The Nasdaq Stock Market LLC v. SEC ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 26, 2021 Decided June 15, 2021
No. 20-1181
THE NASDAQ STOCK MARKET LLC, ET AL.,
PETITIONERS
v.
SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT
Consolidated with 20-1192, 20-1231
On Petitions for Review of an Order
of the Securities and Exchange Commission
Thomas G. Hungar argued the cause for petitioners. On
the briefs were Paul S. Mishkin, Amir C. Tayrani, Joshua M.
Wesneski, Paul E. Greenwalt III, and Michael K. Molzberger.
Tracey A. Hardin, Assistant General Counsel, Securities
and Exchange Commission, argued the cause for respondent.
With her on the briefs were Michael A. Conley, Acting General
Counsel, and Martin Totaro, Senior Counsel.
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Keith Bradley and Jeffrey Walker were on the brief for
amici curiae Securities Industry and Financial Markets
Association, Inc., et al. in support of respondent.
Robert A. Skinner, Douglas H. Hallward-Driemeier, and
Jonathan R. Ference-Burke were on the brief for amicus curiae
Investment Company Institute in support of respondent.
Before: ROGERS and TATEL, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: Modern stock exchanges transmit
data about trades and prices at lightning-fast speeds. But as this
case demonstrates, the administrative process demands
considerably more patience.
Several stock exchanges challenge a Securities and
Exchange Commission (SEC) order directing them to submit a
proposal to replace three plans that govern the dissemination of
certain types of data with a single, consolidated plan.
Specifically, they challenge provisions of the order requiring
them to include three features relating to plan governance. The
Commission, however, has yet to decide whether the
challenged features will make it into the new plan, and section
25(a) of the Securities Exchange Act (“Exchange Act”) confers
authority on the courts of appeals to review only “final
order[s].” 15 U.S.C. § 78y(a)(1). Accordingly, we lack
jurisdiction and so dismiss the petitions.
I.
Section 11A of the Exchange Act empowers the
Commission to, “by rule or order, [] authorize or require self-
regulatory organizations,” including stock exchanges, “to act
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jointly with respect to matters as to which they share authority
under this chapter in planning, developing, operating, or
regulating a national market system,” known as an NMS. 15
U.S.C. § 78k-1(a)(3)(B); see also id. § 78c(a)(26) (“The term
‘self-regulatory organization’ means any national securities
exchange, registered securities association, or registered
clearing agency.”). Commission regulations further provide
that “[e]very national securities exchange on which an NMS
stock is traded and national securities association shall act
jointly pursuant to one or more effective national market
system plans to disseminate consolidated information,
including a national best bid and national best offer, on
quotations for and transactions in NMS stocks.” 17 C.F.R.
§ 242.603(b). And although “[a]ny two or more self-regulatory
organizations, acting jointly, may file a national market system
plan or may propose an amendment to an effective national
market system plan,” no such proposal, subject to limited
exceptions, “shall become effective unless approved by the
Commission.” Id. § 242.608(a)(1), (b)(1). Over the course of
several decades, the Commission has exercised this authority
to approve three Equity Data Plans that now govern the
dissemination of certain types of quotation and transaction
information for publicly traded equity securities.
Setting the stage for the issue before us, on January 14,
2020, the Commission published a notice soliciting comments
on whether to issue a proposed order that “would require the
participants in the [current] Equity Data Plans to propose a
single, new equity data plan.” Notice of Proposed Order
Directing the Exchanges and the Financial Industry Regulatory
Authority To Submit a New National Market System Plan
Regarding Consolidated Equity Market Data, 85 Fed. Reg.
