartered, regulated, and subsidized 

corporation was not a state actor). 

Finally, petitioners argue that Nasdaq must qualify as a state actor 

because otherwise its authority to self-regulate would violate the private 

nondelegation doctrine. According to petitioners, either Nasdaq is a state 

actor subject to constitutional scrutiny, or it is a private actor 

unconstitutionally exercising government power; the SEC and Nasdaq may 

not—the argument goes— “have it both ways.”9

_____________________

9 To be clear, because petitioners rely on this “either-or” proposition to establish 

state action and do not ask us to strike down Nasdaq’s Rules, the SEC’s Approval Order, 

or the Exchange Act on private nondelegation grounds, there is no private nondelegation 

challenge properly before us in this case. 

Case: 21-60626 Document: 289-1 Page: 15 Date Filed: 10/18/2023
No. 21-60626

16

But petitioners cite no authority for the proposition that a selfregulating entity subject to government oversight must either exercise 

delegated governmental authority or be a state actor. And it’s unsurprising 

that the petitioners cannot find a case to back up this catch-22 because the

private-nondelegation and state-action inquiries are distinct. Under the 

private nondelegation doctrine, “[a] federal agency may not ‘abdicate its 

statutory duties’ by delegating them to a private entity.” Texas v. Rettig, 987 

F.3d 518, 531 (5th Cir. 2021) (quoting Sierra Club v. Lynn, 502 F.2d 43, 59 

(5th Cir. 1974)). The state-action doctrine, by contrast, asks whether the 

challenged conduct is fairly attributable to the government. See Am. Mfrs.

Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999). Petitioners fail to explain why 

Nasdaq cannot be a private entity whose conduct, while subject to 

government regulation, is neither an exercise of the SEC’s government 

authority nor fairly attributable to the SEC.

10 The Second and Third Circuits 

have each impliedly found as much by holding that SROs are not state actors

and that SROs do not exercise unconstitutional delegations of legislative 

power. See R.H. Johnson & Co. v. SEC, 198 F.2d 690, 695 (2d Cir.), cert. 

denied, 344 U.S. 855 (1952) (“In the light of the statutory provisions 

concerning (a) the Commission’s power, according to reasonably fixed 

statutory standards, to approve or disapprove of the association’s Rules, and 

_____________________

10 Nor does the Sixth Circuit’s recent decision in Oklahoma v. United States, 62

F.4th 221 (6th Cir. 2023) support petitioners’ private nondelegation argument. AFBRfiled 

a Rule 28(j) letter alerting us to the Oklahoma decision, contending that it supports 

petitioners’ position that constitutional restraints apply to Nasdaq’s Rules and the SEC’s 

approval of the Rules. But Oklahoma is inapposite. There, the Sixth Circuit considered a 

private nondelegation challenge to the rulemaking authority of the Horseracing Authority, 

a private entity regulated by the Federal Trade Commission. Id. at 225. In rejecting the 

nondelegation challenge, the court discussed the relationship between SROs and the SEC, 

noting that “[i]n case after case, the courts have upheld this arrangement, reasoning that 

the SEC’s ultimate control over the rules and their enforcement makes the SROs 

permissible aides and advisors.” Id. at 229 (citations omitted). The case weighs against

petitioners’ assertions regarding private nondelegation and says nothing at all about state 

action.

Case: 21-60626 Document: 289-1 Page: 16 Date Filed: 10/18/2023
No. 21-60626

17

(b) the Commission’s review of any disciplinary action, we see no merit in 

the contention that the Act unconstitutionally delegates power to 

[NASD].”); First Jersey Sec., Inc. v. Bergen, 605 F.2d 690, 697 (3d Cir. 1979), 

cert. denied, 444 U.S. 1074 (1980). Petitioners give us no reason to reach a 

different result here. 

Accordingly, we hold that Nasdaq is not a state actor subject to 

constitutional constraints.

B.

Petitioners argue in the alternative that the SEC’s involvement with 

and approval of Nasdaq’s Rules render the Rules subject to constitutional 

scrutiny. This is only so if the Rules are “fairly attributable to the State.” 

Sullivan, 526 U.S. at 50. For this standard to be satisfied, there must be “a 

sufficiently close nexus between the State and the challenged action of the 

regulated entity.” Id. at 52 (citation omitted). Such a close nexus exists “in 

a few limited circumstances—including, for example, (i) when the private 

entity performs a traditional, exclusive public function; (ii) when the 

government compels the private entity to take a particular action; or (iii) 

when the government acts jointly with the private entity.” Halleck, 139 S. 

Ct. at 1928 (internal citations omitted). 

None of these conditions is met here. First, exchange listing standards 

are not “a traditional, exclusive public function.” Id. The New York Stock 

Exchange was founded in 1792, adopted a constitution in 1817, and 

promulgated rules for listed companies. See Am. Bar Ass’n, Special Study on 

Market Structure, Listing Standards and Corporate Governance, 57 Bus. Law. 

1487, 1497 (2002); 69 Fed. Reg. 71,256, 71,257 (Dec. 8, 2004). Stock 

exchanges then existed for over one hundred years as private associations 

regulating their own members before the SEC was created in 1934. See 4 

Thomas Lee Hazen, Law Sec. Reg. § 14:8 (2022). Rules like the 

ones at issue in this case are therefore not “traditionally the exclusive

Case: 21-60626 Document: 289-1 Page: 17 Date Filed: 10/18/2023
No. 21-60626

18

prerogative of the State.” Frazier, 765 F.2d at 1285 (emphasis omitted)

(quoting Rendell-Baker v. Kohn, 457 U.S. 830, 842 (1982)).

Next, this is not a case where “the government compel[led] the 

private entity to take a particular action.” Halleck, 139 S. Ct. at 1928 (citing 

Blum v. Yaretsky, 457 U.S. 991, 1004-05 (1982)). Far from it—Nasdaq came 

up with and proposed the Rules on its own. 

Petitioners attempt to show that the SEC in fact compelled Nasdaq to 

draft these Rules by pointing to the comments of two individual 

commissioners, Allison Herren Lee and Caroline Crenshaw, who had 

previously spoken in favor of diversity disclosure policies in the context of an 

SEC rule. The notice of Nasdaq’s proposed Rules appears to reference those 

comments in a list of reasons for the proposal. See 85 Fed. Reg. at 80,472 & 

n.7. Nasdaq’s reasons included its view that increased diversity results in 

“an increased variety of fresh perspectives, improved decision making and 

oversight, and strengthened internal controls,” as well as its “observ[ation] 

[of] recent calls from SEC commissioners and investors for companies to 

provide more transparency regarding board diversity.” Id. at 80,472-73. 

Because these comments were first mentioned in NCPPR’s reply 

brief, petitioners forfeited this argument. See Guillot ex rel. T.A.G. v. Russell, 

59 F.4th 743, 754 (5th Cir. 2023).

But even if we were to consider this argument, the commissioners’

remarks do not show that SEC compelled Nasdaq’s Rules. In making the 

cited statements, the individual commissioners were not speaking on behalf 

of the SEC as a body; rather, they were writing in a dissenting posture from 

the promulgation of a final rule. See, e.g., Comm’r Allison Herren Lee, U.S. 

Secs. & Exch. Comm’n, Statement, Regulation S-K and ESG Disclosures: 

An Unsustainable Silence (Aug. 26, 2020), 

https://www.sec.gov/news/public-statement/lee-regulation-s-k-2020-08-

26#_ftnref15. There is no evidence that the SEC as an entity weighed in on 

the merits of diversity disclosure rules, much less that Nasdaq was 

Case: 21-60626 Document: 289-1 Page: 18 Date Filed: 10/18/2023
No. 21-60626

19

“compelled” or even “significant[ly] encourage[d]” by the SEC to take this 

particular action. See Halleck, 139 S. Ct. at 1928; Blum, 457 U.S. at 1004 

(explaining that state action occurs if the government “exercise[s] coercive 

power” or “provide[s] such significant encouragement, either overt or 

covert, that the choice must in law be deemed to be that of the State”). Thus, 

the commissioners’ comments do not transform Nasdaq’s Rules into state 

action. See Jackson, 419 U.S. at 357 (“Approval by a state utility 

commission . . . , where the commission has not put its own weight on the 

side of the proposed practice by ordering it, does not transmute a practice 

initiated by the utility and approved by the commission into ‘state action.’”); 

cf. Skinner v. Ry. Lab. Execs.’ Ass’n, 489 U.S. 602, 615–16 (1989) (finding 

sufficient “encouragement, endorsement, and participation” that implicated 

the Fourth Amendment where the government “removed all legal barriers” 

to testing on trains; “made plain not only its strong preference for testing, 

but also its desire to share the fruits of such intrusions”; and “mandated that 

the railroads not bargain away” their ability to test). 

Nor is this a case where the government has acted jointly or is 

otherwise pervasively entwined with the private entity such that the 

challenged conduct is attributable to the government. See Halleck, 139 S. Ct. 

at 1928 (citing Lugar v. Edmonson Oil Co., 457 U.S. 922, 941–42 (1982)). 

Petitioners cite Brentwood Academy v. Tennessee Secondary School Athletic 

Association, in which the Supreme Court explained that it has “treated a 

nominally private entity as a state actor when it is controlled by an agency of 

the State, when it has been delegated a public function by the State, when it 

is entwined with governmental policies, or when the government is entwined 

in its management or control.” 531 U.S. 288, 296 (2001) (cleaned up). But 

these circumstances are absent here. Nasdaq generated the Rules itself, and 

then submitted them to the SEC for approval, as required by statute. The 

SEC engaged in its statutory review and issued the Approval Order. This 

yes-or-no approval process does not reflect the degree of entwinement 

required to turn the Rules into state action. See Sullivan, 526 U.S. at 52, 54 

Case: 21-60626 Document: 289-1 Page: 19 Date Filed: 10/18/2023
No. 21-60626

20

(explaining that “[a]ction taken by private entities with the mere approval or 

acquiescence of the State is not state action,” and that state “permission of 

a private choice cannot support a finding of state action”); Flagg Bros., Inc. v. 

