2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 11-9-2005 

# P TR v . S E C P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 04-4451

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Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

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____________ N o. 04- 4451

____________ P T R , IN C ., 1 9 0 0 M a rk e t S tre e t, Phi l adel phi a, PA 19103 and D E N N IS M cB R ID E , F o r R ev iew o f D isci p li n ary

A ct i on T aken bythe P H IL A D E L P H IA S T O C K E X C H A N G E , IN C .,

P eti ti o n ers v. S E CU RI T I E S AND E XC HANGE CO M M I S S I ON,

R es pondent

____________ O n Pet i t i on forR evi ew fr om an O r derof the Secur i t i es and Exchange Com m i s s i on

( N o. 3- 11470)

____________ A r gued O ct ober26, 2005 B e f o re : S L O V IT E R , F IS H E R a n d G R E E N B E R G , C i r cui tJudges .

( Fi l ed: N ovember9, 2005) Paul a D . Shaffne r M ark C . C aw l ey( A r gued) Saul E w i ng 1500 M arketSt r eet C entr e Squar e W es t , 38th Fl oor Phi l adel phi a, PA 19102 A t t orneys f

or P et i t i on ersA p u b lic c u sto m e r is, e ss e n tially , an e n tityth a t d ire c ts tra d e s f o r its o w n b e n e f

it, 1 w h ile a b ro k e r-d e a ler d ire c ts tra d e s e ith e r a s a n a g e n t f o r a c u sto m e r (b ro k e r) o r in res po nse t o cu st om er s al es or purchases fr om the en t i ty ’s ho l dings ( dealer ). T he p urpose o f th e ru le a g a in st m isre p re se n tatio n s w a s to e n su re th a t th e p re f e re n c e s a c c o rd e d to publ i c- cus t om eror der s – forw hi ch the Exchange of fer ed “f i r m ” pr i ce quot at i ons up t o a “dis sem i nated si ze” – w ere noti m properl yexp l oit ed b ybroker-deal ers . 2 C ather i ne B r oder i ck M ark R . Penni ngt on ( A r gued) Secur i t i es & E xchange C om m i s s i on 1 0 0 F S tr e e t , N. E. W as hi ngt on, D C 20549 A t t or neys f

orR es pondent

____________ OPI NI ON O F THE COURT

____________ F IS H E R , C i r cui tJudge . A ti s s ue i n t hi s cas e ar e di s ci pl i narys anct i ons i m pos ed bythe Phi l adel phi a St ock E x ch an g e, Inc . (“E x ch an g e” ), ag ains t on e o f it s m em b ers, PT R , Inc . (“P T R ”), an d P T R ’s exec ut i ve vi ce pr es i dent , D enni s M cB r i de ( “M cB r i de”) . M cB r i de w as found t o have, among ot herthi ngs , m i s r epr es ent ed ei ghty - s i x tr adi ng or der s fr om “br oker - deal er s ” as or der s fr om “publ i c cus t om er s , ” i n vi ol at i on of Exchange rul es . T he Exchange i m pos ed 1 upon PT R and M cB r i de a f i ne of $86, 000 and a s us pens i on fr om the Exchange of thr ee m onths . T he SE C s ubs equent l ys us t ai ned thi s deci s i on. T hi s t i m el ypet i t i on forr evi ew fol l ow ed. PT R and M cB r i de cl ai m thatthe E xchange vi ol at ed i t s governi ng pr ocedur al rul es and the Secur i t i es E xchange A ctof3

