California Public Employees’ Retirement System v. New York Stock Exchange

The New York Stock Exchange, Inc. (NYSE) (defendant) was a self-regulatory organization (SRO) that, pursuant to a delegation of authority from the Securities and Exchange Commission (SEC), performed a quasi-governmental role in regulating the securities markets. Specifically, the NYSE stood in the SEC’s shoes in interpreting the securities laws for its members and monitoring its members’ compliance with those laws. The California Public Employees’ Retirement System (CALPERS) (plaintiff) sued the NYSE, alleging that the NYSE failed properly to regulate certain members’ trading activities, encouraged members to file false regulatory reports with the NYSE, and alerted members to upcoming NYSE investigations so that the members could hide evidence. The NYSE moved to dismiss the complaint on absolute-immunity grounds. Specifically, the NYSE argued that because CALPERS’s allegations all attacked how the NYSE performed (or allegedly failed to perform) its quasi-governmental role as a stock-exchange regulator, the NYSE enjoyed complete protection from suit. The district court agreed and granted the NYSE’s motion. CALPERS appealed, contending that (1) the NYSE was not entitled to absolute immunity because its conduct violated the law or otherwise was inconsistent with the NYSE’s legal duty and (2) the court should recognize and apply a fraud exception to absolute immunity.