Brooks, 436 U.S. 149, 165 (1978) (holding that a state is not responsible for a 

private decision that state law “permits but does not compel”); Jackson, 419 

U.S. at 357 (holding that a determination that a utility was “authorized to 

employ” a business practice did not make the practice state action); Blum, 

457 U.S. at 1004–05 (“Mere approval of or acquiescence in the initiatives of 

a private party is not sufficient to justify holding the State responsible for 

those initiatives.”); see also Desiderio, 191 F.3d at 206–07 (concluding that 

NASD’s challenged rule was not fairly attributable to the state because “no 

SEC rule or action that has been called to our attention encourages the NASD 

to compel arbitration,” and because “the arbitration clause in Form U-4 was 

drafted by the NASD in cooperation with other self-regulatory organizations, 

with no encouragement from the SEC,” and noting that though the rule “was 

subject to approval by the SEC, from which fact plaintiff infers that state 

action is present[,] [s]imply because the SEC approved the arbitration clause 

in Form U-4 is not enough. . . . The SEC’s ‘[m]ere approval’ of Form U-4 is 

‘not sufficient’ to justify holding the state liable for effects of the arbitration 

clause.” (citations omitted)); Perpetual Sec., 290 F.3d at 139 (“Because 

NASD is a private actor and because there is no nexus between its challenged 

action (compulsory arbitration) and the state, Perpetual’s claim of a due 

process violation is patently without merit.”); Bernstein, 738 F.2d at 186 

(finding that the Fifth Amendment due process clause did not apply to the 

Mercantile Exchange because “the fact that it is heavily regulated by a federal 

commission will not do, as that would bring under the Fifth Amendment 

much of the private sector, ranging from hospitals to railroads”). And it does

not matter, as NCPPR contends, that the SEC’s review is “active.” As the 

D.C. Circuit has explained, “[t]he Supreme Court has never held that the 

government becomes responsible for the actions of a third party due to the 

length or intensity of its attention to the actions of the party before approval.” 

Vill. of Bensenville v. FAA, 457 F.3d 52, 65 (D.C. Cir. 2006).

Case: 21-60626 Document: 289-1 Page: 20 Date Filed: 10/18/2023
No. 21-60626

21

Finally, AFBR argues that because Nasdaq must enforce the Rules

against its listed companies, subject to SEC sanctions if it fails to do so, the 

Rules are state action. AFBR relies on the Supreme Court’s decisions in

Shelley v. Kraemer, 334 U.S. 1 (1948), and Moose Lodge No. 107 v. Irvis, 407 

U.S. 163 (1972), for this proposition. But this argument misses the mark. In 

Shelley, the Supreme Court found state action where state courts had 

enforced racially restrictive covenants. 334 U.S. at 19. Similarly, in Moose 

Lodge, the Supreme Court held that the Constitution prohibited “invok[ing] 

the sanctions of the State to enforce a concededly discriminatory private 

rule,” 407 U.S. at 179, and enjoined government enforcement of the 

discriminatory rule. Id. The SEC has the statutory authority under 15 U.S.C. 

§ 78s(g) and (h) to sanction an SRO for failure to enforce its own rules. 

However, petitioners do not challenge these provisions or any enforcement 

action brought under these provisions as to Nasdaq’s Rules. Instead, 

petitioners seek constitutional review of the Rules themselves. Whether later 

enforcement of the Rules against Nasdaq would be state action is not a 

question presented by this petition, and so we will not touch it today.

11

_____________________

11 NCPPR argues in a similar vein that Nasdaq’s Rules are not private compacts 

but instead “operate[] . . . as federal law” because “companies must comply to participate 

in the securities market,” and Nasdaq faces penalties if it does not enforce its Rules. 

NCPPR cites Blount v. SEC, 61 F.3d 938 (D.C. Cir. 1995) in support of this contention and 

reiterated its reliance on this case at oral argument. Setting aside that this authority was 

cited for the first time in NCPPR’sreply brief, the case is unpersuasive. In Blount, the D.C. 

Circuit entertained a constitutional challenge to a rule of the Municipal Securities 

Rulemaking Board (“MSRB”), finding that the rule amounted to state action. Id. at 941. 

The court explained that the rule “operates not as a private compact among brokers and 

dealers but as federal law,” emphasizing that brokers and dealers are subject to financial, 

regulatory, and criminal penalties for failure to comply with MSRB rules. Id. The court 

concluded that the rule was “a government-enforced condition to any participation in a 

municipal securities career.” Id. (emphasis added). The same cannot be said about 

Nasdaq’s listing rules. The Rules govern the private relationships between Nasdaq and its 

listed companies. And should a company opt not to comply with the Rules, it can simply

list on a different exchange. The Rules therefore do not operate as a government-enforced 

condition to participation in the market.

Case: 21-60626 Document: 289-1 Page: 21 Date Filed: 10/18/2023
No. 21-60626

22

* * *

The Supreme Court recently cautioned that “[e]xpanding the stateaction doctrine beyond its traditional boundaries would expand 

governmental control while restricting individual liberty and private 

enterprise.” Halleck, 139 S. Ct. at 1934. We heed this warning in holding

that the Rules drafted and proposed by Nasdaq, a private self-regulatory 

organization, are not attributable to the government and are therefore not 

subject to constitutional scrutiny.

III.

Petitioners also argue that the SEC’s Approval Order exceeds the 

agency’s authority under the Exchange Act and is arbitrary and capricious. 

We deny the petitions on these grounds.

A.

Under the APA, the SEC’s Approval Order may be set aside if it is 

“in excess of statutory . . . authority.” 5 U.S.C. § 706(2)(C). To determine 

the extent of the SEC’s statutory authority, we “rely on the conventional 

standards of statutory interpretation,” Chamber of Com. v. U.S. Dep’t of Lab., 

885 F.3d 360, 369 (5th Cir. 2018), and “must give effect to the 

unambiguously expressed intent of Congress.”12 Huawei Techs. USA, Inc. v. 

FCC, 2 F.4th 421, 433 (5th Cir. 2021) (internal quotation marks and citation 

omitted); accord Mex. Gulf Fishing Co. v. U.S. Dep’t of Com., 60 F.4th 956, 

963 (5th Cir. 2023). 

Petitioners raise four challenges to the SEC’s statutory authority.

They argue (i) that the word “designed” in § 78f(b)(5) prohibits the SEC 

from considering investors’ subjective beliefs that disclosure would be 

valuable, (ii) that § 78f(b)(5) prohibits the SEC from approving an exchange 

_____________________

12 Because the Exchange Act unambiguously authorizes the SEC’s Approval 

Order, we do not consider whether, as NCPPR argues, deference to the SEC’s 

interpretation of the statute would be inappropriate. 

Case: 21-60626 Document: 289-1 Page: 22 Date Filed: 10/18/2023
No. 21-60626

23

rule that requires disclosure of information that would not be “material” for 

purposes of a securities fraud claim, (iii) that Congress did not explicitly 

authorize the SEC to approve a rule that infringes state sovereignty, and (iv) 

that Congress did not explicitly authorize the SEC to approve a rule that 

concerns “major policy questions of vast economic and political 

significance.” 

We reject these arguments and conclude that the SEC acted within its 

statutory authority in approving Nasdaq’s Rules.

13

_____________________

13 NCPPR also contends that the Exchange Act violates the nondelegation doctrine. 

This argument fails. Under the nondelegation doctrine, Congress can give executive 

agencies “regulatory power” so long as Congress “provides an ‘intelligible principle’ by 

which the recipient of the power can exercise it.” Jarkesy v. SEC, 34 F.4th 446, 461 (5th 

Cir. 2022) (quoting Mistretta v. United States, 488 U.S. 361, 372 (1989)); see Consumers’ 

Rsch. v. FCC, 63 F.4th 441, 447 (5th Cir. 2023). Here, Congress gave the SEC numerous

parameters for approving exchange rules. See 15 U.S.C. § 78f(b). To name a few, as 

described earlier, a rule must be “designed to prevent fraudulent and manipulative acts and 

practices, to promote just and equitable principles of trade, to foster cooperation and 

coordination with persons engaged in regulating, clearing, settling, processing information 

with respect to, and facilitating transactions in securities, to remove impediments to and 

perfect the mechanism of a free and open market and a national market system, and, in 

general, to protect investors and the public interest.” Id. § 78f(b)(5). A rule must not be 

“designed to permit unfair discrimination between customers, issuers, brokers, or 

dealers.” Id. A rule must not be “designed to . . . regulate by virtue of any authority 

conferred by this chapter matters not related to the purposes of this chapter or the 

administration of the exchange.” Id. And a rule must “not impose any burden on 

competition not necessary or appropriate in furtherance of the purposes of this chapter.” 

Id. § 78f(b)(8). This is more than enough guidance under this court’s and the Supreme 

Court’s nondelegation precedents. See, e.g., Gundy v. United States, 139 S. Ct. 2116, 2123–

24 (2019) (plurality op.); Jarkesy, 34 F.4th at 462-63 (holding that the intelligible principle 

standard means “that a total absence of guidance is impermissible under the 

Constitution”); Consumers’ Rsch., 63 F.4th at 447. And the petitioners have litigated this 

case as though the SEC did have adequate guidance from Congress: the heart of the 

petitioners’ APA challenge is that the SEC acted arbitrarily and capriciously in concluding 

that Nasdaq’s Rules met the statute’s parameters. 

Case: 21-60626 Document: 289-1 Page: 23 Date Filed: 10/18/2023
No. 21-60626

24

1.

To start, NCPPR argues that the SEC improperly considered “[t]he 

subjective belief and desire of a subset of investors.” The Exchange Act 

requires that the SEC find that an exchange rule is “designed” to meet 

certain statutory objectives, see 15 U.S.C. § 78f(b)(5), and NCPPR contends 

that the SEC may only rely on “objective evidence” in doing so. NCPPR 

does not explain what counts as “objective evidence,” except to say 

“empirical evidence” is in bounds and “subjective belief” is not.

