Source: https://www.legalcrystal.com/case/103716/united-states-vs-nasd-inc
Timestamp: 2019-08-18 05:27:30
Document Index: 662702103

Matched Legal Cases: ['§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 78', '§ 80', '§ 1', '§ 1', '§ 1', '§ 1', '§ 4', '§ 80', '§ 78', '§ 22', '§ 22', '§ 22', '§ 80', '§ 22', '§ 22', '§ 22', '§ 80', '§ 22', '§ 80', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 22', '§ 1', '§ 80', '§ 22', '§ 78', '§ 78', '§ 78', '§ 78', '§ 22', '§ 78', '§ 80', '§ 22', '§ 270', '§ 78', '§ 78', '§ 38', '§ 80', '§ 22', '§ 411', '§ 1381', '§ 78', '§ 22']

United States Vs Nasd Inc - Citation 103716 - Court Judgment | LegalCrystal
United States Vs. Nasd, Inc. - Court Judgment
LegalCrystal Citation legalcrystal.com/103716
Case Number 422 U.S. 694
Respondent Nasd, Inc.
united states v. nasd, inc. - 422 u.s. 694 (1975) u.s. supreme court united states v. nasd, inc., 422 u.s. 694 (1975) united states v. national association of securities dealers, inc. no. 73-1701 argued march 17, 1975 decided june 26, 1975 422 u.s. 694 appeal from the united states district court for the district of columbia syllabus section 22(d) of the investment company act of 1940 provides that "no dealer shall sell [mutual fund shares] to any person except a dealer, a principal underwriter, or the issuer, except at a current public offering price described in the prospectus." section 22(f) authorizes mutual funds to impose restrictions on the negotiability and transferability of shares, provided they.....
United States v. NASD, Inc. - 422 U.S. 694 (1975)
U.S. Supreme Court United States v. NASD, Inc., 422 U.S. 694 (1975)
1. Neither the language nor legislative history of § 22(d) justifies extending the section's price maintenance mandate beyond its literal terms to encompass transactions by broker-dealers acting as statutory "brokers." Pp. 422 U. S. 711 -720.
(a) To construe § 22(d) to cover all broker-dealer transactions would displace the antitrust laws by implication and also would impinge on the SEC's more flexible authority under § 22(f). Implied antitrust immunity can be justified only by a convincing showing of clear repugnancy between the antitrust laws and the regulatory system, and here no such showing has been made. Pp. 422 U. S. 719 -720.
(b) Such an expansion of § 22(d)'s coverage would serve neither this Court's responsibility to reconcile the antitrust and regulatory statutes where feasible nor the Court's obligation to interpret the Investment Company Act in a manner most conducive to the effectuation of its goals. P. 422 U. S. 720 .
2. The vertical restrictions sought to be enjoined in Counts II-VIII are among the kinds of agreements authorized by § 22(f), and hence such restrictions are immune from liability under the Sherman Act. Pp. 422 U. S. 720 -730.
by imposing SEC-approved restrictions on transferability and negotiability. Pp. 422 U. S. 722 -725.
(b) To contend, as the Government does, that the SEC's exercise of regulatory authority has been insufficient to give rise to an implied immunity for agreements conforming with § 22(f) misconceives the statute's intended operation. By its terms, § 22(f) authorizes properly disclosed restrictions unless they are inconsistent with SEC rules or regulations, and thus authorizes funds to impose transferability or negotiability restrictions subject to SEC disapproval. Pp. 422 U. S. 726 -728.
(c) The SEC's authority would be compromised if the agreements challenged in Counts II-VIII were deemed actionable under the Sherman Act. There can be no reconciliation of the SEC's authority under § 22(f) to permit these and similar restrictive agreements with the Sherman Act's declaration that they are illegal per se. In this instance, the antitrust laws must give way if the regulatory scheme established by the Investment Company Act is to work. Pp. 422 U. S. 729 -730.
3. The activities charged in Count I are neither required by § 22(d) nor authorized under § 22(f), and therefore cannot find antitrust shelter therein. The SEC's exercise of regulatory authority under the Maloney and Investment Company Acts is sufficiently pervasive, however, to confer implied immunity from antitrust liability for such activities. Pp. 422 U. S. 730 -735.
POWELL, J., wrote the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and REHNQUIST, JJ., joined. WHITE, J., filed a dissenting opinion, in which DOUGLAS, BRENNAN, and MARSHALL, JJ., joined, post, p. 422 U. S. 735 .
This appeal requires the Court to determine the extent to which the regulatory authority conferred upon the Securities and Exchange Commission by the Maloney Act, 52 Stat. 1070, as amended, 15 U.S.C. § 78 o -3, and the Investment Company Act of 1940, 54 Stat. 789, as amended, 15 U.S.C. § 80a-1 et seq., displaces the strong antitrust policy embodied in § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1. At issue is whether certain sales and distribution practices employed in marketing securities of open-end management companies, popularly referred to as "mutual funds," are immune from antitrust liability. We conclude that they are, and accordingly affirm the judgment of the District Court.