2164, 2165 (Jan. 14, 2020). The Commission explained that
should it promulgate such an order, the new plan “would be
published for public comment,” after which “the Commission
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would consider whether to approve the New Consolidated Data
Plan, with any changes or subject to such conditions as the
Commission may deem necessary or appropriate.” Id.Four months later, the Commission published a modified
version of the proposed order, referred to as the Governance
Order. See Order Directing the Exchanges and the Financial
Industry Regulatory Authority To Submit a New National
Market System Plan Regarding Consolidated Equity Market
Data (“Governance Order”), 85 Fed. Reg. 28,702 (May 13,
2020). Over the objections of several stock exchanges, the
Commission required the forthcoming proposal to include,
among other things, three specific features: (1) “voting
representation” on the “New Consolidated Data Plan’s
operating committee” for certain non-exchange stakeholders;
(2) a “voting rights” allocation that treats a group of affiliated
exchanges as if it were one exchange; and (3) an “independent
plan administrator” neither “owned [n]or controlled by a
corporate entity that, either directly or via another subsidiary,
offers for sale its own proprietary market data product for NMS
stocks.” Id. at 28,712, 28,714, 28,730.
Several stock exchanges filed petitions for review in our
court, arguing that the Governance Order’s inclusion of these
three features violated section 11A, contravened Commission
regulations, or was arbitrary and capricious. A few days later,
they filed a motion asking the Commission to stay the
Governance Order, which it promptly denied for several
reasons, including that “the Governance Order d[id] not
establish a New Consolidated Data Plan.” Order Denying Stay,
85 Fed. Reg. 36,921, 36,921 (June 18, 2020). The exchanges
then filed the required proposal, and briefing on their petitions
for review proceeded. On October 13, the Commission
published the proposal for comment, see Notice of Filing of a
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National Market System Plan Regarding Consolidated Equity
Market Data, 85 Fed. Reg. 64,565 (Oct. 13, 2020), and four
months later, on January 15, 2021, it published an order
“instituting proceedings . . . to determine whether to disapprove
the [proposed plan],” Order Instituting Proceedings to
Determine Whether To Approve or Disapprove a National
Market System Plan Regarding Consolidated Equity Market
Data (“Order Instituting Proceedings”), 86 Fed. Reg. 4142,
4142 (Jan. 15, 2021).
II.
Before considering the merits of the exchanges’ challenge
to the Governance Order, we may “determine whether subject-
matter jurisdiction exists, even when no party challenges it.”
Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010). The only
asserted basis for jurisdiction in this case, Exchange Act
section 25(a), empowers courts “to review only final orders of
the SEC.” Net Coalition v. SEC, 715 F.3d 342, 348 (D.C. Cir.
2013) (internal quotation marks omitted); see 15 U.S.C.
§ 78y(a)(1) (“A person aggrieved by a final order of the
Commission entered pursuant to this title may obtain review of
the order . . . by filing . . . a written petition requesting that the
order be modified or set aside in whole or in part.”). This
requirement “allows the agency an opportunity to apply its
expertise and correct its mistakes, [] avoids disrupting the
agency’s processes, and [] relieves the courts from having to
engage in piecemeal review which is at the least inefficient and
upon completion of the agency process might prove to have
been unnecessary.” DRG Funding Corp. v. Secretary of HUD,
76 F.3d 1212, 1214 (D.C. Cir. 1996) (internal quotation marks
omitted). Concerned that the Governance Order may not be
final, we instructed the parties to be prepared at oral argument
to address our jurisdiction. See Watts v. SEC, 482 F.3d 501, 505
(D.C. Cir. 2007) (raising sua sponte whether the agency
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decision under review was an “order” for purposes of
Exchange Act section 25). Both sides also filed supplemental
briefs, each arguing that the Governance Order was final.