1934, Pub. L . N o. 73- 290, 48 St at . 881, and thatthe SE C err ed i n fi ndi ng thatthe s anct i ons i m pos ed on pet i t i oner s w er e notexce s s i ve oroppr es s i ve. W e have j ur i s di ct i on under15 U . S. C . § 78yand w i l l denythe pet i t i on. I. T h e P h ilad e lp h ia S to c k E x c h a n g e is a n a tio n a l se c u rities e x c h a n g e re g iste re d w ith th e S E C u n d e r th e S e c u rities E x c h a n g e A c t. T h e A c t allo w s a re g iste re d e x c h a n g e to pr om ul gat e rul es r egul at i ng the conduc tof m ember s and t o enfor ce thos e rul es thr ough d is c ip lin a ry p ro c e e d in g s a n d th e im p o s itio n o f s a n c tio n s . See 15 U . S . C . §§ 78 f, 78 s. Pur s uantt o t hi s author i ty , the Exchange ha s pr om ul gat ed a s er i es of rul es g o v e rn in g m e m b e rs ’ c o n d u c t a n d e s ta b lis h in g a m u lti- tie re d d is c ip lin a ry p ro c e s s . V i ol at i ons of the rul es ar e adj udi cat ed i n the fi r s ti ns t ance bythe B us i nes s C onduct C om m i t t ee ( “B C C ”) , w hi ch i nves t i gat es pos s i bl e vi ol at i ons and, fol l ow i ng a hea r i ng, d ec ides w h ethe r a v iolati o n h as o cc u rred an d w h at san cti o n s are ap p rop ri ate. I f exce pt i ons ar e fi l ed t o t he dec i s i on of the B C C , the mat t eri s r evi ew ed bythe B oar d of G overnor s ( “B oar d”) . T he B oar d m ayr efe rthe mat t ert o an advi s orycomm i t t ee, m ade up of thr ee Boar d m ember s , fora r ecomm endat i on pr i ort o deci s i on. T he fi nal det erm i nat i on of the B oar d cons t i tut es the fi nal di s ci pl i narydeci s i on of the Exchange. D is c ip lin a ry p ro c e e d in g s a g a in s t P T R a n d M c B ri d e c o m m e n c e d in J u ly 2 0 0 2 . M c B rid e w a s c h a rg e d w ith , am o n g o th e r th in g s, f a ili n g to “ m a k e re a so n a b le e f f o rts to as cert ai n w hethereac h or derentrus t ed t o [hi m w as ] forthe ac countof a [ publ i c] cus t om er4

o r a b ro k e r-d e a ler .” P T R w a s c h a rg e d w ith th e sa m e v io latio n s u n d e r a n E x c h a n g e ru le a llo w in g a “ m e m b e r o rg a n iza tio n [ to ] b e c h a rg e d w ith a n yv io latio n . . . co m m itt e d b yits o f f ic e rs . . . a s th o u g h s u c h v io la tio n w e re its o w n .” T he B C C conduct ed a thr ee- dayhear i ng on the mat t er . M cB r i de conc eded thathe h a d e x e c u ted e ig h ty -six se p a ra te o rd e rs f ro m “ b ro k e r-d e a ler s” a s o rd e rs f ro m “ p u b lic c u s to m e rs ” w ith o u t m a k in g re a s o n a b le e f f o rt s to c o n f

ir m th e s o u rc e o f

th e o rd e rs . H o w e v e r, h e a rg u e d th a t h is m ista k e s h a d b e e n in a d v e rte n t. M o re n o tab ly , h e sta ted th a t, atthe t i m e of the vi ol at i ons , he had notvi ew ed compl i ance w i th the rul e as hi s obl i gat i on. M c B rid e a lso a d m itt e d th a t th is w a s n o t th e f irst tim e th a t h e h a d f

a iled to c o m p ly w i th the rul e. I n 1998, he w as found t o have c aus ed thr ee br oker - deal eror der s t o be exec ut ed as i f theyw er e publ i c- cus t om eror der s . Pur s uantt o a s ett l ementw i th the E x c h a n g e , h e w a s f

