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

Heading: SRO Groups

Text: Petitioners next object to the Commission’s decision to allocate and limit SRO votes according to an SRO’s corporate affiliation with another SRO, arguing that the decision is contrary to section 11A and otherwise arbitrary and capricious. As explained below, we find petitioners’ arguments on this issue are without merit.
To begin, petitioners make two arguments that center on the text of section 11A of the Exchange Act. First, they point to the statutory definition of “self-regulatory organization,” which includes “any national securities exchange.” 15 U.S.C. § 78c(a)(26). Petitioners construe this definition to mean “any and all exchanges . . . each of which is a discrete, legally distinct entity” and argue that SRO Groups prevent an individual SRO from being recognized as an SRO for the purpose of joint action under section 11A(a)(3)(B). Pet’rs Reply Br. 21 (emphasis in original). Second, petitioners contend that the combination of SRO Groups and the augmented majority voting structure—which requires a majority of SRO votes and a two-thirds majority of all votes, including non-SROs—would permit committee approval even if there is opposition from a majority of individual SROs. See Pet’rs Br. 43–46. As an example, a proposal that is supported by all of the non- SRO voting representatives (a total of four-and- a-half votes), the four unaffiliated SROs, and the Nasdaq-affiliated SRO Group (with two votes for its three exchanges) would have 20 sufficient support to be adopted under the Commission’s voting framework. But assuming that the nine remaining SROs opposed the proposal, the proposal would be supported by only seven out of the sixteen individual SROs. Id. at 45. As petitioners see it, this outcome “erects a barrier to ‘joint[]’ SRO operation of the CT Plan that is incompatible with the Exchange Act.” Id. at 46 (quoting 15 U.S.C.§ 78k- 1(a)(3)(B)). Because we find that the Commission failed to provide a reasonable interpretation of section 11A that would permit nonSRO representation in the first place, see supra p. 12–19, we see little need to address hypothetical voting outcomes among the SRO Groups and non-SROs or whether a particular outcome would “erect[] a barrier” to joint action pursuant to section 11A, as petitioners contend. The crux of petitioners’ remaining arguments is that section 11A(a)(3)(B) requires that each SRO, as defined in the Exchange Act, be on equal terms with respect to the governance of NMS plans, including voting. Yet nothing in section 11A appears to require the strict one-to-one voting representation by individual SROs contemplated by petitioners. For one thing, although petitioners are correct that the term “self-regulatory organization” is defined at the individual level in the definitions section of the statute, the use of its plural form in section 11A(a)(3)(B) simply establishes the universe of entities (i.e., SROs) that may be authorized by the Commission to act jointly—and no party argues that the Commission excludes any SROs from the CT Plan operating committee. Thus, the definition of “self-regulatory organization” sheds little, if any, light as to how the 21 Commission may allocate NMS plan operating committee votes among individual SROs. Moreover, the undefined term “act jointly,” given its ordinary meaning, see Sorenson Commc’ns, LLC v. FCC, 897 F.3d 214, 228 (D.C. Cir. 2018) (attributing to undefined statutory term “its ordinary meaning”), simply means to act cooperatively, together or in conjunction, see, e.g., Jointly, The Oxford English Dictionary (2d ed. 1989) (“[t]ogether, in union” and “[i]n conjunction, combination, or concert”); Jointly, Webster’s Third New International Dictionary (1981) (“together” and “unitedly”); Jointly, Ballentine’s Law Dictionary (3d ed. 1969) (“[u]nitedly” and “sharing together”). “Jointly” does not require a particular level of involvement among the individual members—such as “one SRO, one vote,” as petitioners seem to suggest—so long as all participants are involved to some degree. Section 11A(a)(3)(B) does not specify many details as to how the Commission may set the contours of SRO joint action. The provision makes no mention of NMS plans, operating committees or administrators yet no party objects to the Commission’s use of those governance structures. This, in our view, makes it unlikely that the Congress would combine broad Commission discretion to fill in the details of whatever governance structure it envisions with an unusually rigid understanding of “act jointly” that requires one-to-one representation. Thus, we see little merit to petitioners’ textual arguments. 