An "investment company" invests in the securities of other corporations and issues securities of its own. [ Footnote 1 ]
Shares in an investment company thus represent proportionate interests in its investment portfolio, and their value fluctuates in relation to the changes in the value of the securities it owns. The most common form of investment company, the "open end" company or mutual fund, is required by law to redeem its securities on demand at a price approximating their proportionate share of the fund's net asset value at the time of redemption. [ Footnote 2 ] In order to avoid liquidation through redemption, mutual funds continuously issue and sell new shares. These features -- continuous and unlimited distribution and compulsory redemption -- are, as the Court recently recognized, "unique characteristic[s]" of this form of investment. United States v. Cartwright, 411 U. S. 546 , 411 U. S. 547 (1973).
the fund, and by broker-dealers [ Footnote 3 ] who contract with that underwriter to sell the securities to the public. The sales price commonly consists of two components, a sum calculated from the net asset value of the fund at the time of purchase and a "load," a sales charge representing a fixed percentage of the net asset value. The load is divided between the principal underwriter and the broker-dealers, compensating them for their sales efforts. [ Footnote 4 ]
focuses, rather, on the potential secondary market in mutual fund shares. Although a significant secondary market existed prior to enactment of the Investment Company Act, little presently remains. The United States agrees that the Act was designed to restrict most of secondary market trading, but nonetheless contends that certain industry practices have extended the statutory limitation beyond its proper boundaries. The complaint in this action alleges that the defendants, appellees herein, combined and agreed to restrict the sale and fix the resale prices of mutual fund shares in secondary market transactions between dealers, from an investor to a dealer, and between investors through brokered transactions. [ Footnote 5 ] Named as defendants are the National Association of Securities Dealers (NASD), [ Footnote 6 ] and certain mutual funds, [ Footnote 7 ] mutual fund underwriters, [ Footnote 8 ] and securities broker-dealers. [ Footnote 9 ]
The United States charges that these agreements violate § 1 of the Sherman Act, 15 U.S.C. § 1, [ Footnote 10 ] and prays that they be enjoined under § 4 of that Act.
the growth of a secondary dealer market in the purchase and sale of mutual fund shares. See n 42, infra. Counts II-VIII, by contrast, allege various vertical restrictions on secondary market activities. In Counts II, IV, and VI, the United States charges that the principal underwriters and broker-dealers entered into agreements that compel the maintenance of the public offering price in brokerage transactions of specified mutual fund shares, and that prohibit inter-dealer transactions by allowing each broker-dealer to sell and purchase shares only to or from investors. [ Footnote 11 ] Count VIII alleges that the broker-dealers entered into other, similar contracts and combinations with numerous principal underwriters. Counts III, V, and VII allege violations on the part of the principal underwriters and the funds themselves. In Counts III and VII, the various defendants
After carefully examining the structure, purpose, and history of the Investment Company Act, 15 U.S.C. § 80a-1 et seq., and the Maloney Act, 15 U.S.C. § 78 o -3, the District Court held that this statutory scheme was " incompatible with the maintenance of (an) antitrust action,'" 374 F.Supp. 95, 109 (DC 1973), quoting Silver v. New York Stock Exchange, 373 U. S. 341 , 373 U. S. 358 (1963). The court concluded that §§ 22(d) and (f) of the Investment Company Act, when read in conjunction with the Maloney Act, afford antitrust immunity for all of the practices here challenged. The court further held that, apart from this explicit statutory immunity, the pervasive regulatory scheme established by these statutes confers an implied immunity from antitrust sanction in the "narrow area of distribution and sale of mutual fund shares." 374 F.Supp. at 114. The court accordingly dismissed the complaint, and the United States appealed to this Court. [ Footnote 12 ]
The position of the United States in this appeal can be summarized briefly. Noting that implied repeals of the antitrust laws are not favored, see, e.g., United States v. Philadelphia National Bank, 374 U. S. 321 , 374 U. S. 348 (1963), the United States urges that the antitrust immunity conferred by § 22 of the Investment Company
over the business practices of investment companies. [ Footnote 13 ] We are concerned on this appeal with § 22 of the Act, 15 U.S.C. § 80a-22, which controls the sales and distribution of mutual fund shares. The questions presented require us to determine whether § 22(d) obligates appellees to engage in the practices challenged in Counts II-VIII, and thus necessarily confers antitrust immunity on them. If not, we must determine whether such practices are authorized by § 22(f), and, if so, whether they are immune from antitrust sanction. Resolution of these issues will be facilitated by examining the nature of the problems and abuses to which § 22 is addressed, a matter to which we now turn.
Investment Company Act may be found in Part III of the Investment Trust Study. [ Footnote 14 ] That Study, as Congress has recognized, see 15 U.S.C. § 80a-1, forms the initial basis for any evaluation of the Act.