in e d $ 5 0 0 f

o r e a c h v io latio n , fo r a to tal o f $ 1 ,5 0 0 . T h e f

in e w a s p a id b yP TR. Fol l ow i ng the hea r i ng, the B C C found thatM cB r i de had c om m i t t ed the al l eged vi ol at i ons and thatboth PT R and M cB r i de w er e r es pons i bl e forthem. I tdi s count ed as unconvi nci ng and i r r el evantM cB r i de’ s cl ai m s thatthe vi ol at i ons w er e the r es ul tof e x c u sa b le n e g lig e n c e . It ce n su re d P T R a n d M c B rid e , im p o se d a f in e o f $ 8 6 ,0 0 0 (jo in tly and s ever al l y ) , and s us pended M cB r i de fr om as s oci at i on w i th anym emberof the E xchange fora per i od of one w eek.5

PT R and M cB r i de s oughtr evi ew of the B C C ’ s deci s i on bythe B oar d of G overnor s . T he pet i t i on forr evi ew as s ert ed thatthe fi ne i m pos ed bythe B C C w as exce s s i ve i n l i ghtof the natur e of the vi ol at i ons and compar abl e s anct i ons i m pos ed agai ns ts i m i l ar l ys i tuat ed tr ader s . T he pet i t i on di d notexpr es s l ychal l enge the one- w eek s us pens i on. T he mat t erw as r efe r r ed t o an advi s orycomm i t t ee. T he comm i t t ee he ar d or al ar gum entand i s s ued a r ecomm endat i on t o the B oar d of G overnor s s ugges t i ng thatthe san cti o n s im p o sed o n P T R an d M cB ri d e w ere ap p rop ri ate in li g h t of M cB ri d e’s d i s c i p l i n a ry h i s t o r y. T he B oar d i s s ued i t s fi nal deci s i on s oon ther eaf t er . I taff

i r m ed the fi ne of $86, 000 butr ej ect ed, as an abus e of di s cr et i on, the s us pens i on of one w eek. I tr eas oned: In c re a sin g th e e f

f e c tiv e n e ss o f

su sp e n sio n a s a sa n c tio n is e sp e c ially nece s s aryi n t hi s cas e, w her e, i n l i ghtof M cB r i de’ s di s ci pl i naryhi s t ory , he sh o u ld h av e h ad an inti m ate f am il iari tyw ith the re q u ir em en ts of [th e ru le], and exe r ci s ed the af

fi r m at i ve due di l i gence r equi r ed t o as s ur e hi m s el f that the rul e w as notbei ng vi ol at ed. . . . A one- w eek s us pens i on coul d be us ed byan indi vidual t o take a vacati on or t o co nd uct other personal bu si ness w ith o u t im p o sin g a n yp a rticu lar d if f icu lti e s o r h a rd sh ip o n th e in d iv id u a l, m aki ng i ta fa i r l yi neff

ect i ve s anct i on. ( A . 135a ( footnot es om i t t ed) . ) T he B oar d concl uded thata thr ee- m onth s us pens i on w as n e c e s s a ry to e n s u re th a t th e s a n c tio n w o u ld h a v e “ m o re th a n a m in im a l im p a c t.” PT R and M cB r i de pet i t i oned the SE C forr evi ew of the dec i s i on of the B oar d of Go v e rn o r s p u r s u a n tt o s e c t i o n 1 9 ( d ) ( 2 ) o f th e S e c u r i t i e s Ex c h a n g e Ac t , 1 5 U. S . C. § 78s ( d) ( 2) ( “A ny[di s ci pl i nary ] act i on . . . [by ] a s el f- r egul at oryor gani zat i on . . . s hal l beT he SE C ar gues thatPT R and M cB r i de di d notchal l enge the B oar d’ s compl i ance 2 w i th pr ocedur al r equi r ement s dur i ng agenc ypr ocee di ngs and ar e now pr ecl uded fr om ra is in g th e is s u e . See 15 U . S. C . § 78y ( c) ( 1) ( “N o obj ect i on t o an or derorrul e of the C om m i s s i on, forw hi ch r evi ew i s s oughtunderthi s s ect i on, m aybe cons i der ed bythe courtunl es s i tw as ur ged bef or e the C om m i s s i on orther e w as r eas onabl e gr ound for fai l ur e t o do s o. ”) . B eca us e w e di s pos e of thes e obj ect i ons on the mer i t s , w e nee d not d e t e r m i n e w h e th e rth e y w e r e “ u r g e d b e f o r e ” th e a g e n c y. 6 s ubj ectt o r evi ew bythe appr opr i at e r egul at oryagenc y. . . . ”) . T he SE C aff i r m ed the decis i on of the B oard. F i nd i ng that M cB ri de’s cond uct and t est i m on y“evidences a d istu rb in g d isre g a rd f

