Court Opinion

ID: 8972315
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:42:43.202925+00
Date Added: 2024-06-11T17:10:28.949008
License: Public Domain

ON REHEARING
PER CURIAM.
The petition for rehearing filed by the Securities and Exchange Commission relies on a portion of 7 U.S.C. § 2 added by the Accord legislation of 1982. This language provides:
[Ejxcept as hereinabove provided, nothing contained in this section shall (i) supersede or limit the jurisdiction at any time conferred on the Securities and Exchange Commission ... or (ii) restrict the Securities and Exchange Commission ... from carrying out [its] duties and responsibilities in accordance with laws.
As the Commission observes, our opinion did not discuss this part of the statute. We had not overlooked this text but rather had concluded that it afforded the SEC no comfort.
Although the Commission’s jurisdiction continues “except as hereinabove provided”, what is “provided” immediately above in § 2 is that “the [CFTC] shall have exclusive jurisdiction ... with respect to ... transactions involving contracts of sale of a contract for future delivery, traded or executed on a contract market ... or any other board of trade, exchange, or market”. If IPs are futures contracts, then the CFTC has exclusive jurisdiction, the “except” clause applies and the remainder of the language on which the SEC now relies has no force. It reminds us that the CFTC does not have powers Congress did not confer — that § 2 carries no implicit preemptive force — but it does not help answer the question whether a given instrument is a futures contract.
The SEC’s remaining arguments in support of rehearing flow from the proposition that IPs are equivalent to securities portfolios from the perspectives of the longs. Our opinion conceded as much, while observing that IPs just as surely look like futures contracts from the perspective of the shorts. Neither of these is the “privileged” perspective, and it is inappropriate to emphasize one over the other in order to direct jurisdiction to one agency rather than the other. This duality is one of the principal ingredients in our conclusion that IPs are both securities and futures contracts. IPs are investment vehicles as longs see things; yet IPs are not capital-raising vehicles, given the nature of the shorts’ commitments. Congress might think it wise to relax the exclusivity clause that lies at the heart of this dispute; so long as that clause remains, however, jurisdictional clashes of the sort represented here are inevitable, and the need to draw a line does not suggest that the first agency to assert jurisdiction ought to be the winner.
The Philadelphia Stock Exchange takes issue with note 3 of our opinion, which said that “none of the parties to the case suggests that the Philadelphia’s product should be treated differently” because of its daily cash-out-at-a-penalty feature. Our observation may be misleading. Page 12 of the Philadelphia’s reply brief states:
[I]t is important to note that [our IP] has a daily, not quarterly, cash-out provision. Therefore, assuming arguendo as true the CME’s and CBT’s notion that a quarterly cash-out carries with it an element of futurity, a daily cash-out cannot be equated with a futures contract’s quarterly expiration. Even in a stock transaction, the settlement period for delivery of the stock is 5 days. A daily cash-out, which is a feature unique to [our IP], eliminates any element of futurity.
This statement, in passing in a reply brief, does not come to grips with the fact that the Philadelphia’s daily cash-out feature carries a penalty; 100% cash-out may be achieved only by waiting for the quarterly date. Deferred settlement of an ordinary stock trade occurs in a price fixed on the date of the trade; IPs are valued as of a future date. No party argued that daily cash out at a penalty eliminates all elements of futurity from the IP. We did not consider, and we do not decide the appropriate classification of, an IP with a daily cash-out feature at no penalty.
None of the other arguments in the petitions for rehearing requires further comment. The petitions are denied. A judge in active service called for a vote on the suggestions of rehearing en banc, which failed to attain a majority. Judges Cudahy and Ripple voted to rehear the case en banc. Judge Flaum took no part in the consideration or decisions of this case.