Prior to 1940, the basic framework for the primary distribution of mutual fund shares was similar to that existing today. The fund normally retained a principal underwriter to serve as a wholesaler of its shares. The principal underwriter, in turn, contracted with a number of broker-dealers to sell the fund's shares to the investing public. [ Footnote 15 ] The price of the shares was based on the fund's net asset value at the approximate time of sale, and a sales commission or load was added to that price.
The two-price system did not benefit the investing public generally. Some of the mutual funds did not explain the system thoroughly, and unsophisticated investors probably were unaware of its existence. See id. at 867. Even investors who knew of the two-price system and understood its operation were rarely in a position to exploit it fully. It was possible, however for a knowledgeable investor to purchase shares in a rising market at the current price with the advance information that the next day's price would be higher. He thus could be guaranteed an immediate appreciation in the market value of his investment, [ Footnote 16 ] although this advantage
was obtained at the expense of the existing shareholders, whose equity interests were diluted by a corresponding amount. [ Footnote 17 ] The load fee that was charged in the sale of mutual funds to the investing public made it difficult for these investors to realize the "paper gain" obtained in such trading. Because the daily fluctuation in net asset value rarely exceeded the load, public investors generally were unable to realize immediate profits from the two-price system by engaging in rapid in-and-out trading. But insiders, who often were able to purchase shares without paying the load, did not operate under this constraint. Thus, insiders could, and sometimes did, purchase shares for immediate redemption at the appreciated value. See n 24, infra, and sources cited therein.
As a result, an active secondary market in mutual fund shares existed. Id. at 865-867. Principal underwriters and contract broker-dealers often maintained inventory positions established by purchasing shares through the primary distribution system and by buying from other dealers and retiring shareholders. [ Footnote 18 ] Additionally, a "bootleg market" sprang up, consisting of broker-dealers having no contractual relationship with the fund or its principal underwriter. These bootleg dealers purchased shares at a discount from contract dealers or bought them from retiring shareholders at a price slightly higher than the redemption price. Bootleg dealers would then offer the shares at a price slightly lower than that required in the primary distribution system, thus "initiating a small scale price war between retailers and tend[ing] generally to disrupt the established offering price." Id. at 865.
the NASD and the SEC to regulate certain pricing and trading practices in order to effectuate that goal. [ Footnote 19 ] Section 22(b) authorizes registered securities associations and the SEC to prescribe the maximum sales commissions or loads that can be charged in connection with a primary distribution; and § 22(e) protects the right of redemption by restricting mutual funds' power to suspend redemption or postpone the date of payment.
15 U.S.C. § 80a-22(d). [ Footnote 20 ] By its terms, § 22(d) excepts inter-dealer sales from its price maintenance requirement. Accordingly, this section cannot be relied upon by appellees as justification for the restrictions imposed upon inter-dealer transactions. At issue, rather, is the narrower question whether the § 22(d) price maintenance mandate for sales by "dealers" applies to transactions in which a broker-dealer acts as a statutory "broker", rather than a statutory "dealer." The District Court concluded that it does, and thus that § 22(d) governs transactions in which the broker-dealer acts as an agent for an investor as well as those in which he acts as a principal selling shares for his own account.
view of § 22(d). The Investment Company Act specifically defines "broker" and "dealer," [ Footnote 21 ] and uses the terms distinctively throughout. [ Footnote 22 ] Appellees maintain, however, that the definition of "dealer" is sufficiently broad to require price maintenance in brokerage transactions. In support of this position, appellees assert that the critical elements of the dealer definition are that the term relates to a "person", rather than to a transaction, and that the person must engage "regularly" in the sale and purchase of securities to qualify as a dealer. It is argued, therefore, that any person who purchases and sells securities with sufficient regularity to qualify as a statutory dealer is thereafter bound by all dealer restrictions, regardless of the nature of the particular
Even if we assume, arguendo, that the statutory definition is ambiguous, we find nothing in the contemporaneous legislative history of the Investment Company Act to justify interpreting § 22(d) to encompass brokered transactions. That history is sparse, [ Footnote 23 ] and
suggests only that § 22(d) was considered necessary to curb abuses that had arisen in the sales of securities to insiders. [ Footnote 24 ]
The prohibition against insider trading would seem adequately served by the first clause of § 22(d), which prevents mutual funds from selling shares at other than the public offering price to any person except a principal underwriter or dealer. See n 20, supra. [ Footnote 25 ] The further
restriction on dealer sales bears little relation to insider trading, however, and logically would be thought to serve some other purpose. The obvious effect of the dealer prohibition is to shield the primary distribution system from the competitive impact of unrestricted dealer trading in the secondary markets, a concern that was reflected in the Study, see Investment Trust Study pt. III, p. 865. The SEC perceives this to be one of the purposes of this provision. [ Footnote 26 ]