But the Exchange Act does not limit the SEC to considering

“objective evidence” in deciding whether to approve a proposed rule. 

Instead, “the findings of the [SEC] as to the facts, if supported by substantial 

evidence, are conclusive.” 15 U.S.C. § 78y(a)(4) (emphasis added). 

“Substantial evidence is such relevant evidence as a reasonable mind might 

accept to support a conclusion. It is more than a mere scintilla and less than 

a preponderance.” Meadows v. SEC, 119 F.3d 1219, 1224 (5th Cir. 1997) 

(quoting Riley v. Chater, 67 F.3d 552, 555 (5th Cir. 1995)). Under this 

standard, so long as evidence is relevant to the issue at hand, the SEC can 

rely on it.

Domestic Securities, Inc. v. SEC illustrates the point. 333 F.3d 239 

(D.C. Cir. 2003). There, the petitioner challenged the SEC’s determination 

that a platform for displaying securities orders was technologically sound. 

See id. at 248. The petitioner argued that because the platform used an 

“obscure communications protocol” instead of the “standard industry 

protocol,” the platform would impose high costs on market participants. Id.

at 249 (cleaned up). Relying on the fact that “several” networks for 

securities transactions “expressed an interest in fulfilling their quote display 

obligations through [the platform],” the SEC found that the platform was 

viable. Id. The D.C. Circuit thought that this was enough, holding that 

“[t]hese expressions of interest support the SEC’s conclusion” that the 

platform was viable, even though the platform did not use the “standard 

industry protocol.” Id. As Judge Sentelle explained, writing for the panel, 

Case: 21-60626 Document: 289-1 Page: 24 Date Filed: 10/18/2023
No. 21-60626

25

“[t]he making of policy decisions and the resolution of conflicting evidence” 

is the SEC’s job, not the court’s. Id.

There is no textual basis in § 78f(b) for a separate “objective 

evidence” standard. NCPPR points to the requirement that an exchange rule 

be “designed to” meet certain goals,

14 15 U.S.C. § 78f(b)(5), and argues that 

a rule is “designed to” meet a goal if there is a “close causal nexus” between 

the rule and the goal. Even if this were true, however, NCPPR gives no 

reason why such a “close causal nexus” would have to be supported by 

“objective evidence” as opposed to “substantial evidence,” which is all the 

plain text of the statute requires.15 See id. § 78y(a)(4). 

Finally, NCPPR argues that the SEC cannot conduct an 

“independent review” of an exchange rule if the SEC relies on investors’ 

“subjective belief” as evidence. We agree that “the SEC cannot simply 

_____________________

14 Once again, see supra note 12, these goals are “to prevent fraudulent and 

manipulative acts and practices, to promote just and equitable principles of trade, to foster 

cooperation and coordination with persons engaged in regulating, clearing, settling, 

processing information with respect to, and facilitating transactions in securities, to remove 

impediments to and perfect the mechanism of a free and open market and a national market 

system, and, in general, to protect investors and the public interest.” 15 U.S.C. § 78f(b)(5).

15 The only case NCPPR cites in support of its theory, Business Roundtable v. SEC

(“Business Roundtable II”), is unpersuasive. 647 F.3d 1144 (D.C. Cir. 2011). In Business 

Roundtable II, petitioners challenged an SEC rule that required “public companies to 

provide shareholders with information about, and their ability to vote for, shareholdernominated candidates for the board of directors.” Id. at 1146. The court held that the SEC 

acted arbitrarily and capriciously for having failed “adequately to assess the economic 

effects of a new rule,” id. at 1148, in part because the SEC’s cost-benefit analysis was 

flawed. See id. at 1149–51. Among other mistakes, the SEC “relied upon insufficient 

empirical data when it concluded that [the rule] will improve board performance and 

increase shareholder value by facilitating the election of dissident shareholder nominees.”

Id. at 1150. Specifically, the SEC relied “exclusively and heavily upon two relatively 

unpersuasive studies,” even though commenters submitted “numerous studies . . . that 

reached the opposite result.” Id. at 1150–51. So, Business Roundtable II faulted the SEC for 

misinterpreting the evidence and proceeding without enough evidence—not relying on the 

wrong type of evidence. 

Case: 21-60626 Document: 289-1 Page: 25 Date Filed: 10/18/2023
No. 21-60626

26

accept what a self-regulatory organization has done, but rather is obligated to 

make an independent review.” Susquehanna Int’l Grp., LLP v. SEC, 866 

F.3d 442, 446 (D.C. Cir. 2017) (emphasis added) (cleaned up). But the 

SEC’s obligation to look beyond an exchange’s self-serving statements does 

not otherwise restrict what evidence the SEC can consider as “relevant.”

Meadows, 119 F.3d at 1224 (citation omitted). The SEC must independently 

analyze investor comments submitted during the administrative process. 

Still, the subjective opinions of those investors may be relevant evidence and 

sufficient to meet the substantial evidence standard, as they are here.

2.

Petitioners’ materiality challenge is also unconvincing. Their 

argument goes like this. Under the Exchange Act, the SEC cannot approve 

an exchange rule that is designed to “regulate by virtue of any authority 

conferred by [the Exchange Act] matters not related to the purposes of [the 

Exchange Act] or the administration of the exchange.” 15 U.S.C. § 78f(b)(5). 

According to the petitioners, “[a] disclosure requirement must be limited to 

‘material’ information to fall within the scope of the Exchange Act,” 

meaning that there is “a substantial likelihood that a reasonable investor 

would consider the information important in making a decision to invest.” 

Petitioners argue that “information regarding directors’ race, gender, and 

sexuality is not material.” From these premises, petitioners conclude that 

the SEC acted outside its statutory authority in approving Nasdaq’s Rules.

A “material misrepresentation (or omission)” is an element of 

securities fraud claims under certain parts of the Exchange Act and the 

SEC’s rules. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341 (2005) 

(emphasis omitted) (discussing § 10(b), 15 U.S.C. § 78j(b), and Rule 10b-5,

17 C.F.R. § 240.10b-5); see Heinze v. Tesco Corp., 971 F.3d 475, 483 (5th Cir. 

2020) (explaining that § 14(a), 15 U.S.C. § 78n(a), and Rule 14a-9, 17 C.F.R. 

§ 240.14a-9(a), allow a claim based on “material omissions from proxy 

statements” under certain circumstances). And it’s true, as petitioners note, 

that this element is satisfied “if there is a substantial likelihood that a 

Case: 21-60626 Document: 289-1 Page: 26 Date Filed: 10/18/2023
No. 21-60626

27

reasonable investor would consider the information important in making a 

decision to invest.” SEC v. World Tree Fin., L.L.C., 43 F.4th 448, 459 (5th 

Cir. 2022) (internal quotation marks and citation omitted); see Levinson, 485 

U.S. at 240 (“[M]ateriality depends on the significance the reasonable 

investor would place on the withheld or misrepresented information.”); TSC 

Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) (similar). 

But a disclosure rule can be “related to the purposes of [the Exchange 

Act],” 15 U.S.C. § 78f(b)(5), even if the SEC does not find that the disclosure 

rule is limited to information that would be “material” in the securities fraud 

context. The “fundamental purpose” of the Exchange Act is “implementing 

a philosophy of full disclosure,” Levinson, 485 U.S. at 230 (internal quotation 

marks and citation omitted)—not just the disclosure of information sufficient 

to state a securities fraud claim. Indeed, the Exchange Act gives the SEC 

“very broad discretion to promulgate rules governing corporate disclosure.”

Nat. Res. Def. Council, Inc. v. SEC, 606 F.2d 1031, 1050 (D.C. Cir. 1979). To 

give one example, for a security to be registered on an exchange, the SEC can 

require the issuer to disclose any information about “the organization, 

financial structure, and nature of the business” as is “necessary or 

appropriate in the public interest or for the protection of investors.” 15 

U.S.C. § 78l(b)(1)(A). Nothing in this provision or the provision governing 

exchange rules cabins disclosure rules to information that would meet the 

materiality element of a securities fraud claim. And, as the SEC Approval 

Order explains, “[e]xchanges have historically adopted listing rules that 

require disclosures in addition to those required by [SEC] rules.” 86 Fed. 

Reg. at 44,438 & n.202 (giving examples).

A materiality standard for exchange disclosure rules is also 

unworkable. Determining the materiality of a given statement is a “factspecific inquiry,” World Tree, 43 F.4th at 465 (quoting Levinson, 485 U.S. at 

240), that “is peculiarly within the competence of the trier of fact,” id. 

(citation omitted). Because materiality is context dependent, it is unclear 

how the SEC could say, in a factual vacuum, that a particular category of 

Case: 21-60626 Document: 289-1 Page: 27 Date Filed: 10/18/2023
No. 21-60626

28

information is or is not material to investors in all circumstances.

16 To make 

such a finding, the SEC would be forced to speculate about, and rule out, any

factual scenarios in which there might be “a substantial likelihood that a 

reasonable investor would consider” any information falling within the 

relevant category “important in making a decision to invest.” Id. at 459 

(citation omitted). The prohibition in § 78f(b)(5) on exchange rules that are 

designed to regulate matters unrelated to the purposes of the Exchange Act 

does not contemplate such an impossible task. No court, to our knowledge, 

has ever said it does. 

Of course, the Exchange Act still limits the kinds of disclosure rules 

the SEC can approve. An exchange rule, including a disclosure rule, must be 

“designed to” accomplish certain statutory objectives. See 15 U.S.C. 

§ 78f(b)(5). And disclosure rules that violate other requirements of § 78f

cannot be approved. To the extent that petitioners have briefed arguments 

on these fronts, we address them below. Here, to resolve petitioners’ 

statutory argument, we only need to hold that § 78f(b)(5) does not require an 

exchange disclosure rule to be limited to information that would be material 

for purposes of a securities fraud claim.

