Spicer v. Chicago Board of Options Exchange, Inc.

October 19, 1987, also known as Black Monday, was one of the most volatile days the stock market had ever experienced. The Standard & Poors (S&P) 100 index fell by approximately 21 percent. The following day, various investors (the investors) (plaintiffs) sought to purchase or sell S&P 100 options from certain market makers (defendants) at the Chicago Board of Options Exchange, Inc. (CBOE) (defendant), an exchange registered with the Securities and Exchange Commission (SEC). The investors who bought S&P 100 options later claimed that the market makers grossly overpriced the options in an attempt to recoup some of their losses from the previous day. The investors who attempted to sell their options on October 20 found that the market makers who would have otherwise purchased the options intentionally did not come to the CBOE that day. The investors claimed that the deliberate failure to appear constituted wrongdoing. Specifically, the investors claimed that the market makers violated CBOE Rule 4.1, which prohibited exchange members from engaging in acts or practices that were inconsistent with just and equitable principles of trade, as well as CBOE Rule 8.7(a), which required market makers to engage in transactions that were reasonably calculated to contribute to the maintenance of a fair and orderly market. The investors also claimed that the CBOE unlawfully failed to enforce its rules against the market makers. The investors filed suit against the market makers and the CBOE in federal court pursuant to § 6 of the Securities Exchange Act of 1934 (Exchange Act). The market makers and the CBOE moved to dismiss on the basis that § 6 did not provide the investors with a private right of action to enforce CBOE rules. The district court granted the motion to dismiss, and the investors appealed.