Nor do we think that the history attending subsequent congressional consideration of the Act provides adequate support for appellees' contention that § 22(d) requires strict price maintenance in all broker-dealer transactions in mutual fund shares. To be sure, portions of the testimony of SEC Chairman Cohen before the House Subcommittee on Commerce and Finance in 1967 suggested that the price maintenance requirement of § 22(d) encompassed all broker-dealers, irrespective of how they obtained the traded shares, [ Footnote 27 ] and, on other occasions, the Chairman referred to sales by brokers when discussing mutual fund transactions. [ Footnote 28 ] Appellees also can point to congressional characterizations of § 22(d) that suggest that some members of Congress understood the reach of that provision to be as broad as the District Court thought. [ Footnote 29 ]
Appellees maintain that this history indicates that Congress always intended § 22(d) to control broker as well as dealer transactions, and that it reenacted the amended § 22 with that purpose in mind. The District Court accepted this position, and it is not without some support in this historical record. [ Footnote 30 ] But impressive evidence to the contrary is found in the position consistently maintained by the SEC. Responding to an inquiry in 1941, the SEC General Counsel stated that § 22(d) did not bar brokerage transactions in mutual fund shares:
Investment Company Act, Rel. No. 78, Mar. 4, 1941, 11 Fed.Reg. 10992 (1941). This substantially contemporaneous interpretation of the Act has consistently been maintained in subsequent SEC opinions, see Oxford Co., Inc., 21 S.E.C. 681, 690 (1946); Mutual Funds Advisory, Inc., Investment Company Act Rel. No. 6932, p. 3 (1972). The same position was asserted in a recent staff report, see 1974 Staff Report 105 n. 2, 107 n. 2, and 109, was relied on by the SEC in its subsequent decision to encourage limited price competition in brokered transactions, [ Footnote 31 ] and is advanced by it as
amicus curiae in this Court. This consistent and longstanding interpretation by the agency charged with administration of the Act, while not controlling, is entitled to considerable weight. See, e.g., Saxbe v. Bustos, 419 U. S. 65 (1974); Investment Co. Institute v. Camp, 401 U. S. 617 , 401 U. S. 626 -627 (1971); Udall v. Tallman, 380 U. S. 1 , 380 U. S. 16 (1965).
The substance of appellees' position is that the dealer prohibition of § 22(d) should be interpreted in generic, rather than statutory, terms. The price maintenance requirement of that section accordingly would encompass all broker-dealer transactions with the investing public, and would shelter them from antitrust sanction. But such an expansion of § 22(d) beyond its terms would not only displace the antitrust laws by implication, it also would impinge seriously on the SEC's more flexible regulatory authority under § 22(f). [ Footnote 32 ]
See, e.g., United States v. Philadelphia National Bank, 374 U.S. at 374 U. S. 348 ; United States v. Borden Co., 308 U. S. 188 , 308 U. S. 197 -206 (1939). We think no such showing has been made. Moreover, in addition to satisfying our responsibility to reconcile the antitrust and regulatory statutes where feasible, Silver v. New York Stock Exchange, 373 U.S. at 373 U. S. 356 -357, we must interpret the Investment Company Act in a manner most conducive to the effectuation of its goals. We conclude that appellees' interpretation of § 22(d) serves neither purpose, and cannot be justified by the language or history of that section.
United States v. McKesson & Robbins, 351 U. S. 305 , 351 U. S. 316 (1956). Accordingly, we hold that the District Court erred in relying on § 22(d) in determining that the activities here questioned are immune from antitrust liability.
restrictions on the negotiability and transferability of their shares, provided they conform with the fund's registration statement and do not contravene any rules and regulations the Commission may prescribe in the interests of the holders of all of the outstanding securities. [ Footnote 33 ] The Government does not contend that the vertical restrictions are not disclosed in the registration statements of the funds in question. Nor does it assert that the agreements imposing such restrictions violate Commission rules and regulations. Indeed, it could not do so, because to date the SEC has prescribed no such standards. Instead, the Government maintains that the contractual restrictions do not come within the meaning of the Act, asserting that § 22(f) does not authorize the imposition of restraints on the distribution system, rather than on the shares themselves. The Government thus apparently urges that the only limitations contemplated by this section are those that appear on the face of the certificate itself. The Government also urges that the SEC's unexercised power to prescribe rules and regulations is insufficient to create repugnancy between its regulatory authority and the antitrust laws.
Unlike § 22(d), § 22(f) originated in the Commission-sponsored bill considered in the Senate subcommittee hearings that preceded introduction of the compromise proposal later enacted into law. The Commission-sponsored provision authorized the SEC to promulgate rules, regulations, or orders prohibiting restrictions on the transferability or negotiability of mutual fund shares, S. 3580, § 22(d)(2), 76th Cong., 3d Sess. (1940). [ Footnote 34 ] Commission testimony indicates that it considered this authority necessary to allow regulatory control of industry measures designed to deal with the disruptive effects of "bootleg market" trading and with other detrimental trading practices identified in the Investment Trust Study. [ Footnote 35 ]
The bootleg market was a complex phenomenon whose principal origins lay in the distribution system itself. In view of this history, limitation of the industry's ability, subject of course to SEC regulation, to reach these problems at their source would constitute an inappropriate contraction of the remedial function of the statute. [ Footnote 36 ] Indeed, in view of the role of trading firms and inter-dealer transactions in the maintenance of the bootleg market, the narrow interpretation of § 22(f) urged by the Government would seem to afford inadequate authority to deal with the problem.