Before moving on, we note that even if the petitioners’ theory were 

right, substantial evidence supports the SEC’s finding that Nasdaq’s rule 

would provide “information that would contribute to investors’ investment 

and voting decisions.” 86 Fed. Reg. at 44,430. The SEC based this 

conclusion on “the broad demand for this information” from “institutional 

investors, investment managers, listed companies, and individual investors, 

as well as statements made by institutional investors, asset managers, and 

_____________________

16 In a specific factual setting, a specific statement may be “immaterial as a matter of 

law” if “there is no substantial likelihood that a reasonable investor would consider [the]

statement[] . . . to have significantly altered the total mix of information.” Nathenson v. 

Zonagen Inc., 267 F.3d 400, 422 (5th Cir. 2001) (internal quotation marks and citation 

omitted). 

Case: 21-60626 Document: 289-1 Page: 28 Date Filed: 10/18/2023
No. 21-60626

29

business organizations.” Id. In support, the SEC cited “statements from 

Vanguard, State Street Global Advisors, and BlackRock that call for 

companies to disclose board diversity information,” “petitions for [SEC] 

rulemaking from groups of institutional investors,” and comments from 

Goldman Sachs, Microsoft, and Facebook, among other market participants.

Id. at 44,430 nn. 91 & 92; see id. at 44,429 (pointing out that “many 

commenters believe[d] that the proposed board diversity disclosures would 

be material to investors”). For example, one “large, global asset manager” 

asserted that “[t]he composition of a company’s board and management is 

an important element of [its] fundamental analysis,”17 and a letter on behalf 

of investment institutions with over $325 billion under management said that 

a similar regime in Canada had “improv[ed] both the quality and quantity of 

diversity data” for use in “investment decision-making.”18 This evidence is 

sufficient to support the SEC’s determination that regardless of whether 

investors think that board diversity is good or bad for companies, disclosure 

of information about board diversity would inform how investors behave in 

the market:

[F]or investors who support board diversity, the proposed 

disclosures could inform their decision on issues related to 

corporate governance, including director elections, and 

company explanations as to why they do not meet the diversity 

objectives could better inform those investors as to the risks 

and costs of increased board diversity. And for investors who 

_____________________

17 William J. Stromberg & David Oestreicher, T. Rowe Price Group, Inc., RE: SR2020-081 (Dec. 29, 2020), https://www.sec.gov/comments/sr-nasdaq-2020-

081/srnasdaq2020081-8204319-227487.pdf. 

18 Kristi Mitchem, BMO Glob. Asset Mgmt., Re: The Nasdaq Stock Market LLC: 

Notice of Filing of Proposed Rule Change to Adopt Listing Rules Related to Board 

Diversity (Release No. 34-90574; File No. SR-NASDAQ-2020-081) (Jan. 11, 2021), 

https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-8231371-

227747.pdf. 

Case: 21-60626 Document: 289-1 Page: 29 Date Filed: 10/18/2023
No. 21-60626

30

do not believe that having additional “Diverse” directors 

would be beneficial for a company, the proposed disclosures 

could inform their decision to vote to preserve the existing 

board composition in a company.

Id. at 44,431.

Petitioners argue that board diversity information is immaterial 

because “there is no evidentiary basis to believe race, gender, and sexual 

preference of directors bear any relationship to corporate governance or 

performance.” But the SEC could find that disclosure of board diversity 

information would be “viewed by [a] reasonable investor as having 

significantly altered the ‘total mix’ of information made available,” Levinson, 

485 U.S. at 231–32 (citation omitted), even without conclusive empirical 

evidence that board diversity helps or hurts corporate performance. Here, as 

we explained, the SEC decided that board diversity information 

“contribute[s] to investors’ investment and voting decisions” based on 

substantial evidence of industry demand for this information to use in 

managing funds. 86 Fed. Reg. at 44,430. The SEC did not need to find that 

there is an empirical or scientific basis about the effects of board diversity or 

that these effects are beyond debate to conclude that a “reasonable investor” 

could find board diversity information “important.” World Tree, 43 F.4th at 

459. Rather, the SEC’s candid findings that “studies of the effects of board 

diversity are generally inconclusive” and “that the effects of even mandated 

changes remain the subject of reasonable debate,” 86 Fed. Reg. at 44,432, set 

alongside substantial evidence that many investors already use board 

diversity information to make investments, are consistent with a finding of 

materiality—assuming that it is even possible to make such a finding outside 

the context of securities fraud litigation.19

_____________________

19 AFBR also argues that “[t]he SEC itself has said the key inquiries for materiality 

focus on ‘quantitative considerations.’” But the Second Circuit case that AFBR quotes 

explained that “[a]ccording to [SEC guidance about materiality], both quantitative and 

Case: 21-60626 Document: 289-1 Page: 30 Date Filed: 10/18/2023
No. 21-60626

31

3.

Next, NCPPR argues that the SEC’s Approval Order approving 

Nasdaq’s Rules regulates corporate governance, an issue reserved for the 

states. Although NCPPR does not specify how the Rules regulate “the 

internal affairs” of corporations, we think that NCPPR means that Nasdaq’s 

Rules “impose . . . demographic quota and disclosure requirements on 

corporate boards.” But the SEC conclusively determined, based on 

substantial evidence, that Nasdaq’s proposal is a disclosure rule, not a 

mandatory quota; that Nasdaq’s disclosure-based framework does not alter 

the state-federal balance; and that the Exchange Act unambiguously 

authorizes the SEC to approve disclosure rules.

a.

First, the SEC’s finding that Nasdaq’s proposal is a “disclosure-based 

framework” and not a quota is supported by substantial evidence and 

therefore conclusive.20 86 Fed. Reg. at 44,428; 15 U.S.C. § 78y(a)(4). The 

SEC observed that:

_____________________

qualitative factors should be considered in assessing a statement’s materiality.” ECA, Loc. 

134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009)

(emphasis added). And the SEC guidance, which the Second Circuit treated as persuasive 

authority, demonstrates how incongruous it would be to import materiality into exchangerule approval decisions: “[u]nder [the quantitative] factor, the SEC considers the financial 

magnitude of the misstatement.” Id. How could the SEC assess “the financial magnitude” 

of a category of information without any facts about the disclosing company or the 

disclosure? In any event, in the securities fraud context, a plaintiff doesn’t have to show

that a misrepresentation is quantitative—or quantify its magnitude—to establish 

materiality. For example, conflicts of interest are generally material, even though a conflict 

of interest is not quantitative or readily quantifiable. See World Tree, 43 F.4th at 465 

(affirming district court’s conclusion “that a reasonable investor would consider important 

whether [d]efendants traded in the same securities as their clients,” and collecting cases).

20 Petitioners do not contest that the substantial evidence standard applies to this 

determination, as Nasdaq urges, so they have forfeited any argument that our review is

under a different standard. See Guillot ex rel. T.A.G. v. Russell, 59 F.4th 743, 754 (5th Cir. 

2023).

Case: 21-60626 Document: 289-1 Page: 31 Date Filed: 10/18/2023
No. 21-60626

32

the proposed rules do not mandate any particular board 

composition[,] . . . . would not require a company to select a 

director solely because that person falls within the proposed 

definition of ‘Diverse,’ would not prevent companies and their 

shareholders from selecting directors based on experience, 

competence, and skills, and would not substitute a regulator’s 

judgment for companies’ or their shareholders judgment in 

selecting directors. 

86 Fed. Reg. at 44,428. If a company does not meet diversity objectives, the 

company has the option to “explain[] why it does not meet the objectives.”

Id. And Nasdaq “would not assess the substance of the company’s 

explanation.” Id. Instead, companies that “prefer not to explain their 

approach to board diversity” can take advantage of “substantial flexibility in 

crafting the required explanation.” Id. According to Nasdaq, permissible 

explanations include: “The Company does not meet the diversity objectives 

. . . because it does not believe Nasdaq’s listing rule is appropriate,” “because 

it does not believe achieving Nasdaq’s diversity objectives are feasible given 

the company’s current circumstances,” “because the Nominations 

Committee considers a variety of professional, industry, and personal 

backgrounds and skill sets to provide the Board with the appropriate talent, 

skills, and expertise to oversee the Company’s business,” and because the 

Nominations Committee “is committed to ensuring that the Board’s 

composition appropriately reflects the current and anticipated needs of the 

Board and the company.”21 Therefore, all a company has to do is give an 

explanation, however short. In light of these parameters, the SEC was 

entitled to credit industry comments “stat[ing] that the proposal would not 

impose a quota for a minimum number of Diverse directors.” Id. at 44,427. 

_____________________

21 See Davis, supra note 3, at 8.

Case: 21-60626 Document: 289-1 Page: 32 Date Filed: 10/18/2023
No. 21-60626

33

True, there are mandatory parts of Nasdaq’s proposal. Companies 

need to report board diversity statistics, and a company with less than two 

diverse board members must say more than, “the Company does not comply 

with Nasdaq’s diversity rule.” Id. at 44,426 n.31. If a company with less than 

two diverse board members refuses to disclose why—in even the most 

minimal terms—the company may be delisted. See id. at 44,426. However, 

as the SEC explained, “[t]his is distinct from facing a fine as an alternative to 

compliance or possibly facing the requirement to dissolve for noncompliance.” Id. at 44,432. In other words, the requirement that a company 

give an explanation is not a sanction that mandates compliance with the twodiverse-board-members benchmark. The only sanction is for giving no

explanation at all. 

Thus, as the SEC concluded, the explanations are part of a disclosure 

framework, not a quota. See, e.g., id. at 44,428 n.54. The SEC acknowledged 

that this “proposal may have the effect of encouraging some Nasdaq-listed 

companies to increase diversity on their boards.” Id. at 44,428 (emphasis 

added). But the proposal does not require companies to have any number of 

diverse board members. All that’s required, under the proposal, is a de 

minimis explanation for having less than two diverse board members.22

In sum, the SEC made a reasonable finding—based on sufficient

evidence about how Nasdaq’s proposal would work and industry reactions to 

it—that the proposal does not impose a diversity quota on corporate boards.

