Opinion ID: 6497712
Heading Depth: 2
Heading Rank: 3

Heading: Independent Administrator

Text: Petitioners’ final objection is to the Commission’s decision that the CT Plan administrator must be “independent”—meaning “not . . . owned or controlled by a corporate entity that, either directly or via another subsidiary, offers for sale its own [proprietary-data products].” CT Plan Order, 86 Fed. Reg. at 44,195. The Commission supported the independence requirement by noting that “an entity that acts as 25 the administrator while also offering for sale its own proprietary data products faces a substantial, inherent conflict of interest, because it would have access to sensitive SIP customer information of significant commercial value.” Id.; see also id. at 44,196 (“Unlike the exchanges that offer for sale their own proprietary equity market data products, an independent Administrator would not have the competing objective of maximizing its own proprietary data products’ profitability.”). Petitioners make three arguments in support of their contention that the Commission failed to articulate a rational explanation for its decision, none of which we find persuasive. Petitioners first contend that the Commission failed to substantiate its “purely theoretical” concern that a CT Plan administrator could misappropriate confidential information, such as by pointing to a plan administrator’s past misconduct or by highlighting the shortcomings of existing safeguards. Pet’rs Br. 54. Granted, an agency is generally on sounder footing when it “act[s] upon the basis of empirical data.” Chamber of Com. of U.S. v. SEC, 412 F.3d 133, 142 (D.C. Cir. 2005). But an agency “need not—indeed cannot—base its every action upon empirical data” and may, “depending upon the nature of the problem, . . . be ‘entitled to conduct . . . a general analysis based on informed conjecture.’” Id. (quoting Melcher v. FCC, 134 F.3d 1143, 1158 (D.C. Cir. 1998)). Here, the Commission highlighted a plausible conflict of interest: the potential misuse of “sensitive SIP customer information of significant commercial value” by administrators that sell competing market data products. CT Plan Order, 86 Fed. Reg. at 44,195–96 (quoting Governance Order, 85 Fed. Reg. at 28,722). In support, the Commission invoked its experience in overseeing the existing Equity Data Plans as well as industry comments supporting the separation of the plan administrator’s regulatory responsibilities from an exchange’s commercial 26 interests. See id. at 44,195–96; Governance Order, 85 Fed. Reg. at 28,722–23. We have found this reasoning sufficient in the past. See Stilwell v. Off. of Thrift Supervision, 569 F.3d 514, 519 (D.C. Cir. 2009) (sanctioning agency’s reliance on its “long experience of supervising” regulated entities and “support in various comments submitted in response to the proposed rule”); Am. Great Lakes Ports Ass’n v. Schultz, 962 F.3d 510, 516 (D.C. Cir. 2020) (“A degree of agency reliance on [comments from affected parties] is not only permissible but often unavoidable.” (alteration in original) (quoting Nat’l Ass’n of Regul. Util. Comm’rs v. FCC, 737 F.2d 1095, 1124 (D.C. Cir. 1984))); cf. FCC v. Nat’l Citizens Comm. for Broad., 436 U.S. 775, 814 (1978) (permitting agencies to rely on “deductions based on the expert knowledge of the agency” (citation omitted)). That the Commission’s conflict of interest worry has not yet manifested itself is of little consequence, as an agency has the latitude to “adopt prophylactic rules to prevent potential problems before they arise”—that is, “[a]n agency need not suffer the flood before building the levee.” Stilwell, 569 F.3d at 519. Petitioners next fault the Commission for not extending the independent administrator requirement to non-SRO data vendors, even though those vendors sell market data products and could have similar conflicts of interest. See Pet’rs Br. 54– 56. But “an agency need not target every danger in order to target any danger,” Am. Coal Co. v. Fed. Mine Safety and Health Rev. Comm’n, 796 F.3d 18, 29 (D.C. Cir. 2015), and instead “may marshal their limited resources by pursuing their goals ‘as priorities demand,’” id. (quoting Nat’l Cong. of Hispanic Am. Citizens (El Congreso) v. Marshall, 626 F.2d 882, 888 (D.C. Cir. 1979)). Here, the Commission explicitly acknowledged that it “chose to address one substantial, inherent conflict of interest” in imposing the independent administrator requirement but permits the CT Plan operating 27 committee to “exercise discretion in selecting the new Administrator” in order to police other conflicts that may arise. CT Plan Order, 86 Fed. Reg. at 44,197. Although petitioners contend that non-SRO data vendors face “the exact same conflict” as SROs selling competing data products, see Pet’rs Br. 55 (emphasis omitted), the conflict is not the same because, as the Commission notes, the SROs have “sufficient voting power” and “incentive” to ensure that any non-SRO chosen to serve as administrator “would [not] face a financial conflict of interest and act as a direct competitor to the SROs’ proprietary data business,” CT Plan Order, 86 Fed. Reg. at 44,158, 44,197. Even if the CT Plan Order permits disparate treatment between SROs and representatives of non-SROs, the Commission has provided “a reasoned explanation” for such treatment. Burlington N. & Santa Fe Ry., 403 F.3d at 777. Third, and finally, petitioners assert that the Commission failed to consider whether “more good than harm will come” from an independent administrator requirement that excludes incumbent administrators that possess institutional knowledge and expertise—the NYSE and Nasdaq. See Pet’rs Br. 56–57 (quoting Md. Peoples Counsel v. FERC, 761 F.2d 768, 779 (D.C. Cir. 1985)); cf. Michigan v. EPA, 576 U.S. 743, 753 (2015) (“[R]easonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions.” (emphasis in original)). But the Commission acknowledged this argument in the CT Plan Order and reasoned that any loss in incumbent experience would be mitigated by the “broad range of financial service firms, unaffiliated with an SRO,” capable of serving as plan administrator and by the current administrators’ abilities to “advise and facilitate the onboarding process of the new Administrator.” CT Plan Order, 86 Fed. Reg. at 44,196–97. It further concluded any lingering “costs” resulting from a loss of expertise or experience are “justified because the inherent 28 conflicts of interest identified by the Commission . . . raise[] significant concerns regarding access to confidential subscriber information.” Id. at 44,197. Thus, we see no merit to petitioners’ argument that the Commission failed to consider the disadvantages or costs of the independent administrator requirement.