We find support for our interpretation of § 22(f) in the views expressed by the SEC shortly after the passage of the Act. Rule 2(j)(2), proposed by the NASD to curb abuses identified in the Study and the congressional hearings, provided limitations on underwriter sales and redemptions to or from dealers who are not parties to sales agreements. In commenting on this proposed rule, the SEC characterized it as a "restriction on the transferability of securities," and specifically adverted to its power to regulate such restrictions under § 22(f). National Association of Securities Dealers, Inc., 9 S.E.C. 38, 44-45 and n. 10 (1941). As indicated above, see supra at 422 U. S. 719 , and sources there cited, this contemporaneous interpretation by the responsible agency is entitled to considerable weight. We therefore conclude that the restrictions on transferability and negotiability contemplated by § 22(f) include restrictions on the distribution system for mutual fund shares as well as limitations on the face of the shares themselves. The narrower interpretation of this provision advanced by the Government would disserve the broad remedial function of the statute. [ Footnote 37 ]
Section 22(f), as originally introduced, would have authorized the SEC to promulgate rules, regulations, or orders prohibiting restrictions on the redeemability or transferability of mutual fund shares. Congressional consideration of that provision raised some question whether existing restrictions on transferability and negotiability would remain valid unless specifically disapproved by the SEC. [ Footnote 38 ] The compromise provision, which
The Commission repeatedly has recognized the role of private agreements in the control of trading practices in the mutual fund industry. For example, in First Multifund of America, Inc., Investment Company Act Rel. No. 6700 (1971), [1970-1971 Transfer Binder] CCH Fed.Sec.L.Rep. Ś 78,209, p. 80,602 it looked to restrictive agreements similar to those challenged in this litigation to ascertain an investment advisor's capacity in a particular transaction. At no point did it intimate that those agreements were not legitimate. [ Footnote 39 ] Likewise,
Commission reports repeatedly have acknowledged the significant role that private agreements have played in restricting the growth of a secondary market in mutual fund shares. [ Footnote 40 ] Until recently, the Commission has allowed the industry to control the secondary market through contractual restrictions duly filed and publicly disclosed. Even the SEC's recently expressed intention to introduce an element of competition in brokered transactions reflects measured caution as to the possibly adverse impact of a totally unregulated and restrained brokerage market on the primary distribution system. See n 31, supra. The Commission's acceptance of fund-initiated restrictions for more than three decades hardly represents abdication of its regulatory responsibilities. Rather, we think it manifests an informed administrative judgment that the contractual restrictions employed by the funds to protect their shareholders were appropriate means for combating the problems of the industry. The SEC's election not to initiate restrictive rules or regulations is precisely the kind of administrative oversight of private practices that Congress contemplated when it enacted § 22(f).
The agreements questioned by the United States restrict the terms under which the appellee underwriters and broker-dealers may trade in shares of mutual funds. Such restrictions, effecting resale price maintenance and concerted refusals to deal, normally would constitute per se violations of § 1 of the Sherman Act. See, e.g., Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U. S. 207 , 359 U. S. 211 -213 (1959); Fashion Originators' Guild of America, Inc. v. FTC, 312 U. S. 457 , 312 U. S. 465 -468 (1941). Here, however, Congress has made a judgment that these restrictions on competition might be necessitated by the unique problems of the mutual fund industry, and has vested in the SEC final authority to determine whether and to what extent they should be tolerated "in the interests of the holders of all the outstanding securities" of mutual funds. 15 U.S.C.§ 80a-22(f).
The SEC, the federal agency responsible for regulating the conduct of the mutual fund industry, urges that its authority will be compromised seriously if these agreements are deemed actionable under the Sherman Act. [ Footnote 41 ] We agree. There can be no reconciliation of its authority under § 22(f) to permit these and similar restrictive agreements with the Sherman Act's declaration that they are illegal per se. In this instance, the antitrust laws must give way if the regulatory scheme established
Count I originally appeared to be a general attack on the NASD's role in encouraging the restrictions on secondary market activities challenged in the remainder of the Government's complaint. The acts charged in Count I focused in large part on NASD rules, and on information distributed by that association to its members. [ Footnote 42 ]
Subsequently the Government advised the District Court that its complaint was not to be read as a direct attack on NASD rules, however, and it repeated that position before this Court. [ Footnote 43 ] The Government now contends that
In view of the scope of the SEC's regulatory authority over the activities of the NASD, the Government's decision to withdraw from direct attack on the association's rules was prudent. The SEC's supervisory authority over the NASD is extensive. Not only does the Maloney Act require the SEC to determine whether an association satisfies the strict statutory requirements of that Act, and thus qualifies to engage in supervised regulation of the trading activities of its membership, 15 U.S.C. § 78 o -3(b), it requires registered associations thereafter to submit for Commission approval any proposed rule changes, § 78 o -3(j). The Maloney Act additionally authorizes the SEC to request changes in or supplementation of association rules, a power that recently has been exercised with respect to some of the precise conduct questioned in this litigation, see n 31, supra. If such a request is not complied with, the SEC may order such changes itself. § 78 o -3(k)(2).