o r th e sta n d a rd s th a t g o v e rn th e c o n d u c t o f se c u rities p ro f

e ss io n a ls d o in g b u sin e ss o n th e E x c h a n g e ,” it c o n c lu d e d th a t “[ t]h e E x c h a n g e w a s ju stif ied in s ervi ng not i ce w i th i t s s anct i ons thats uch an a t t i tude ca nnotbe t ol er at ed i f further v io la tio n s a re to b e p re v e n te d .” II. A. PT R and M cB r i de as s ertthat , byi ncr eas i ng the t erm of the s us pens i on w i thout not i ce ora hea r i ng, the B oar d vi ol at ed pr ocedur al pr ovi s i ons of Exchange rul es and the S ec u ri ti es E x ch an g e A ct. W h ethe r an ad m inistrati v e e n ti tyh as c o m p li ed w ith reg u lat o ry 2 a n d sta tu to ryp ro c e d u ra l re q u ire m e n ts is a q u e stio n o f law , su b jec t to p len a ryre v iew w ith d u e d e f e re n c e to a n yin te rp re ta tio n f o llo w e d b yth e a d m in is tr a tiv e e n tity. See, e. g. , S EC v. Zan dford , 5 3 5 U .S . 8 1 3 , 8 1 9 -2 0 (2 0 0 2 ); Le v i n e v . S EC , 4 0 7 F . 3 d 1 7 8 , 1 8 2 (3d C ir . 2 0 0 5 ); Nat ’ lRu r a lEl e c . Coo p . v . S EC , 2 7 6 F . 3 d 6 0 9 , 6 1 4 (D . C . C ir . 2 0 0 2 ).T he s econd pa r agr aph of s ubs ect i on ( b) pr es cr i bes the s ame sc ope and s t andar d of 3 r evi ew butappl i es w hen the B oar d does notr efe rthe mat t ert o an advi s orycomm i t t ee. 7 1. P T R a n d M c B rid e a rg u e th a t th e B o a rd w a s n o t p e rm itt e d u n d e r E x c h a n g e R u le 960. 9( b) t o i ncr eas e the t erm of the s us pens i on w hen nei therthe part i es northe B oar d had pr evi ous l yr ai s ed the i s s ue. R ul e 960. 9( b) pr es cr i bes the pr ocedur es byw hi ch a de ci s i on of the B C C oran advi s orycomm i t t ee i s r evi ew ed: ( i ) T he r evi ew s hal l be conduc t ed bythe B oar d of G overnor s oran A dvi s oryC om m i t t ee ther eof . . . . U nl es s the B oar d of G overnor s or the A dvi s oryC om m i t t ee s hal l deci de t o hearor al ar gum ent s , s uch r evi ew s hal l be bas ed s ol el yupon the r ecor d and w r i t t en exc ept i ons fi l ed b ythe p art i es.