We cannot “reweigh the evidence” and “substitute [our] judgment for that 

of the [SEC].” Meadows, 119 F.3d at 1224. Accordingly, we will adhere to 

the SEC’s conclusive determination that the proposal implements a 

_____________________

22 See generally Grutter v. Bollinger, 539 U.S. 306, 335 (2003) (“Properly 

understood, a ‘quota’ is a program in which a certain fixed number or proportion of 

opportunities are reserved exclusively for certain minority groups.” (emphasis added) 

(internal quotation marks and citation omitted)). 

Case: 21-60626 Document: 289-1 Page: 33 Date Filed: 10/18/2023
No. 21-60626

34

“disclosure-based framework.” 86 Fed. Reg. at 44,428; see 

15 U.S.C. § 78y(a)(4). 

b.

SEC approval of Nasdaq’s disclosure-based framework does not 

implicate the canon that Congress “must make its intention . . . unmistakably 

clear in the language of the statute” “to alter the usual constitutional balance 

between the States and the Federal Government.” Gregory v. Ashcroft, 501 

U.S. 452, 460 (1991) (internal quotation marks and citation omitted).

At the threshold, this canon only applies when a statute is ambiguous.

Salinas v. United States, 522 U.S. 52, 60 (1997) (citing Gregory, 501 U.S. at 

467). But instead of identifying any triggering ambiguity in the Exchange Act, 

NCPPR’s position appears to be that in approving Nasdaq’s proposal, the 

SEC construed the Exchange Act to permit federal encroachment upon a 

traditional state power. Without an adequately briefed articulation of what 

specific statutory provision is at issue, and why that provision is ambiguous

such that the canon applies, we decline to hold that the SEC lacked statutory 

authority to approve Nasdaq’s proposal on this basis.

Regardless, Nasdaq’s disclosure-based framework does not alter the 

state-federal balance. It is well-established that disclosure rules do not 

interfere with the role of “state corporate law” in “regulat[ing] the 

distribution of powers among the various players in the process of corporate 

governance.” Bus. Roundtable v. SEC (“Business Roundtable I”), 905 F.2d 

406, 411-12 (D.C. Cir. 1990). Although NCPPR suggests, contrary to this 

settled principle, that Nasdaq’s proposal “govern[s] the internal affairs of the

corporation,” Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 479 (1977) 

(citation omitted), NCPPR does not explain how a disclosure-based 

Case: 21-60626 Document: 289-1 Page: 34 Date Filed: 10/18/2023
No. 21-60626

35

framework could have this effect or encroach on state corporate law in any 

other way.

23

In any event, the Exchange Act unambiguously requires the SEC to 

approve Nasdaq’s disclosure-based framework if it is “consistent with the 

requirements of [the Exchange Act].”24 15 U.S.C. § 78s(b)(2)(C)(i).

NCPPR does not point to any requirement of the Exchange Act that could be 

plausibly read to prohibit an exchange from adopting a disclosure-based 

framework for board diversity information. See supra Section III.A.2 

(rejecting petitioners’ argument that the purposes of the Exchange Act limit 

disclosure rules to material information). It would be surprising if NCPPR 

could find such a provision because, as we have repeated, the fundamental

purpose of the Exchange Act is full disclosure in the securities industry. See, 

e.g., Affiliated Ute Citizens of Utah, 406 U.S. at 151; Levinson, 485 U.S. at 230.

For those reasons, the federalism canon is not applicable here. 

4.

Last, invoking the “major questions doctrine,” NCPPR argues that 

the SEC cannot approve an exchange rule that “impose[s] unprecedented 

demographic quotas and disclosure requirements regarding race, sex, and 

sexual preference on companies valued at over 20 trillion dollars” (emphasis 

in original), without “clear and explicit” Congressional authorization.

_____________________

23 For its part, AFBR asserts that the proposal “impos[es] obligations on 

corporations.” This is true of every exchange listing rule that requires a listed company to 

take any action and is not a sufficient basis to conclude that the proposal alters the statefederal balance. 

24 SROs have adopted listing rules on corporate governance matters with the SEC’s 

approval. See Business Roundtable I, 905 F.2d at 409–10 (“[T]he exchanges have routinely 

submitted changes in listing standards for approval . . . . Many of the past proposals dealt 

with matters of internal corporate governance, but in no such case did the SEC seek to 

exercise its veto.” (citations and footnotes omitted)). However, because the SEC’s finding 

that the proposal is a disclosure rule is conclusive, we do not need to decide anything about 

SRO rules that regulate corporate governance in this case.

Case: 21-60626 Document: 289-1 Page: 35 Date Filed: 10/18/2023
No. 21-60626

36

This is not a “major questions case.” West Virginia v. EPA, 142 S. Ct. 

2587, 2610 (2022). The “major questions doctrine” applies in 

“extraordinary cases” where the “history and the breadth of the authority 

that the agency has asserted, and the economic and political significance of 

that assertion, provide a reason to hesitate before concluding that Congress 

meant to confer such authority.” Id. at 2608 (cleaned up). In those 

“extraordinary cases, both separation of powers principles and a practical 

understanding of legislative intent make us reluctant to read into ambiguous 

statutory text” a statutory delegation of authority to the agency. Id. at 2609 

(internal quotation marks and citation omitted). Then, the agency “must 

point to a clear congressional authorization for the power it claims.” Id. 

(internal quotation marks and citation omitted). Here, the SEC’s asserted 

authority is an ordinary exercise of its power to approve exchange listing 

rules; a disclosure rule for board diversity information is not significant 

enough to trigger major questions concerns; and the Exchange Act authorizes 

SEC approval of exchange disclosure rules.

The “history and the breadth” of the SEC’s asserted authority is 

unremarkable. Id. at 2608 (citation omitted). Since 1975, the Exchange Act 

has empowered and required the SEC to approve proposed changes to 

exchange rules. See Pub. L. No. 94-29, 89 Stat. 146 (1975) (codified as 

amended at 15 U.S.C. § 78s(b)). Because the core objective of the Exchange 

Act, as we have repeated, is to establish “a philosophy of full disclosure . . . 

in the securities industry,” Affiliated Ute Citizens of Utah, 406 U.S. at 151 

(citation omitted), exchanges sometimes adopt disclosure rules that go 

beyond the requirements of federal securities laws—for example, as the 

SEC’s Approval Order notes, Nasdaq “already requires its listed companies 

to publicly disclose compensation or other payments by third parties to a 

company’s directors or nominees.” 86 Fed. Reg. at 44,438. And more than 

a decade ago, the SEC itself adopted a disclosure rule related to board 

diversity. See 17 C.F.R. § 229.407(c)(2)(vi); Proxy Disclosure 

Enhancements, 74 Fed. Reg. 68,334, 68,364 (Dec. 23, 2009) (codified at 17 

Case: 21-60626 Document: 289-1 Page: 36 Date Filed: 10/18/2023
No. 21-60626

37

C.F.R. § 229.407(c)(2)(vi)). This rule requires companies to disclose how 

the company’s nominating committee or board “considers diversity in 

identifying nominees for director.” Id. If the committee or board “has a 

policy with regard to the consideration of diversity in identifying director 

nominees,” it must “describe how this policy is implemented, as well as how 

[it] assesses the effectiveness of its policy.” Id. Disclosure rules, including 

those related to diversity, are business as usual for the SEC, and there is 

nothing “unheralded,” Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 324 

(2014), or “unprecedented,” Ala. Ass’n of Realtors v. Dep’t of Health & Hum.

Servs., 141 S. Ct. 2485, 2489 (2021) (per curiam), about the SEC’s Approval 

Order here. 

Further, the SEC’s approval of a rule requiring disclosures of board 

diversity information is not economically and politically significant enough to 

trigger the major questions doctrine. Compare the SEC’s Approval Order to 

agency action that the Supreme Court has found sufficiently significant. The 

Court has held that the Food and Drug Administration lacked statutory 

authority “to regulate, and even ban, tobacco products,” that the Centers for 

Disease Control and Prevention lacked statutory authority to “institute a 

nationwide eviction moratorium,” and that the Environmental Protection

Agency lacked statutory authority to regulate greenhouse gas emissions from 

“millions of small sources, such as hotels and office buildings, that had never 

before been subject to [permitting] requirements.” West Virginia, 142 S. Ct. 

at 2608 (summarizing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 

120, 126–27 (2000); Ala. Ass’n of Realtors, 141 S. Ct. at 2488-90; and Util. 

Air. Regul. Grp., 573 U.S. at 324). In contrast with these assertions of agency 

power over daily life across America, Nasdaq’s proposal requires companies 

that voluntarily list on Nasdaq to disclose information about board member 

diversity—a small step from disclosures about board diversity policies that 

the SEC already requires. It is more than a stretch to say that these new 

disclosures “affect[] every member of society in the profoundest of ways,” 

Case: 21-60626 Document: 289-1 Page: 37 Date Filed: 10/18/2023
No. 21-60626

38

BST Holdings, L.L.C. v. OSHA, 17 F.4th 604, 611 (5th Cir. 2021), as NCPPR 

implies.

25

Finally, even if this were an unheralded exercise of SEC authority with 

sufficient economic and political significance, neither the SEC nor Nasdaq 

asks us to “read into ambiguous statutory text” a delegation of authority to 

the SEC to approve Nasdaq’s proposal. Id. That authorization is plain on 

the face of the Exchange Act: the SEC “shall” approve Nasdaq’s disclosurebased framework if it is “consistent with the requirements of [the Exchange 

Act].” 15 U.S.C. § 78s(b)(2)(C)(i). 

To find a major-questions hook in the text, NCPPR argues that the 

Exchange Act “does not contain a single phrase explicitly or even implicitly 

granting [the] SEC or SROs power to impose any demographic quota . . . on 

corporate boards.” The premise of this argument is wrong because the 

SEC’s finding that Nasdaq’s proposal is a disclosure-based framework is 

conclusive. See supra Section III.A.3.a. 