The SEC, in its exercise of authority over association rules and practices, is charged with protection of the public interest, as well as the interests of shareholders, see, e.g., §§ 78 o -3(a)(1), (b)(3), and (c), and it repeatedly has indicated that it weighs competitive concerns in the exercise of its continued supervisory responsibility. See, e.g., National Association of Securities Dealers, Inc., 19 S.E.C. 424, 436-437, 486-487
(1945); National Association of Securities Dealers, Inc., 9 S.E.C. at 43-46; see also 1974 Staff Report 105, 109. As the Court previously has recognized, United States v. Socony-Vacuum Oil Co., 310 U. S. 150 , 310 U. S. 227 n. 60 (1940), the investiture of such pervasive supervisory authority in the SEC suggests that Congress intended to lift the ban of the Sherman Act from association activities approved by the SEC.
Finally, we hold that the Government's additional challenges to the alleged activities of the membership of the NASD designed to encourage the kinds of restraints averred in Counts II-VIII likewise are precluded by the regulatory authority vested in the SEC by the Maloney and Investment Company Acts. It should be noted that the Government does not contend that appellees' activities have had the purpose or effect of restraining competition among the various funds. [ Footnote 44 ] Instead, the Government urges in Count I that appellees' alleged conspiracy was designed to encourage the suppression of intra-fund secondary market activities, precisely the restriction that the SEC consistently has approved pursuant to § 22(f) for nearly 35 years. This close relationship is fatal to the Government's complaint, as the Commission's regulatory approval of the restrictive agreements
There can be little question that the broad regulatory authority conferred upon the SEC by the Maloney and Investment Company Acts enables it to monitor the activities questioned in Count I, and the history of Commission regulations suggests no laxity in the exercise of this authority. [ Footnote 45 ] To the extent that any of appellees' ancillary activities frustrate the SEC's regulatory objectives, it has ample authority to eliminate them. [ Footnote 46 ]
Here, implied repeal of the antitrust laws is "necessary to make the [regulatory scheme] work." Silver v. New York Stock Exchange, 373 U.S. at 373 U. S. 357 . In generally similar situations, we have implied immunity in particular and discrete instances to assure that the federal agency entrusted with regulation in the public interest could carry out that responsibility free from the disruption of conflicting judgments that might be voiced by courts exercising jurisdiction under the antitrust laws. See
In this opinion, we will use the term "broker-dealer" to refer generally to persons registered under the Securities Exchange Act of 1934, 48 Stat. 895, 15 U.S.C. § 78 o et seq., and authorized to effect transactions or induce the purchase or sale of securities pursuant to the authorization of that Act. We also will refer separately to "brokers" and "dealers" as defined by the Investment Company Act, see 15 U.S.C. §§ 80a-2(a)(6) and (11), to describe the capacity in which a broker-dealer acts in a particular transaction.
The alleged effect of the restrictive agreement charged in Ś (a) was to inhibit the growth and development of a brokerage market in mutual fund shares. The alleged effect of the restriction identified in Ś (b), by contrast, was to inhibit inter-dealer transactions, and thus to restrict the growth and development of a secondary dealer market. App. 11.
Shortly after enactment of the Investment Company Act, the NASD proposed, and the SEC approved, a rule establishing twice-daily pricing. See National Association of Securities Dealers, Inc., 9 S.E.C. 38 (1941). Twice-daily pricing reduced the time period in which persons could engage in riskless trading and correspondingly decreased the potential for dilution. The Commission subsequently provided full protection against the dilutive effects of riskless trading. In late 1968, it exercised its authority under § 22(c) to adopt Rule 22c-1, which requires all funds to establish "forward pricing." Forward pricing eliminates the potential for riskless trading altogether. See Adoption of Rule 22c-1, Investment Company Act Rel. No. 5519 (1968), [1967-1969 Transfer Binder] CCH Fed.Sec.L.Rep. Ś 77,616; 17 CFR § 270.22c-1 (1974).