. . . . ( i i i ) Shoul d t he r evi ew be conduc t ed byan A dvi s oryC om m i t t ee, the A dvi s oryC om m i t t ee s hal l s ubm i ta w r i t t en r eportt o the B oar d of G o v e rn o rs. . . . T h e B o a rd o f G o v e rn o rs b ya m a

jo rityv o te o f

its m em b ers, sha ll d ec ide to af firm , reject o r m o d ify , in w h o le or in p art th e re c o m m e n d a tio n s o f th e A d v is o ry C o m m itte e . Such m odi f i cat i on m ay i ncl ude an i ncr eas e ordecr eas e of the s anct i on . 3 N ot i ce of

Pr opos ed R ul e C hange bythe Phi l adel phi a St ock Exchange, I nc. , E xchange A ct R e le a s e N o . 4 3 4 1 5 , 7 3 S E C D o c k e t 1 1 0 1 (O c t. 4 , 2 0 0 0 ) ( e m p h a s is a d d e d ), appr oved by R elea se N o . 4 3 5 8 4 , 7 3 S E C D o ck et 20 4 7 (N o v . 1 7 , 2 0 0 0 ). T h ese p rov isi o n s clea rl yau tho ri ze the B o ard to inc rea se a san cti o n w ith o u t r eg ard t o w hetherthe i s s ue w as pr evi ous l yr ai s ed. T he thi r d par agr aph of s ubs ect i on ( b) ex p li cit lystat es th at, in it s rev iew , the B o ard m ay“m o d ify ” the d ec isi o n o f a n ad v isory8

comm i t t ee “ i n w hol e ori n part ” and that“[s ] uch modi fi cat i on m ayi ncl ude an i ncr eas e or d e c re a se in th e sa n c tio n .” T h e re is n o th in g in th is p ro v isio n to su g g e st th a t th is a u th o rity i s l i m i t ed t o ci r cumst ance s i n w hi ch the i s s ue i s r ai s ed bya partyorthatthe i s s ue maybe

“ w a iv e d ” b yth e B o a rd . T h e o n lyre a so n a b le r e a d in g o f th e p ro v isio n is th a t itg ra n ts to the B oar d t he abi l i tyt o i ncr eas e a s anct i on i n i t s di s cr et i on, notw i ths t andi ng the fa i l ur e of the p arti es to ad d ress the m att er. T h is in terp re tatio n c o m p o rts w ith th e e v id e n tiary sc o p e o f re v iew e sta b lish e d in the fi r s tpar agr aph of s ubs ect i on ( b) . T hi s par agr aph r es tr i ct s the evi dence thatm aybe cons i der ed bythe B oar d t o t he admi ni s tr at i ve r ecor d. T he dec i s i on of the B C C and the re c o m m e n d a tio n o f

th e a d v iso ryc o m m itt e e a re p a rt o f th is re c o rd a n d , as su c h , all a sp e c ts of thos e dec i s i ons m aybe r evi ew ed bythe B oar d cons i s t entw i th R ul e 906. 9( b) ( i ) . T he B oard’s act i on i n thi s case ful l ycom pli ed w i th E xch ang e rul es. 2. PT R and M cB r i de al s o cont end thatthe B oar d vi ol at ed s ect i on 6( d) of the Secur i t i es E xchange A ct , 15 U . S. C . § 78f( d) , byi ncr eas i ng the l ength of the s us pens i on w ith o u t f ir s t p ro v id in g n o tic e a n d a re n e w e d o p p o rt u n ity f o r a h e a ri n g o n th e is s u e . S ect i on 6(d) pr ov i des, i n p ert i nen tpart , as fol l ow s: In a n yp roc ee d ing b ya n ati o n al sec u ri ti es e x ch an g e to d eterm ine w h ethe r a m emberorper s on as s oci at ed w i th a mem bers houl d be di s ci pl i ned[, ] . . . the excha nge s hal l br i ng s peci fi c cha r ges , not i fys uch mem berorper s on of, and gi ve hi m an opportuni tyt o defe nd agai ns t , s uch cha r ges , and kee p a r ecor d.9