In Bennett v. Spear, the Supreme Court explained that to
be “final,” an order must (1) “mark the consummation of the
agency’s decisionmaking process—it must not be of a merely
tentative or interlocutory nature[;]” and (2) “be one by which
rights or obligations have been determined, or from which legal
consequences will flow.” 520 U.S. 154, 177–78 (1997)
(internal quotation marks omitted) (citations omitted). With
respect to the first requirement, the exchanges argue that the
three challenged plan elements “have not merely been
proposed by the Commission[;]” rather, after a round of notice
and comment, the Commission “ma[de] a final determination
about the elements to be included in the New Consolidated
Data Plan.” Pet’rs’ Suppl. Br. 2 (emphasis omitted). For its
part, the Commission contends that the Governance Order
represented the consummation of its decision-making process
because it “determined that the challenged provisions . . . are
reasonable and within [the Commission’s] authority.” Resp’t’s
Suppl. Br. 2–3.
The Commission’s notice and orders, however, are to the
contrary. From the very outset, the Commission has made clear
that the Governance Order was no more than a call for a
proposal that would then be subject to further notice, comment,
and revision.
Take the Governance Order itself. Responding to a
comment that criticized it for “rel[ying] on cherry-picked
opinions of self-interested market participants,” the
Commission stated that “the New Consolidated Data Plan
submitted in response to this Order will itself be published for
public comment prior to any Commission decision to
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disapprove or to approve the plan with any changes or subject
to any conditions the Commission deems necessary or
appropriate after considering public comment.” Governance
Order, 85 Fed. Reg. at 28,705 (internal quotation marks
omitted). In other words, the Commission had committed to no
particular plan features and promised to address any alleged
defects in its analysis following the forthcoming round of
notice and comment.
The Commission made the same point in its order denying
a stay. Calling the Governance Order the “first step toward
establishing a new governance structure,” the Commission
accused the exchanges of “overstat[ing] the harm that [would]
result from their compliance with the Governance Order,”
explaining that even after they submit the proposed plan,
“interested parties will still be able to comment on [it], and the
Commission will review the plan and may make changes or add
conditions before issuing a subsequent order approving or
disapproving a new plan.” Order Denying Stay, 85 Fed. Reg.
at 36,921–22.
Then, in its notice publishing the proposed plan, the
Commission reiterated that whether it would include the
challenged plan elements remained up for debate. It sought
“comment on the proposed [] Plan” and expressly asked for
feedback on “whether the proposal is consistent with the Act
and the rules thereunder,” as well as “whether the proposed []
Plan is appropriately structured[] and . . . appropriately
drafted[] to support the [goals of section 11A].” Notice of
Filing of a National Market System Plan Regarding
Consolidated Equity Market Data, 85 Fed. Reg. at 64,567.
Finally, in its most recent order, the one in which it
“institut[ed] proceedings” on whether to approve the proposed
plan, Order Instituting Proceedings, 86 Fed. Reg. at 4142, the
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Commission gave perhaps the clearest indication of the
Governance Order’s “tentative” nature, Bennett, 520 U.S. at
178. It “request[ed] that interested persons provide written
submissions of their views, data, and arguments with respect
to” a specific list of issues, “as well as any other concerns they
may have with the proposals.” Order Instituting Proceedings,
86 Fed. Reg. at 4143 (emphasis added). The Commission left
absolutely no doubt about the tentative nature of its actions to
date, stating that “[i]nstitution of proceedings does not indicate
that the Commission has reached any conclusions with respect
to any of the issues involved.” Order Instituting Proceedings,
86 Fed. Reg. at 4142 (emphasis added).
Thus, at every critical turn, the Commission made clear
that its decision making regarding the three challenged features
remained unconsummated. Or in the words of Bennett, the
Governance Order did not “mark the consummation of the
agency’s decisionmaking process[;]” rather, it was “merely
tentative” and “interlocutory.” 520 U.S. at 178 (internal
quotation marks omitted). To be sure, Commission counsel
now argues that the Governance Order is final, but “[p]ost hoc
explanation by appellate counsel . . . is not an acceptable
foundation for review of agency action.” American Trading
Transportation Co. v. United States, 841 F.2d 421, 424 (D.C.