NCPPR also argues that the Exchange Act “does not contain a single 

phrase explicitly or even implicitly granting [the] SEC or SROs power to 

impose any . . . disclosure requirements on corporate boards.” This is wrong, 

too. See, e.g., supra Section III.A.3.b. The text of the statute says that if a 

disclosure rule is consistent with the requirements of the Exchange Act—

which is a disclosure statute, see, e.g., Affiliated Ute Citizens of Utah, 406 U.S. 

at 151; Levinson, 485 U.S. at 230—the SEC must approve it. See 15 U.S.C. 

§ 78s(b)(2)(C)(i). In turn, § 78f(b)(5) requires that a proposed rule be 

_____________________

25 This is especially true because companies that reject Nasdaq’s disclosure-based 

framework can list on a different exchange. And NCPPR’s conjecture that other exchanges 

or the SEC could propose identical rules is irrelevant. We review agency action, including 

SEC approval of proposed rules and SEC rulemaking, on a case-by-case basis, not 

wholesale. Although we hold that the major questions doctrine does not prevent SEC 

approval of Nasdaq’s proposal in this case, we decline NCPPR’s invitation to speculate 

about how other yet-to-be proposed rules or future agency action subject to other statutory 

standards, like SEC promulgation of rules for SROs, might fare. 

Case: 21-60626 Document: 289-1 Page: 38 Date Filed: 10/18/2023
No. 21-60626

39

designed to meet one of several objectives. See 15 U.S.C. § 78f(b)(5). These 

objectives are not, as NCPPR argues, “grants [of] authority for Nasdaq to 

issue and for SEC to approve rules.” If the SEC “determines that” a 

proposed rule is designed to meet one of those objectives, id. § 78f(b), and if 

all other statutory requirements are met, the SEC must approve the rule, id. 

§ 78s(b)(2)(C)(i). So the question is not, as NCPPR posits, whether 

“[s]pecific authority to impose . . . disclosure requirements can[] be found 

in” those objectives. Properly understood, the question is whether the 

SEC’s determination that Nasdaq’s proposed rule is designed to meet one of 

those objectives complies with the APA. We consider this question next. See 

infra Section III.B.1.

In short, this is not a case where the SEC has asserted “highly 

consequential power beyond what Congress could reasonably be understood 

to have granted.” West Virginia, 142 S. Ct. at 2609. We hold that the SEC’s 

Approval Order fell within its statutory authority under the Exchange Act.

B.

Finally, the SEC’s Approval Order is not arbitrary and capricious.

5 U.S.C. § 706(2)(A). 

Under the “arbitrary and capricious” standard, the SEC “must 

examine the relevant data and articulate a satisfactory explanation for its 

action including a rational connection between the facts found and the choice 

made.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 

29, 43 (1983) (internal quotation marks omitted). In reviewing agency action, 

we do not “substitute [our] judgment for that of the agency” but rather 

“consider[]whether the decision was based on a consideration of the relevant 

factors and whether there has been a clear error of judgment.” Sierra Club v. 

U.S. Dep’t of Interior, 990 F.3d 898, 904 (5th Cir. 2021) (cleaned up). “The 

petitioner has the burden of proving that the agency’s determination was 

arbitrary and capricious.” Medina Cnty. Env’t Action Ass’n v. Surface Transp. 

Bd., 602 F.3d 687, 699 (5th Cir. 2010) (citation omitted).

Case: 21-60626 Document: 289-1 Page: 39 Date Filed: 10/18/2023
No. 21-60626

40

Petitioners offer five reasons that the SEC acted arbitrarily and 

capriciously. They argue that the SEC: (1) improperly decided that the 

Disclosure Rule is designed to accomplish at least one objective listed in 

§ 78f(b)(5); (2) improperly decided that the Disclosure Rule is not designed 

to permit unfair discrimination among issuers; (3) improperly assessed the 

costs of the Disclosure Rule; (4) failed to conduct an independent review of 

the record; and (5) failed to adequately analyze the content of the Recruiting

Rule. None of these contentions has merit.

1.

Petitioners agree that an SRO rule need only be designed to meet one

of the enumerated statutory objectives. The SEC concluded that the 

Disclosure Rule is “designed to . . . remove impediments to and perfect the 

mechanism of a free and open market and a national market system,” among

other objectives, because the Disclosure Rule would “contribute to the 

maintenance of fair and orderly markets.”26 86 Fed. Reg. at 44,425. AFBR 

argues that this determination is not supported by substantial evidence.

The statutory objective to “remove impediments to and perfect the 

mechanism of a free and open market and a national market system,” 15 

U.S.C. § 78f(b)(5), concerns the “maintenance of fair and orderly markets.” 

15 U.S.C. § 78k-1(a)(1)(C); see NASDAQ OMX Grp., Inc. v. UBS Secs., LLC, 

_____________________

26 Although the SEC found that the Recruiting Rule was consistent with 

§ 78f(b)(5), see 86 Fed. Reg. at 44,425, 44,444, the SEC’s Approval Order does not identify 

which of the statutory objectives the Recruiting Rule is designed to meet. Instead, the SEC 

found the Recruiting Rule would help Nasdaq “compete to attract and retain listings” and 

“reflects the current competitive environment for listings among national securities 

exchanges.” Id. at 44,444. AFBR does not contend that the SEC failed to support these 

findings as to the Recruiting Rule with substantial evidence. And AFBR does not appear 

to argue that the Recruiting Rule is inconsistent with § 78f(b)(5), so any challenge to the 

Recruiting Rule on this ground is forfeited. In any event, AFBR recognizes that promoting 

fair competition in the exchange market is an adequate basis for the SEC to conclude that 

a rule is designed to “remove impediments to and perfect the mechanism of a free and open 

market and a national market system.”

Case: 21-60626 Document: 289-1 Page: 40 Date Filed: 10/18/2023
No. 21-60626

41

770 F.3d 1010, 1021 (2d Cir. 2014)(explaining that the Exchange Act “makes 

plain that maintenance of fair and orderly markets is the animating goal of 

federal securities law” and that the “remov[ing] impediments” is a means to 

“this end” (internal quotation marks and citation omitted)).27 As AFBR 

acknowledges, fair and orderly markets assure economically efficient 

securities transactions and fair competition among market participants. See 

15 U.S.C. § 78k-1(a)(1)(C)(i)-(ii). 

The SEC’s finding that the Disclosure Rule would “contribute to the 

maintenance of fair and orderly markets” and is therefore “designed to . . .

remove impediments to and perfect the mechanism of a free and open market 

and a national market system,” 86 Fed. Reg. at 44,425, is supported by 

substantial evidence. The SEC found that “[b]oard-level diversity statistics 

are currently not widely available on a consistent and comparable basis, even 

though [Nasdaq] and many commenters argue that this type of information 

is important to investors.” Id. In making this finding, the SEC relied on 

numerous comments from market participants. See, e.g., id. at 44,429 nn.72 

& 79. Indeed, the record is full of evidence that the status quo deprives 

market participants of fair access to information about board composition, 

impeding efficiency. For example, one commenter explained that current 

disclosures “are insufficient and noncomparable” because some companies 

report composition “using broad groupings” like “minority” while others

“report by specific racial or ethnic groups.”28 In light of this “opacity,” the 

commenter stated, current disclosures “provide little actionable or decisionuseful information for investors.”29 Another asserted that “[m]any investors 

_____________________

27 The “fair and orderly market” that Nasdaq operates is the exchange itself. See 

NASDAQ OMX Grp., Inc. v. UBS Secs., LLC, 770 F.3d 1010, 1021 (2d Cir. 2014).

28Aron Szapiro & Michael Jantzi, Morningstar, Inc., RE: Release No. 34-90574 (Jan. 

13, 2021), https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-

8262444-227960.pdf. 

29 Id.

Case: 21-60626 Document: 289-1 Page: 41 Date Filed: 10/18/2023
No. 21-60626

42

are left to consult board data that has been ‘assessed’ by third parties for 

commercial purposes rather than collected directly from company reporting, 

which raises concerns about accuracy, objectivity and consistency.”30 A 

third said that “a lack of standardization” in “the current reporting 

environment” “creates a lack of consistency, comparability and 

transparency” and that this environment “generates information 

asymmetry, disorder and inefficiency.”31 Because the Disclosure Rule

standardizes disclosures of board diversity information, including the format 

and timing of disclosures,32 the SEC reasonably found that the Disclosure 

Rule “would make it more efficient and less costly for investors to collect, 

use, and compare information on board diversity” and would “mitigate any 

concerns regarding unequal access to information that may currently exist 

between certain (likely larger and more resourceful) investors who could 

obtain the information and other (likely smaller) investors who may not be 

able to do so.” 86 Fed. Reg. at 44,430. Thus, based on substantial evidence, 

the SEC concluded that the Disclosure Rule would “contribute to the 

_____________________

30 Roger W. Ferguson, Jr. & Jose Minaya, Teachers Ins. & Annuity Ass’n of Am., 

Re: The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change to Adopt 

Listing Rules Related to Board Diversity; File No. SR-NASDAQ-2020-081 (Dec. 31, 2020) 

at 2, https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-8198333-

227346.pdf. 

31 Michael W. Frerichs, Off. of the Ill. State Treasurer, Re: SR-NASDAQ-2020-

081 – Proposed Rule Change to Adopt Listing Rules Related to Board Diversity (Dec. 31, 2020), 

https://www.sec.gov/comments/sr-nasdaq-2020-081/srnasdaq2020081-8198331-

227345.pdf. 

32As the SEC explained, under the Disclosure Rule, companies must “make boardlevel diversity disclosures in a substantially similar format”; “following the first year of 

disclosure, disclose the current year and immediately prior year” information; provide the 

information “in a searchable format”; and “provide the required disclosures in a proxy 

statement or information statement . . . in advance of the company’s annual shareholders 

meeting or provide the required disclosures on the company’s website concurrently with 

the filing of the company’s proxy statement or information statement.” 86 Fed. Reg. at 

44,430 n.90.