I d. § 78f( d) ( 1) . A n excha nge ca nnotdi s ci pl i ne a mem berunl es s i toffe r s advanc e not i ce o f th e c h a rg e s a n d a re a s o n a b le o p p o rt u n ity f o r a h e a ri n g . I

d. ; see al so U ni t ed Stat es v. F la. E . C oas tRy. C o. , 4 1 0 U .S . 2 2 4 , 2 4 1 -4 4 (1 9 7 3 ); To dd & Co. v . S

EC , 557 F. 2d 1008, 1 0 1 4 (3d C ir . 1 9 7 7 ). T hes e r equi r ement s w er e s at i s fi ed i n thi s cas e. PT R and M cB r i de w er e gi ven n o tic e o f th e c h a rg e s a g a in s t th e m a n d a n o p p o rt u n ity f o r a f u ll h e a ri n g b e f

o re th e B C C . T heyw ere al l ow ed to presentevidence rel at i ng t o the exi st ence o f viol at i on s and the s anct i ons t o be i m pos ed. T heyw er e perm i t t ed t o appea l fr om the adve r s e dec i s i on of the B C C t o the B oard an d w ere not i fi ed, throug h R ule 960.9( b), that the B oard co uld i ncrease the s anct i ons i n i t s di s cr et i on. PT R and M cB r i de r ece i ved ac tual not i ce of the cha r ges a n d p o ten tial sa n c tio n s a g a in st th e m a n d w e re p ro v id e d a h e a rin g a t w h ich th e yw e re a b le t o addr es s thes e i s s ues . T he di s ci pl i narypr ocee di ngs compl i ed ful l yw i th s ect i on 6( d) of th e S e c u rities E x c h a n g e A c t. T h e p ri m a ry c a s e o n w h ic h P T R a n d M c B ri d e re ly, To dd & Co. v . S

EC , 557 F. 2d 1008 ( 3d C i r . 1977) , i s i nappos i t e. I n Todd , w e hel d thatthe boar d of governor s of an excha nge coul d not , w i thoutgi vi ng pr i ornot i ce t o the part i es , r ei ns t at e a c har ge thathad b e e n d is m is s e d b yth e f ir s t- le v e l d is c ip lin a ry b o d y . I d. at 10 1 4 . T h o se c ir cu m stan ce s are no tpresenthere. T he B oard i n thi s case di d n ot r ei nst at e a dis m i ssed charge or otherw i se al t erthe al l egat i ons agai ns tPT R and M cB r i de. R ather , i ts i m pl ym odi fi ed the s anct i ons10

thathad bee n r ecomm ended bythe advi s orycomm i t t ee, an ac t i on thati s notpr ecl uded by the S ec u ri ti es E x ch an g e A ct an d is ex p resslyall o w ed b yR u le 96 0 . 9 (b). T he Exchange of

fer ed PT R and M cB r i de ade quat e not i ce of the cha r ges and an oppor tuni tyt o defe nd themsel ves ata hea r i ng. T heyw er e al l ow ed t o pr es entevi dence a n d a rg u m e n t r e la tin g to th e n a tu re o f th e c h a rg e s a n d a n ys a n c tio n s to b e im p o s e d . Fol l ow i ng the B C C ’ s deci s i on, theypet i t i oned forr evi ew bythe B oar d and w er e not i fi ed, byvi r tue of Rul e 960. 9( b) , thatthe B oar d pos s es s ed the author i tyt o i ncr eas e the s anct i ons i n i t s di s cr et i on. T he B oar d exer ci s ed thi s author i tycons i s t entw i th s ect i on 6( d) o f th e S e c u rities E x c h a n g e A c t. B. P T R an d M cB ri d e a lso a rgu e tha t, n o tw ith stan d ing the a ll eg ed p roc ed u ral errors comm i t t ed bythe B oar d, the SE C err ed i n fi ndi ng thatthe s anct i ons i m pos ed w er e not