See Adoption of Rule N-22D-I, Investment Company Act Rel. No. 2798 p. 1 (1958), [1957-1961 Transfer Binder] CCH Fed.Sec.L.Rep. Ś 76,625, p. 80,393; Investors Diversified Services, Inc., Investment Company Act Rel. No. 3015 (1960), [1957-1961 Transfer Binder] CCH Fed.Sec.L.Rep. Ś 76,699, p. 80,620; In re Sideris, Securities Exchange Act Rel. No. 8816, p. 2 (1970); Mutual Funds Advisory, Inc., Investment Company Act Rel. No. 6932, p. 4 (1972).
The Government first indicated abandonment of its attack on the NASD rules during oral argument of appellees' motion to dismiss. See App. 328-332. Notwithstanding clauses (a) and (b) of Ś 17 of the complaint, see n 42, supra, the Government's counsel stated that it did not intend to challenge any NASD rule, App. 330. Counsel ambiguously suggested, however, that the members' compliance with those rules had aided and abetted the alleged conspiracy, id. at 332, and stated that informal and secret activities of the Association likewise had tended to inhibit growth of the secondary market, id. at 330. Thereafter, in response to the District Court's invitation to join in the litigation as amicus curiae, the SEC expressed its concern that the action might involve an attack on NASD rules, a matter
"over which the Commission is granted exclusive original jurisdiction by Section 15A of the Securities Exchange Act of 1934, 15 U.S.C. § 78 o -3, et seq. (the Maloney Act)."
The Commission can, for example, require amendment of the NASD rules regulating the conduct of its membership, see 15 U.S.C. § 78 o -3(k)(2), or exercise the more general rulemaking power conferred by § 38(a) of the Investment Company Act, 15 U.S.C. § 80a-37(a), to contain any of the challenged activities that might in any way frustrate its regulation of the restrictions it authorizes under § 22(f)
Ante at 422 U. S. 719 -720. That fundamental rule, though invoked again and again in our decisions, retained its vitality because, in the many instances of its evocation, it was given life and meaning by a close analysis of the legislation and facts involved in the particular case, an analysis inspired by the "felt indispensable role of antitrust policy in the maintenance of a free economy. . . ." United States v. Philadelphia National Bank, 374 U. S. 321 , 374 U. S. 348 (1963). Absent that inspiration, the principle becomes an archaism, at best, and no longer reflects the tense interplay of differing and at times conflicting public policies.
The courts have, of course, recognized express exemptions such as these, but the invariable rule has been "that exemptions from antitrust laws are strictly construed," FMC v. Seatrain Lines, Inc., 411 U. S. 726 , 411 U. S. 733 (1973), and that exemption will not be implied beyond that given by the letter of the law. In Seatrain, the Maritime Commission was authorized by statute to approve and immunize from antitrust challenge seven categories of agreements between shipping companies, including agreements "controlling, regulating, preventing, or destroying competition." The Court, construing narrowly the category arguably embracing the merger agreement under consideration, held that merger agreements between shipping companies were not subject to approval by the Commission, and consequently were not entitled to exemption under the antitrust laws.
Id. at 358 U. S. 353 .
Under these and other cases, it could not be clearer that "[a]ctivities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws," id. at 410 U. S. 372 , and that agency approval of particular transactions does not itself confer antitrust immunity.
373 U.S. at 373 U. S. 357 . Conceding that there would be instances of permissible self-regulation which otherwise would violate the antitrust laws, the Court concluded that nothing in the Act required that the deprivations there imposed be immune from the antitrust laws. In arriving at this conclusion, it was noted that the Securities and Exchange Commission had no authority to review specific instances of enforcement of the exchange rules involved, and that it was therefore unnecessary to consider any problem of conflict or coextensiveness with the agency's regulatory power. The Court observed, however, that, if there had been jurisdiction in the Commission, with judicial review following, "a different case would arise concerning exemption from the operation of laws designed to prevent anticompetitive activity. . . ." Id. at 373 U. S. 358 n. 12.
Such a different case, we said, was before us in Ricci v. Chicago Mercantile Exchange, 409 U. S. 289 , 409 U. S. 302 (1973). That case arose in the context of the Commodity Exchange Act. We held that a district court entertaining a private antitrust action should stay its hand while the Commodity Exchange Commission exercised whatever jurisdiction it might have to adjudicate specific claims of violation of exchange rules; but that adjudication, we said, was not a substitute for antitrust enforcement, and the fact that the Commission had jurisdiction to approve or disapprove the challenged conduct and might hold the conduct to be consistent with exchange rules would not, in itself, answer the immunity question. Id. at 409 U. S. 302 -303, n. 13.