Case: 21-60626 Document: 289-1 Page: 42 Date Filed: 10/18/2023
No. 21-60626

43

maintenance of fair and orderly markets,” id. at 44,425, and satisfied 

§ 78f(b)(5).33

2.

AFBR also argues that because the Disclosure Rule imposes different 

disclosure requirements on domestic and foreign issuers, the SEC erred in 

concluding that the rule is not designed to permit unfair discrimination 

among issuers. See 86 Fed. Reg. at 44,426 n.26 (defining “foreign issuer”).

The Disclosure Rule operates differently for foreign issuers than other

Nasdaq-listed companies. Nasdaq-listed companies must generally list the 

number of directors based on “gender identity (female, male, or nonbinary),” “race and ethnicity (African American or Black, Alaskan Native or 

Native American, Asian, Hispanic or Latinx, Native Hawaiian or Pacific 

Islander, White, or Two or More Races or Ethnicities), disaggregated by 

gender identity,” and “self-identif[ication] as LGBTQ+,” as well as the 

number of directors who did not disclose information in these categories. Id.

at 44,426-27. In contrast with these requirements, a foreign issuer must state 

“whether disclosure is prohibited under its home country law,” “the number 

_____________________

33 AFBR also argues that employment decisions for corporate boards have nothing 

to do with a fair and orderly exchange. But the Disclosure Rule does not regulate 

employment decisions for corporate boards; the SEC conclusively found that the rule is a 

disclosure-based framework, not a quota. See supra Section III.A.3.a. The question then is 

whether such a disclosure-based framework is designed to “remove impediments to and 

perfect the mechanism of a free and open market and a national market system.” 15 U.S.C. 

§ 78f(b)(5). For the reasons stated above, substantial evidence shows that it is. 

Relatedly, petitioners argue that the SEC erred in determining that the Rules are 

not designed to “regulate . . . matters not related to the purposes of [the Exchange Act],” 

15 U.S.C. § 78f(b)(5), because “favoring certain people because of their race, sex, or sexual 

orientation . . . is far removed from the purposes of the Exchange Act.” This argument, 

too, rests on the mistaken premise that the Disclosure Rule imposes a quota on listed 

companies. As the SEC conclusively determined, the Disclosure Rule does not regulate

the composition of corporate boards, thereby favoring certain people over others, but rather 

requires companies to disclose information about board members’ identities.

Case: 21-60626 Document: 289-1 Page: 43 Date Filed: 10/18/2023
No. 21-60626

44

of directors based on gender identity (female, male, or non-binary),” “the 

number of directors who self-identify as [u]nderrepresented [i]ndividuals in 

its home country jurisdiction,” “the number of directors who self-identify as 

LGBTQ+,” and the number of directors who did not disclose information in 

these categories. Id. at 44,427. 

The definitions of diversity for foreign issuers and non-foreign issuers 

correspond with these disclosure requirements. For foreign issuers, a diverse 

board member is defined as an individual “who self-identifies as one or more 

of the following: Female, LGBTQ+, or an underrepresented individual based 

on national, racial, ethnic, indigenous, cultural, religious, or linguistic 

identity in the country of the company’s principal executive offices.” Id. at

44,426 n.26. For domestic issuers, a diverse board member is defined as “an 

individual who self-identifies in one or more of the following categories: (i) 

Female, (ii) Underrepresented Minority, or (iii) LGBTQ+.” Id. at 44,425 

n.18. “Underrepresented Minority” means “an individual who selfidentifies as one or more of the following: Black or African American, 

Hispanic or Latinx, Asian, Native American or Alaska Native, Native 

Hawaiian or Pacific Islander, or Two or More Races or Ethnicities.” Id.

Both foreign issuers and non-foreign issuers without at least two 

diverse board members must explain why. Foreign issuers must provide an 

explanation if the board does not have at least two diverse directors, including 

one who self-identifies as “Female.” Id. at 44,426 n.26. The second diverse 

director “may include an individual who self-identifies as one or more of the 

following: Female, LGBTQ+, or an [u]nderrepresented i]ndividual.” Id. 

Most other issuers must provide an explanation if the board does not have at 

least two diverse members, including one who self-identifies as “Female” 

and one who self-identifies as “an Underrepresented Minority or 

LGBTQ+.” Id. at 44,426.

In designing these standards, Nasdaq relied on evidence that women 

are “underrepresented in boardrooms across the globe,” and that there “is 

no internationally agreed definition as to which groups constitute 

Case: 21-60626 Document: 289-1 Page: 44 Date Filed: 10/18/2023
No. 21-60626

45

minorities.”34 So, to craft a definition of underrepresented individuals 

applicable to foreign issuers, Nasdaq borrowed from the United Nations 

Declaration on the Rights of Persons Belonging to National or Ethnic, 

Religious and Linguistic Minorities and the United Nations Declaration on 

the Rights of Indigenous Peoples.35 See 86 Fed. Reg. at 44,434 n.144 

(explaining the origin of this standard).

The SEC gave a satisfactory explanation for its conclusion that the 

different requirements that apply to foreign issuers are not “unfairly 

discriminatory.” Id. at 44,435; see State Farm, 463 U.S. at 43. The SEC 

explained:

[I]t is not unreasonable for [Nasdaq], in crafting board diversity 

disclosures, to recognize that the proposed definition of 

“Underrepresented Minority” for domestic companies may 

not be as effective in identifying underrepresented board 

members in foreign countries that have differing ethnic and 

racial compositions, and may therefore result in disclosures 

that are less useful for investors who seek board diversity 

information for Foreign Issuers. It is therefore not 

unreasonable for [Nasdaq] to require Foreign Issuers to 

provide disclosures relating to underrepresented individuals 

based on national, racial, ethnic, indigenous, cultural, religious, 

or linguistic identity in the country of the issuer’s principal 

executive offices. Similarly, to the extent Foreign Issuers 

choose to meet the proposed diversity objectives, it is not 

unreasonable for [Nasdaq] to take into account the differing 

demographic compositions of foreign countries and to provide 

Foreign Issuers flexibility in recognition of the different 

_____________________

34 Davis, supra note 3, Notice of Filing of Amendment No. 1, at 82, 140 (citation 

omitted). 

35 See Davis, supra note 3, Notice of Filing of Amendment No. 1, at 140-41.

Case: 21-60626 Document: 289-1 Page: 45 Date Filed: 10/18/2023
No. 21-60626

46

circumstances associated with Foreign Issuers hiring Diverse 

directors. Moreover, investors would still have access to a 

Foreign Issuer’s Board Diversity Matrix and any disclosures 

explaining why it does not meet the applicable diversity 

objective, and this information may still be important to 

investors’ investment and voting decisions notwithstanding 

the flexibility provided to Foreign Issuers.

86 Fed. Reg. at 44,435. To sum up, the SEC’s point is that because the 

meaning of diversity varies globally, it is fair and desirable to let foreign 

issuers report diversity information according to nationally appropriate

standards. 

AFBR’s attacks on the SEC’s analysis are unavailing. AFBR asserts 

that separate standards for foreign issuers undercut uniformity in disclosures 

without explaining why these standards are “designed to permit unfair

discrimination.” 15 U.S.C. § 78f(b)(5) (emphasis added). Moreover, the 

SEC rationally found that the disclosure-based framework would provide 

investors with information that would influence investment and voting 

decisions and would mitigate market inefficiencies, regardless of variations 

in the standards for those disclosures. AFBR also speculates that foreign 

issuers should have been treated more stringently because “the political and

economic marginalization of underrepresented minorities in many foreign 

countries around the world is probably worse, not better, than in the United 

States.” But AFBR ignores that the foreign issuers must still disclose the 

number of board members who self-identify as underrepresented individuals

and may count underrepresented individuals for purposes of determining 

whether an explanation is required. 

3.

Next, AFBR objects that the SEC failed to adequately consider

“tremendous costs for firms that dare to defy the quotas” and failed to show 

“that the asserted benefits of the diversity rule outweigh the costs.”

Case: 21-60626 Document: 289-1 Page: 46 Date Filed: 10/18/2023
No. 21-60626

47

AFBR misunderstands what the Exchange Act requires. The SEC 

must consider whether proposed rules “impose any burden on competition 

not necessary or appropriate in furtherance of the purposes of [the Exchange 

Act].” 15 U.S.C. § 78f(b)(8) (emphasis added). So the SEC must analyze 

burdens on competition, and then decide whether those burdens are 

“necessary or appropriate” to further the purposes of the Exchange Act. Id. 

These purposes include implementing a philosophy of full disclosure in the 

securities industry, see, e.g., Affiliated Ute Citizens, 406 U.S. at 151, and 

relatedly, maintaining fair and orderly markets, see NASDAQ OMX Grp., 770 

F.3d at 1021.

Moreover, in fulfilling its duty under § 78f(b)(8), the SEC need not 

“measure the immeasurable.” Lindeen v. SEC, 825 F.3d 646, 658 (D.C. Cir. 

2016) (citation omitted). We must “be mindful of the many problems 

inherent in considering costs and uphold a reasonable effort made by the 

[SEC].” Huawei Techs., 2 F.4th at452 (cleaned up). In deciding whether 

“any burden on competition” imposed by a rule is “necessary or 

appropriate” to further the purposes of the Exchange Act, 15 U.S.C. § 

78f(b)(8), the SEC’s “discussion of unquantifiable benefits” is sufficient so 

long as the SEC articulates “a satisfactory explanation” for its analysis, 

“including a rational connection between the facts found and the choice 

made,” Lindeen, 825 F.3d at 658 (cleaned up); see Huawei Techs., 2 F.4th at 

454 (holding that the agency “was not required to support its analysis with 

hard data where it reasonably relied on difficult-to-quantify, intangible 

benefits”).

The SEC adequately considered potential burdens on competition. 