“ e x c e s s i v e o ro p p r e s s i v e ” u n d e rs e c t i o n 1 9 ( e ) o f th e S e c u r i t i e s Ex c h a n g e Ac t , 1 5 U. S . C. § 78s ( e) ( perm i t t i ng the SE C t o “ca ncel ” or“r educe ” anys anct i on found t o be “e xces s i ve oroppr es s i ve”) . T he age ncy ’ s deci s i on t o uphol d a s anct i on i s r evi ew ed forabus e of di s cr et i on and w i l l be overturned onl yi f “unw arr ant ed i n l aw or. . . w i thoutj us t i fi cat i on i n fac t . ” B ut

zv. G l overLi ves t ock Com m ’ n C o. , 411 U . S. 182, 185- 86 ( 1973) ( quot i ng Am. Po we rCo. v . S

EC , 3 2 9 U .S . 9 0 , 1 1 2 (1 9 4 6 )); Mc Car thy v . S EC , 406 F. 3d 179, 188 (2 d C ir. 2 0 0 5 ); WH

X Cor p . v . S EC , 3 6 2 F . 3 d 8 5 4 , 8 5 9 (D . C . C ir . 2 0 0 4 ).11

T he pr i m aryfocus of ourr evi ew i s w hetherthe age ncygave “ m eani ngful c o n s id e ra tio n ” to th e re le v a n t f a c to rs in re a c h in g its d e c is io n . Monet ta F i n. Ser vs . , I nc. v. S EC , 3 9 0 F .3 d 9 5 2 , 9 5 7 -5 8 (7 th C ir. 2 0 0 4 ); s ee al s o, e. g. , McC ar thy , 4 0 6 F .3 d a t 1 8 8 ; c f. SE Cv. C hener

y C or p. , 318 U . S. 80, 94 ( 1943) ( “[T] he gr ounds upon w hi ch the a d m in is tr a tiv e a g e n c ya c te d [ m u s t b e ] c le a rl yd is c lo s e d a n d a d e q u a te ly su s ta in e d .” ). T hes e fa ct or s i ncl ude the egr egi ous nes s and w i l l ful nes s of the vi ol at i ons , the r i s k of futur e vi ol at i ons , the bene fi tt o t he vi ol at or , the harm t o thi r d part i es and the exc hange, a n d th e d is c ip lin a ry h is to ry o f th e v io la to r. See McC ar thy , 4 0 6 F .3 d a t 1 9 0 ; Mo n e tta , 390 F .3 d a t 9 5 7 -5 8 ; Gei

g e rv . S EC , 3 6 3 F . 3 d 4 8 1 , 4 8 8 (D . C . C ir . 2 0 0 4 ); S t e a dman v . S EC , 6 0 3 F .2 d 1 1 2 6 , 1 1 3 9 -4 1 (5 th C ir. 1 9 7 9 ); Ar th u rLi p p e rCor p . v . S EC , 547 F. 2d 171, 184 ( 2d C i r . 1976) . T he natur e of s anct i ons i m pos ed i n s i m i l arcas es m ayal s o be cons i der ed; how ever , “[t ] he empl oym entof a s anct i on w i thi n the author i tyof an a dm i ni s tr at i ve agenc yi s . . . notr ender ed i nval i d i n a part i cul arcas e bec aus e i ti s m or e s ever e than s anct i ons i m pos ed i n othercas es . ” B u tz , 4 1 1 U .S . at 1 8 7 ; s ee als o A r thurLi pper , 547 F .2 d a t 1 8 4 ; cf

. Mor al lv. D r ug E nf

or cem ent A dm i n. , 412 F. 3d 165, 183 ( D . C . C i r . 2005) ( s t at i ng that , “[a ] l though ‘ m er e uneve nnes s i n the appl i cat i on of [a ] s anct i on does not ren d er it s ap p li ca ti o n in a p arti cu lar case u n w arran ted in law , ” a n ag en cy ’s “unpr ece dent ed and une xpl ai ned depa r tur e fr om [a] cons i s t entpol i cy ” i s a r el evant cons i der at i on) ( quot i ng B u tz , 4 1 1 U . S . at 18 8 ).12