2. Departure from Commission Precedent and Disparate Treatment Aside from the text of section 11A, petitioners contend that the Commission’s use of SRO Groups departs from the Commission’s past practice of treating affiliated SROs as distinct legal entities in other regulatory settings and subjects 22 affiliated SROs to less favorable treatment as compared to unaffiliated SROs. Again, we find these arguments without merit. Petitioners first cite several matters in which the Commission has required individual SROs to maintain their separate regulatory identity. See, e.g., Order Setting Aside Action by Delegated Authority and Approving Proposed Rule Change Relating to NYSE Arca Data, 73 Fed. Reg. 74,770, 74,790 (Dec. 9, 2008) (separate pools of liquidity); Order Disapproving Proposed Rule Change to Offer a Rebate Based on Members’ Aggregate Customer Volume in Multiply-Listed Options Transacted on NASDAQ OMX PHLX LLC or Its Affiliated Options Exchanges, 79 Fed. Reg. 42,578, 42,585–86 (July 22, 2014) (separate rebate schedules). But the fact that the Commission treats SROs as distinct and separate entities vis-à- vis their individual statutory and regulatory obligations does not necessarily mandate similar treatment of NMS plans where SROs act collectively to effectuate a market-wide plan. The Commission made this precise point. See CT Plan Order, 86 Fed. Reg. at 44,164 (“But both the applicable legal requirements and the function being performed here by the SROs differ in the context of the responsibility of the SROs to jointly operate the NMS plans pursuant to Section 11A of the Act and to disseminate consolidated market data, to which different SROs may contribute in varying degrees.”). Petitioners next point to the Commission’s past practice of treating SROs individually with respect to earlier NMS plan operating committees. See, e.g., Order Approving the National Market System Plan Governing the Consolidated Audit Trail, 81 Fed. Reg. 84,696, 84,948 (Nov. 23, 2016). We have often recognized that an agency must acknowledge and explain its departure from past policy. See Sw. Airlines Co. v. FERC, 926 F.3d 851, 856 (D.C. Cir. 2019). “A central principle of 23 administrative law is that, when an agency decides to depart from decades-long past practices and official policies, the agency must at a minimum acknowledge the change and offer a reasoned explanation for it.” Am. Wild Horse Pres. Campaign v. Perdue, 873 F.3d 914, 923 (D.C. Cir. 2017) (citing Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221–22 (2016)). Here, the Commission easily cleared the “not . . . especially high bar” of acknowledging and explaining its departure. Sw. Airlines, 926 F.3d at 856. It acknowledged comments about the differing treatment of SROs for voting, recognized that “the Commission’s treatment of corporate affiliations varies based on the particular facts and circumstances” and took into account corporate affiliation for voting “[b]ecause of the concentrated power affiliated SROs exert in the governance structure of consolidated equity market data, as demonstrated by the indisputable fact that affiliated SROs vote as blocs.” CT Plan Order, 86 Fed. Reg. at 44,164. The Commission iterated its findings that “[i]ndividual exchanges that historically had only one vote on NMS plans are now a part of groups that can control blocs of four or five votes,” id., and that “‘in its oversight of the Equity Data Plans, [it] is unaware of an individual affiliated exchange member’ ever having ‘cast its vote differently than the votes cast by its affiliated exchanges,’” id. (quoting Governance Order, 85 Fed. Reg. at 28,713), in support of its decision to use group-based voting. The Commission also stated its “belie[f] that reallocating votes by SRO Group should help to ensure the prompt, accurate, reliable, and fair collection, processing, distribution, and publication of” NMS market data. Id. As their final argument, petitioners object to the Commission’s decision on the ground that it subjects affiliated SROs to less favorable treatment than unaffiliated SROs, without adequate explanation. As a general principle, agency 24 action “is at its most arbitrary when it treats similarly situated people differently,” Etelson v. Off. of Pers. Mgmt., 684 F.2d 918, 926 (D.C. Cir. 1982), meaning that agencies must “provide an adequate explanation to justify treating similarly situated parties differently,” Burlington N. and Santa Fe Ry. Co. v. Surface Transp. Bd., 403 F.3d 771, 776 (D.C. Cir. 2005). But here, the Commission has provided an adequate explanation, citing the need to mitigate the Equity Data Plans’ practical dilution of unaffiliated exchanges’ voting power. In response to comments that the SRO-Group-based voting system would unfairly dilute the votes of affiliated exchanges, the Commission countered that any perceived disparate treatment between affiliated and unaffiliated exchanges was justified “from a policy perspective because of the disproportionate influence affiliated exchange groups currently exercise in [Equity Data] Plan matters by voting as a block and diluting the voting power of other Participants.” Governance Order, 85 Fed. Reg. at 28,713. The Commission also reasoned that “bloc voting has diluted the voting power of unaffiliated SROs over time, and that this concentration of ‘voting power in a small number of exchange group stakeholders, which also have inherent conflicts of interest,’ has ‘perpetuated disincentives for the Equity Data Plans to make improvements to the SIP data products.’” CT Plan Order, 86 Fed. Reg. at 44,164 (quoting Governance Order, 85 Fed. Reg. at 28,713).