The SEC noted AFBR’s concerns that the Disclosure Rule “would create a 

target for activist divestment campaigns or shareholder lawsuits,” and “that 

companies will need to spend limited resources to hire communications 

consultants and attorneys to evaluate the marketing and legal risks of 

providing an explanation,” along with concerns raised by other commenters 

regarding pressure campaigns and harassment. 86 Fed. Reg. at 44,436 n.175.

Case: 21-60626 Document: 289-1 Page: 47 Date Filed: 10/18/2023
No. 21-60626

48

But on the other side of the ledger, the SEC found that Nasdaq’s proposed 

rule changes “may promote competition for listings among exchanges by 

allowing [Nasdaq] to update its disclosure rules and related listing services in 

a way that better attracts and retains the listings of companies that prefer to 

be listed on an exchange that provides investors with the information 

required by the [Disclosure Rule].” Id. at 44,437. The SEC recognized that 

some companies that are concerned about cost exposure might choose not to 

list on Nasdaq or might leave Nasdaq. Id. at 44,437-38. Still, the SEC 

observed that the Disclosure Rule allows for “[f]lexibility in formulating an 

explanation for not meeting the diversity objectives,” flexibility for foreign 

issuers, smaller companies, and companies with smaller boards, flexibility 

about where the disclosures are filed, and phase-in periods for newly listed 

companies. Id. at 44,437. Companies that do not have at least two diverse 

board members can provide a minimal explanation or list on a different 

exchange. Id. at 44,436. And given evidence of “interest shown in 

comparable and consistent board diversity information,” the SEC explained 

that the Disclosure Rule may spur some companies to list on Nasdaq, 

benefiting investors “by increasing the number of publicly listed 

companies.” Id. at 44,438. 

In addition, the SEC reasonably weighed burdens on competition 

against the “difficult-to-quantify, intangible benefits” of the Disclosure Rule 

in furthering the purposes of the Exchange Act. Huawei Techs., 2 F.4th at 

454. To recap, the SEC found that the Disclosure Rule “would provide 

widely available, consistent, and comparable information that would 

contribute to investors’ investment and voting decisions,” making “it more 

efficient and less costly for investors to collect, use, and compare information 

on board diversity.” 86 Fed. Reg. at 44,430. And the SEC found that the

Disclosure Rule would mitigate information asymmetries in the market. Id. 

Based on this analysis, the SEC decided that the Disclosure Rule contributes 

to the maintenance of fair and orderly markets. And given these benefits, the 

SEC reasonably concluded that the Disclosure Rule “would not impose a 

Case: 21-60626 Document: 289-1 Page: 48 Date Filed: 10/18/2023
No. 21-60626

49

burden on competition between issuers that is not necessary or appropriate 

in furtherance of the purposes of the Act.” Id. at 44,435.

AFBR does not explain how the SEC acted arbitrarily and capriciously 

in weighing burdens on competition against the purposes of the Exchange 

Act. Instead, AFBR argues that the SEC ignored “tremendous costs for 

firms that dare to defy the quotas.” The crux of AFBR’s argument is that 

the SEC underestimated the costs of non-compliance to Nasdaq-listed 

companies.36 However, as we explained, in conducting the § 78f(b)(8) 

analysis, the SEC did account for the costs that AFBR asserted in its 

comment letter. See, e.g., 86 Fed. Reg. at 44,436-38 & 44,436 n.175 

(summarizing portions of AFBR’s comment letter cited by AFBR in its brief 

on appeal). And the SEC made a rational decision that those burdens on 

competition were “necessary or appropriate” to further the purposes of the 

Exchange Act. Therefore, AFBR has failed to meet its burden to show that 

the SEC’s Approval Order is arbitrary and capricious on this basis. Medina 

Cnty. Env’t Action Ass’n, 602 F.3d at 699.

_____________________

36 None of AFBR’s evidence quantifies costs from non-compliance or estimatesthe 

magnitude of those costs in concrete terms. See, e.g., All. for Fair Bd. Recruitment, supra 

note 4, Ex. B, Aff. of James R. Copland ¶¶ 20 (“In my expert opinion, firms that opt to 

publicly explain their reasons for non-compliance with Nasdaq’s diversity rule will be 

subject to an increased risk of reputational harm.”), 21 (“Negative news coverage and 

diversity activist campaigns . . . could impair a firm’s reputation . . . and result in a higher 

cost of capital, reduced profitability, and lower share prices, even if such effects might be 

mitigated in the long run.”). The SEC “was not required to conduct or commission its 

own empirical or statistical studies” to determine whether these costs would be 

“tremendous,” as AFBR asserts on appeal. Huawei Techs., 2 F.4th at 454 (cleaned up). 

AFBR also argues that the SEC “did not directly respond to [this] expert affidavit.” But 

the SEC cited to the relevant part of AFBR’s comment letter, 86 Fed. Reg. at 44,436 & 

n.175, and then considered whether the resulting burdens on competition were necessary 

and appropriate. AFBR cites no authority that this response was inadequate, nor does 

AFBR explain why this is so. In any event, the SEC “clearly thought about the 

commenters’ objections and offered reasoned replies—all the APA requires.” Huawei 

Techs., 2 F.4th at 450 (cleaned up).

Case: 21-60626 Document: 289-1 Page: 49 Date Filed: 10/18/2023
No. 21-60626

50

4.

In approving a proposed rule, “the SEC cannot simply accept what 

[an SRO] has done but rather is obligated to make an independent review.”

Susquehanna, 866 F.3d at 446 (cleaned up). Petitioners argue that the SEC 

failed in this regard. Specifically, they claim that the SEC did not

independently analyze “whether disclosures and quotas would be outside the 

purposes of the Exchange Act,” “whether significant numbers of investors 

in fact base their voting and investment decisions on the race, gender, and 

sexual preferences of company directors,” and whether “preference for 

directors with certain racial, gender, and sexuality characteristics originate[s]

from investors’ rational . . . desire for improved corporate governance.”

The SEC independently reviewed the record. Throughout the

Approval Order, the SEC documented Nasdaq’s position regarding the 

proposal’s effects and compliance with the Exchange Act. See, e.g., 86 Fed. 

Reg. at 44,427, 44,429, 44,431. And the SEC considered supporting and

contrary evidence in the record. See, e.g., id. at 44,431, 44,436. For example, 

in finding that the Disclosure Rule is designed to accomplish the purposes of 

the Exchange Act, the SEC reviewed, summarized, and synthesized 

numerous comments regarding investor demand for board diversity 

information. See, e.g., id. at 44,429-30 & nn.72-80. The SEC juxtaposed that 

evidence against comments arguing that demand is overstated. See id. at 

44,430 & n.82. Faced with this body of evidence, the agency thought for itself 

and reached a reasonable conclusion. See Citadel Secs. LLC v. SEC, 45 F.4th 

27, 34 (D.C. Cir. 2022) (holding that the SEC did not make a Susquehanna 

error where the SEC took “data, analyzed it for itself,” and reached a 

reasonable conclusion). The agency did the same with respect to the 

question whether the proposal is a disclosure-based framework or a quota. 

See id. at 44,427-28 & 44,427 nn.43-48. 

The extent to which the SEC did not “simply accept what [Nasdaq] 

has done,” Susquehanna, 866 F.3d at 446 (citation omitted), is apparent from 

the SEC’s rejection of one of Nasdaq’s reasons for adopting the proposal. 

Case: 21-60626 Document: 289-1 Page: 50 Date Filed: 10/18/2023
No. 21-60626

51

Nasdaq concluded that “an extensive body of empirical research 

demonstrates that diverse boards are positively associated with improved 

corporate governance and company performance.” 86 Fed. Reg. at 44,431.

But the SEC reviewed the studies cited by Nasdaq, as well as studies that the 

comments referenced, and found that the results were “mixed.” Id. at 

44,432. “Taken together, studies of the effects of board diversity are 

generally inconclusive,” the SEC determined, “and suggest that the effects 

of even mandated changes remain the subject of reasonable debate.” Id. 

Further, the SEC found that studies of board diversity mandates were not “a 

reliable basis for evaluating the likely overall effects of the [Disclosure Rule], 

which does not mandate any particular board composition.” Id. This is not 

the work of an agency taking an SRO’s “word for it.” Susquehanna, 866 F.3d 

at 447 (faulting the SEC for taking a clearing agency’s “word for it” in 

determining whether a dividend level was reasonable). 

For those reasons, we cannot agree that the SEC abdicated its 

statutory obligation to independently review the proposed rule.

5.

Finally, NCPPR poses a list of questions that the SEC purportedly 

failed to consider in approving the Recruiting Rule. These questions include, 

who will compile a list of board-ready diverse candidates and how will the list 

be compiled, where will recommended candidates be posted, will the service 

be available to companies at a fee, and if so, what will the fees be used for?

Many of these questions were answered in the SEC’s Approval Order. 

The SEC noted that, according to Nasdaq, the proposed provider of the 

board recruiting service is Equilar. 86 Fed. Reg. at 44,444. And Nasdaq’s 

partnership with Equilar would not generate any revenue for Nasdaq. Id.

NCPPR argues that because these questions concern “operations, hiring, 

duties, or mechanics” of the recruiting service, they concern “important 

aspect[s] of the problem,” State Farm, 463 U.S. at 43. However, NCPPR 

identifies no requirement of the Exchange Act to which these questions are 

Case: 21-60626 Document: 289-1 Page: 51 Date Filed: 10/18/2023
No. 21-60626

52

“important” or even relevant. And it is not apparent why the SEC needed 

to know how Equilar sources candidates, or any other granular information 

about Equilar’s systems, to conclude that Nasdaq’s provision of an optional, 

free network of diverse candidates to eligible listed companies would help 

Nasdaq “compete to attract and retain listings.” 86 Fed. Reg. at 44,444. 

NCPPR has not shown that any open question renders the Approval Order 

arbitrary and capricious.

IV.

AFBR and NCPPR have given us no reason to conclude that the 

SEC’s Approval Order violates the Exchange Act or the APA. The petitions 

for review are DENIED.

Case: 21-60626 Document: 289-1 Page: 52 Date Filed: 10/18/2023