Court has concluded that Congress intended to replace normal antitrust enforcement with the administrative regime provided by the statute, subject to judicial review. Pan American World Airways, Inc. v. United States, 371 U. S. 296 (1963), involved certain business conduct within the jurisdiction of the Civil Aeronautics Board. Under the Federal Aviation Act, various transactions by air carriers, if approved by the Board, were expressly immunized from antitrust attack. Also, the Board was given explicit authority under § 411 of that Act, 49 U.S.C. § 1381, to investigate and bring to a halt all "unfair . . . practices" and "unfair methods of competition," the power under this section to be administered in the light of the "competitive regime" clearly delineated elsewhere in the Act. See 371 U.S. at 371 U. S. 308 -309. The Court concluded that Congress, having directed itself to the matter of competition in the airlines industry and having provided a competitive standard to be administered by an agency, had intended to displace the usual enforcement of the antitrust laws through the courts, at least insofar as Government injunction suits were concerned. United States v. Philadelphia National Bank, supra, made it plain that Pan American had not disturbed the usual rule that, without more, agency power to approve, and agency approval itself, do not confer antitrust immunity. 374 U.S. at 374 U. S. 351 -352.
Gordon v. N.Y. Stock Exchange, Inc., ante p. 422 U. S. 659 , decided today, is another instance where Congress has provided an administrative substitute for antitrust enforcement. Section 19(b) of the Securities Exchange Act of 1934, 48 Stat. 898, as amended, 15 U.S.C. § 78s(b), contemplated the fixing by the exchange, and approval or prescription by the Securities and Exchange Commission, of "reasonable rates of commission" to be charged by exchange members. Price fixing
United States v. Trenton Potteries Co., 273 U. S. 392 , 273 U. S. 397 -398 (1927). Thus, Congress could not have anticipated that the antitrust laws would apply to stock exchange price-fixing approved by the Commission. In this respect, there is a "plain repugnancy between the antitrust and regulatory provisions," United States v. Philadelphia National Bank, supra at 374 U. S. 351 (footnote omitted).
The majority concludes from these words and their sparse legislative history that the "funds and the SEC" have the authority to impose "SEC-approved restrictions on transferability and negotiability," ante at 422 U. S. 724 , 422 U. S. 725 , including the restrictions involved here effecting resale price maintenance and concerted refusals to deal, all aimed at stifling competition that might come from the secondary market. The majority concludes that "[t]here can be no reconciliation of [SEC] authority . . . to permit these and similar restrictive agreements" with their illegality under the Sherman Act, and that, therefore, "the antitrust laws must give way if the regulatory scheme established by the Investment Company Act is to work." Ante at 422 U. S. 729 , 422 U. S. 730 .
It is immediately obvious that the majority has failed to heed the teaching of our cases in several respects. It ignores the rule that "exemptions from antitrust laws are strictly construed," and that implied exemptions are " strongly disfavored.'" FMC v. Seatrain Lines, Inc., 411 U.S. at 411 U. S. 733 . Lurking in the prohibition of § 22(f) against any restrictions on "transferability or negotiability" except those stated in the registration statement, the Court discovers the affirmative power to impose resale price maintenance restrictions, as well as the authority to engage in concerted refusals to deal and similar practices wholly at odds with the antitrust laws. Never before has the Court labored to find hidden immunities from the antitrust laws; and the necessity for the effort is itself at odds with our precedents.
The position of the Securities and Exchange Commission, as described and embraced by the Court, is that "its authority will be compromised" if industry practices which the Commission has the power to approve are subject to scrutiny under the antitrust laws. See ante at 422 U. S. 729 . But the Commission has made no effort to analyze and
"The Commission vigorously argues that such agreements can be interpreted as falling within the third category -- which concerns agreements 'controlling, regulating, preventing, or destroying competition.' Without more, we might be inclined to agree that many merger agreements probably fit within this category. But a broad reading of the third category would conflict with our frequently expressed view that exemptions from antitrust laws are strictly construed, see, e.g., United States v. McKesson & Robbins, Inc., 351 U. S. 305 , 351 U. S. 316 (1956), and that"
" United States v. Philadelphia National Bank, 374 U. S. 321 , 374 U. S. 350 -351 (1963) (footnotes omitted). As we observed only recently:"
" Otter Tail Power Co. v. United States, 410 U. S. 366 , 410 U. S. 374 (1973). See also Silver v. New York Stock Exchange, 373 U.S.
341 (1963); Pan American World Airways, Inc. v. United States, 371 U. S. 296 (1963); California v. FPC, 369 U. S. 482 (1962); United States v. Borden Co., 308 U. S. 188 (1939). This principle has led us to construe the Shipping Act as conferring only a 'limited antitrust exemption' in light of the fact that 'antitrust laws represent a fundamental national economic policy.' Carnation Co. v. Pacific Westbound Conference, 383 U.S. at 383 U. S. 219 , 218."
411 U.S. at 411 U. S. 732 -733 (footnotes omitted).
shares in . a secondary market at competitively determined prices and commission rates. Ante at 422 U. S. 718 -719, n. 31.
The majority's opinion, as a whole, seems to me to reject the basic position found in our cases that "antitrust laws represent a fundamental national economic policy. . . ." Carnation Co. v. Pacific Conference, 383 U. S. 213 , 383 U. S. 218 (1966). I cannot follow that course, and, accordingly, dissent.