Cir. 1988). Critical for our purposes is what the Commission
has said, and the Commission has repeatedly signaled that its
thinking about the three challenged features is not final. This
should come as no surprise to lead petitioner Nasdaq, which
attached the exchanges’ opening brief in this case to its
comment on the proposed plan, writing that “[a]ll of the
statements set forth in . . . the opening brief filed on behalf of
Nasdaq and the other petitioners in the Court of Appeals . . .
are incorporated herein by reference,” and that “[f]or all of the
reasons stated therein, the Commission should disapprove the
proposed Plan.” The Nasdaq Stock Market, LLC, Comment
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Letter on the Notice of filing of a National Market System Plan
Regarding Consolidated Equity Market Data (Nov. 12, 2020),
http://www.sec.gov/comments/4-757/4757-8011769-
225419.pdf. Why would Nasdaq have done that unless it
believed, contrary to what it asserts here, that the Governance
Order was not final?
The exchanges rely on Domestic Securities, Inc. v. SEC,
where we found that an order stating that a new trade execution
system called SuperMontage “be and hereby is approved” was
final despite the fact that the order also “delayed the
implementation of SuperMontage” until approval of an
“Alternative Display Facility.” 333 F.3d 239, 244, 246 (D.C.
Cir. 2003) (internal quotation marks omitted). Although
acknowledging “[t]he existence of this condition to
SuperMontage’s implementation,” we explained that after the
order’s promulgation, the only remaining issue was “the timing
of SuperMontage’s implementation,” and that “[t]here was no
question that the substance of SuperMontage’s trade execution
rules . . . would remain the same and would ultimately be
implemented.” Id. at 246. Here, by contrast, the Commission
never said anything remotely like “the three challenged
features are hereby approved” or that they will “remain the
same and ultimately be implemented.” Quite to the contrary,
the Commission has declared time and again that it has yet to
make up its mind about any of the challenged provisions and
that they all remain subject to notice, comment, and final
resolution by the Commission.
The exchanges argue that the Governance Order is final
because it required them “to file a proposed plan with the
particular terms and conditions challenged by petitioners.”
Resp’t’s Suppl. Br. 3 (emphasis added); see also Pet’rs’ Suppl.
Br. 3 (arguing that the Governance Order was final because it
“eliminated any discretion on behalf of petitioners as to
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whether to include these features in a proposed NMS plan”).
The Supreme Court rejected a similar attempt to redefine the
scope of the finality inquiry in FTC v. Standard Oil Co. of
California, 449 U.S. 232 (1980). In that case, an oil company
sought review of an order finding “reason to believe” that the
company was violating the Federal Trade Commission Act and
instituting an adjudication against it. Id. at 241.
Acknowledging that “the issuance of the complaint is definitive
on the question whether the Commission avers reason to
believe that the respondent to the complaint is violating the
Act,” the Court nonetheless concluded that the order was not
final because it was not a “definitive statement of position” on
the actual question before the agency, “whether [the oil
company] violated the Act.” Id. Standard Oil teaches that
finality must be measured in relation to the agency’s entire
process, not just “one phase of the process.” Resp’t’s Suppl.
Br. 2 (internal quotation marks omitted). Thus, although the
Governance Order was definitive on the question whether the
three challenged plan elements had to be included in the
proposal, it was not a “definitive statement of position” on the
question the Commission had initiated proceedings to
answer—whether the three features should be included in the
eventual plan.
Because the Governance Order flunks the first element of
the Bennett test, we need not address the second.
III.
The exchanges are concerned that had they “waited until
the Commission’s approval of the New Consolidated Data Plan
to file petitions for review,” those petitions would have been
“untimely.” Pet’rs’ Suppl. Br. 5. Given our conclusion that the
Governance Order is not “final” within the meaning of
Exchange Act section 25, the exchanges no longer face that
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risk. 15 U.S.C. § 78y(a)(1). The petitions for review are
dismissed.
So ordered.