Opinion ID: 186021
Heading Depth: 2
Heading Rank: 2

Heading: ADF Approval

Text: 29 We have jurisdiction over Domestic's petition insofar as it challenges the SEC's approval of the ADF in the SuperMontage Implementation Order. We reject that challenge, and deny that portion of the petition for review. 30 As explained above, the Commission required, as a condition to SuperMontage's implementation, the creation of an ADF to ensure that participation in SuperMontage would be voluntary. Specifically, the SuperMontage Approval Order required that the ADF (1) permit NASD members to satisfy their obligation (under the OHR and Regulation ATS) to display their best-priced quotes and limit orders without participating in SuperMontage and (2) provide a market neutral linkage to the Nasdaq and other marketplaces, but not an execution service. In the Implementation Order, the Commission concluded that the ADF satisfied the conditions set forth in the SuperMontage Approval Order: 31 The ADF ... permits registered market makers and registered ECNs to display their best-priced quotes or customer limit orders ... through the NASD. ADF market participants are required to provide other ADF market participants with direct electronic access to their quote.... The ADF also serves as a trade reporting and trade comparison facility. The ADF will therefore allow market participants to satisfy their order display and execution access obligations under the Order Handling Rules and Regulation ATS. 32 67 Fed.Reg. at 56,862. 33 Domestic primarily challenges the Commission's factual determination that the ADF was technologically sound enough to satisfy the requirements set out in the SuperMontage Approval Order. The Commission's factual determination is conclusive if it is supported by substantial evidence, 15 U.S.C. § 78y(a)(4), and not otherwise arbitrary, capricious, or contrary to law, 5 U.S.C. § 706(2)(A) (2000). See NASD, Inc., 801 F.2d at 1419. Moreover, we have long held that [a]gency determinations based upon highly complex and technical matters are entitled to great deference. Appalachian Power Co. v. EPA, 251 F.3d 1026, 1035 (D.C.Cir.2001) (quotations omitted). See also Nat'l Petrochem. & Refiners Ass'n v. EPA, 287 F.3d 1130, 1145 (D.C.Cir.2002) (EPA is entitled to deference in its evaluation of technologies); Teledesic, L.L.C. v. FCC, 275 F.3d 75, 84 (D.C.Cir.2001) (extending heightened deference to FCC's judgment involving technology and economics); Ctr. for Auto Safety v. Dole, 828 F.2d 799, 803 (D.C.Cir.1987) (the court must accord the agency the appropriate degree of deference on such a record-based finding involving scientific and technological data). Mindful of this deference, we consider Domestic's arguments. 34 We first note a crucial misconception that underlies-and ultimately undermines-Domestic's entire challenge to the Implementation Order. Domestic incorrectly assumes that the ADF was designed to ensure competition against SuperMontage in the trade execution market. Nothing in the SuperMontage Approval Order supports this contention. Indeed, the Commission explained that the sole purpose of the Facility was to provide an alternative outlet in which market participants that did not wish to use SuperMontage could fulfill their order display and trade reporting obligations under SEC regulations. 66 Fed.Reg. at 8024, 8049, 8053. The ADF is an alternative display facility, not an alternative execution facility. Stripped of this argument, Domestic is reduced to challenging the SEC's conclusions about the technological feasibility of the ADF. 35 We conclude that the SEC relied on substantial evidence in its determination that the ADF was technologically capable of providing a genuine alternative to SuperMontage, in which ECNs could fulfill their order display and trade reporting obligations. Domestic contends that the ADF was inadequate at the time of approval because it did not employ the Financial Information Exchange (FIX) protocol, which Domestic claims is the standard industry protocol[] for financial market communications. Rather, the ADF employed the Exchange Transaction Protocol (XTP), which Domestic claims is a somewhat obscure communications protocol. Consequently, Domestic reasons that it will be very expensive for ECNs and other market participants to connect to the ADF and to each other, thus undermining its function as an alternative to SuperMontage. The Commission addressed the XTP versus FIX issue in its July 24, 2002, ADF Pilot Order, which Domestic did not challenge. Therein, the SEC recognized that [s]ome commenters criticized the ADF for not employing a FIX protocol, but noted that the FIX protocol is not commonly used by other markets at this time. 67 Fed.Reg. at 49,849. But in approving the ADF, the SEC relied on the fact that several ECNs have expressed an interest in fulfilling their quote display obligations through the ADF. 67 Fed.Reg. at 56,862. These expressions of interest support the SEC's conclusion that the ADF was a viable alternative to SuperMontage, notwithstanding the absence of FIX capability at the time of implementation. It is therefore obvious that the Commission considered the evidence and the alternatives presented to it. The making of policy decisions and the resolution of conflicting evidence is for the Commission, not the court. See, e.g., Diamond Walnut Growers, Inc. v. NLRB, 113 F.3d 1259, 1270 (D.C.Cir.1997) (courts must ... give genuine deference to [agencies'] factual findings and ... legal/policy decisions implicit in the inferences drawn from those findings.). 36 In any event, NASD was obligated to provide the ADF, not to ensure that every market participant could link to the ADF and to each other without any cost to themselves. Domestic does not question the ADF's order display capacity, only its connectivity to market participants. While reasonable minds could differ as to whether these connectivity problems prevent the ADF from fulfilling its designated functions, the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence. Schoenbohm v. FCC, 204 F.3d 243, 246 (D.C.Cir.2000). Accordingly, we hold that the SEC's approval of the ADF in the Implementation Order was supported by substantial evidence and was not arbitrary or capricious.