T he SE C appr opr i at el yw ei ghed thes e fa ct or s i n thi s cas e. I tnot ed thatthe vi ol at i ons ati s s ue w er e i nadvert entand di d notbenef i tPT R and M cB r i de orharm the E xchange . I tal s o r ecogni zed that , i n othercas es i nvol vi ng m i s r epr es ent at i ons , l es s er s anct i ons had bee n i m pos ed. N evertheles s, the ag encydeterm i ned that these factor s w ere out w ei gh ed b ythe ri sk o f f u ture v iolati o n s an d the d isci p li n aryh ist o ryo f th e v iolator. L ess th an three y ea rs b e f o r e th e i n c i d e n t s i n th i s c a s e , M c Br i d e h a d c o mmi t t e d th e s a me v i o l a t i o n s o f th e s a me E x c h a n g e ru le a n d h a d b e e n f in e d $ 5 0 0 f

o r e a c h o f

th o se v io latio n s. M c B rid e sh o u ld h a v e b e e n f

a m ili a r w ith th e se re q u ire m e n ts a n d m o d e led h is b e h a v io r a c c o rd in g ly . Y e t, h e s u b s e q u e n t l y e n g a g e d i n th e s a m e c o n d u c ta n d , w i th s o m e d e g r e e o f t e m e r i ty, e x p la in e d to th e B C C th a t h e d id n o t v ie w c o m p lia n c e w ith th e ru le a s h is re s p o n s ib ility. T he SE C w as ful l yj us t i fi ed i n fi ndi ng thatthi s s t at ementevi nced a “di s turbi ng di s r egar d” f o r re g u lato rysta n d a rd s, w a rra n tin g h e a v ysa n c tio n s f o r d e ter re n t ef

f e c t. T he SE C di s t i ngui s hed otherdeci s i ons i n w hi ch the vi ol at orhad r ece i ved l es s er s anct i ons fors i m i l arm i s conduct . T hos e ca s es i nvol ved ci r cumst ance s i n w hi ch the tr ader had i nt ent i onal l yt es t ed an a m bi guous rul e orhad s ett l ed w i th the exc hange, avoi di ng t he cos t s as s oci at ed w i th di s ci pl i narypr ocee di ngs . I n contr as t , the rul e underw hi ch PT R and M c B rid e w e re c h a rg e d w a s c lea r a n d u n a m b ig u o u s, a n d th e E x c h a n g e w a s f o rc e d to expend s ubs t ant i al t i m e and r es our ces i n pr os ecut i ng the ca s e.13

T he SE C appr opr i at el ycons i der ed the r el evantfac t or s and det erm i ned thata fi ne of $1, 000 pervi ol at i on – doubl e the fi ne i m pos ed forthe pr evi ous vi ol at i ons – and a s us pens i on of thr ee mont hs w er e r eas onabl ynece s s aryt o i m pr es s upon PT R and M cB r i de th e n e c e ss ityo f

stric t co m p lian c e w ith E x c h a n g e ru les . T h is c o n c lu sio n d o e s n o t r epr es entan abus e of the age ncy ’ s br oad di s cr et i on. III . T h e f in e a n d su sp e n sio n a t issu e in th is c a se w e re im p o se d b yth e E x c h a n g e in acc or dance w i th i t s governi ng rul es and w er e nei therexce s s i ve noroppr es s i ve i n l i ghtof th e d isc ip lin a ryh isto ryo f P T R a n d M c B rid e . T h e S E C d id n o t er r in its d e c isio n to sust ai n these s ancti on s. A ccor di ngl y , the pet i t i on forr evi ew w i l l be deni ed.