Bradford National Clearing Corp. v. Securities and Exchange Commission

590 F.2d 1085 (1978)

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Bradford National Clearing Corp. v. Securities and Exchange Commission

United States Court of Appeals for the District of Columbia Circuit
590 F.2d 1085 (1978)

  • Written by Sharon Feldman, JD

Facts

A paperwork crisis in brokers’ back offices in the late 1960s caused many brokers to fail. In response, Congress enacted the Securities Acts Amendments of 1975 (1975 amendments), directing the Securities and Exchange Commission (SEC) (defendant) to help establish national market and clearance-and-settlement systems. Market-system objectives included enhancing fair competition among brokers and markets; clearance-and-settlement-system objectives included promptness and establishment of uniform standards and procedures. The SEC was authorized to register agencies that could clear and settle transactions promptly and accurately without rules that burdened competition more than necessary to further the securities laws’ purposes. At the time, the exchanges and National Association of Securities Dealers (NASD) each owned a clearing agency, and brokers trading on an exchange or in the over-the-counter (OTC) market had to use the affiliated agency. After the 1975 legislation, the New York Stock Exchange, American Stock Exchange, and NASD agreed to establish one clearing agency—National Securities Clearing Corp. (NSCC)—and use Securities Industry Automation Corp. (SIAC) as facilities manager/data processor. NSCC applied for clearing-agency registration, proposing that the merged agencies first operate as separate divisions, combine operations, and make SIAC’s services available to other entities. To allow competition between brokers in and outside New York, NSCC proposed geographic price mutualization (GPM)—all brokers would pay the same fees. The SEC granted NSCC’s application conditioned on NSCC sharing with other agencies free interfaces and its comparison facilities, regional-branch operations, and OTC-transaction-comparison software. Bradford National Clearing Corp. (BNCC) (plaintiff), which operated the clearing agencies for the Pacific Stock Exchange and NASD, sued to set aside the SEC’s order, proposed that the NASD’s agency remain independent, and argued that the management/processing contract should have been put out for competitive bids.

Rule of Law

Issue

Holding and Reasoning (McGowan, J.)

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