E. Campion Kersten, Arlo McKinnon, Milwaukee, Wis., for appellant; Lewis D. Thill, Elm Grove, Wis., Kersten & McKinnon, Milwaukee, Wis., of counsel.

Isaac Shapiro, William E. Jackson, New York City, Robert V. Abendroth, Milwaukee, Wis., Samuel L. Rosenberry, New York City, for appellee; Whyte, Hirschboeck, Minahan, Harding & Harland, S.C., Milwaukee, Wis., Milbank, Tweed, Hadley & McCloy, New York City, of counsel.

Before SWYGERT, Chief Circuit Judge, PELL, Circuit Judge and CAMPBELL, Senior District Judge.*

CAMPBELL, District Judge.

The basic question presented here is whether stock-brokers who are members of the New York Stock Exchange should continue to enjoy their self-acquired freedom from competition by stock-brokers who are not members. Using the vehicle of Stock Exchange rules, members seem effectively to have negated the congressionally mandated principle of competition as it would otherwise apply to them.

The New York Stock Exchange ('Exchange') is the largest organized securities market in the United States. Its dominance of the securities industry is a well known and commonly accepted commercial and historical fact. It transacts well over 70 per-cent of the dollar value of all stock transactions on exchanges in the United States. See, New York Stock Exchange, 1970 Fact Book. Its policies and practices have an ever increasing effect on our economy.

By the Exchange's Constitution, its membership is limited to 1366 members. In 1969 a membership sold for the record price of $515,000. Id. at 55.

The Exchange is governed by a 33 man Board, consisting of 29 members elected by the membership and a president and 3 governors who are to represent the public view and who are elected by the Board. The economic power of the Exchange and its members extends well beyond the operations of the Exchange itself. As the author of a leading article explains:

'The influence wielded by these Big Board members, along with their 'allied' brethren, reaches way beyond the NYSE: thus they comprise 23 of the 32 Governors of the American Exchange; 16 of 25 of the Midwest Exchange's Governors; 8 out of 11 for the Pacific Exchange; and 16 of the 22-man Board of the National Association of Securities Dealers, a 'self-regulatory institution for the over-the-counter markets' to which, since it bars any of its members 'from dealing with a non-member broker or dealer except at the prices * * * accorded to members of the public', for 'all practical purposes the vast majority of brokers or dealers' must beling 'in order to engage profitably in most underwritings and over-the-counter business'. Quite understandably, then, it is on the operations of the NYSE and its members that antitrust interest has so far principally focused.' Bicks, Antitrust And The New York Stock Exchange, 21 Bus.Lawy. 129, 134 (1965).

In many respects the Exchange has been delegated governmental authority. Its counsel describes it as a 'unique self regulator.' Under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) it may adopt its own constitution and rules, and discipline violations thereof. The Securities Exchange Commission ('SEC') has the power, however, to order changes in Exchanges rules respecting a number of subjects, set forth in section 19(b) of the Act.1 15 U.S.C. 78s(b). Except for the limited review authority of the SEC, the Exchange's economic power in the securities field appears complete and absolute.

Plaintiff Thill Securities Corporation, ('Thill') is a licensed securities dealer-broker, registered with the Securities and Exchange Commission, and a member in good standing of the National Association of Securities Dealers, Inc., but is not a member of the New York Stock Exchange. It brings this action on its own behalf and on behalf of all other securities dealers and brokers similarly situated, being those who are not members of the New York Stock Exchange and who are denied access to the auction market and trading facilities of the Exchange except through one of its members. In its complaint Thill charges the Exchange with substantial anti-competitive conduct in violation of the antitrust laws of the United States. Sherman Antitrust Act, 1 and 2, 15 U.S.C. 1 and 2; and Clayton Act, 4, 15 U.S.C. 15. Specifically, Thill charges that the Exchange has engaged in an unlawful and unreasonable combination and conspiracy in restraint of interstate trade and commerce and has unlawfully and unreasonably monopolized the securities market in the United States by among other things adopting, subscribing and adhering to a rule which prohibits any member of the Exchange from sharing any commission earned from the purchase or sale of securities with a non-member, even though the nonmember may have furnished the order;2 and by discriminately discouraging customers and prospective customers of Thill and other non-members from doing business with non-members.

Thill alleges that as a proximate result of the unlawful and monopolistic rules and practices of the Exchange, it and other non-members of the Exchange are totally deprived of commissions or other fair compensation on transactions which they have initiated and serviced. It further alleges that the intended, necessary and actual effect of this unlawful conduct is to restrain trade by preventing any competition by and between members of the Exchange and non-member securities dealers and brokers. Thill alleges to have suffered damages in the amount of seven million dollars, for which it seeks treble damages ($21,000,000) under the antitrust laws. It also seeks a declaratory judgment that the Exchange's prohibition against sharing of commissions constitutes a violation of the antitrust laws; and an injunction prohibiting the Exchange from enforcing the prohibition. Subsequent to the filling of this action, Thill Securities Corporation went out of business.

The defendant Exchange does not contest the anti-competitive effects of its rule prohibiting the sharing of commissions-- sometimes referred to as the antirebate rule. At oral argument its counsel admitted, as is obvious, that the conduct complained of would constitute a violation of the antitrust laws, were those statutes applicable to the activities of the Exchange in this case. Its position is that the Sherman Act does not apply to the rule of the Exchange prohibiting the sharing of commissions by members with non-members. It contends that this broad immunity is enjoyed by virtue of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) which authorizes registered national securities exchanges to adopt rules in respect to the 'fixing of reasonable rates of commission' subject to review and revision by the Securities Exchange Commission under section 19(b) of the Act. 15 U.S.C. 78s(b). It also contends that the SEC has and is exercising exclusive review jurisdiction over such rules of the Exchange, and that its conduct is thus immune from antitrust liability. This immunity, in its view, extends beyond the 'fixing of reasonable rates of commission' and includes rules relating to the 'sharing' of commissions, because the prohibition against sharing of commissions with non-member broker dealers is an integral part of the 'fixing of reasonable rates'.

The district court essentially agreed with the position taken by the Exchange. It first found that the conduct complained of, i.e. the prohibition against the sharing of commissions, was one method of regulating commission rates, and as such was subject to review by the SEC under section 19(b); and that the SEC is exercising its section 19(b) power of supervision over the commission structure.

The district court then concluded that the 'challenged Exchange practice, being within the scope and purpose of the 1934 Act, does not constitute a per se violation of the antitrust laws', and that it would not be proper to inquire into the reasonableness of the Exchange's prohibition as 'the SEC is currently exercising its supervisory duty over this area of Exchange self-regulation'. Accordingly, the court found no genuine issue of any material fact and entered summary judgment for the Exchange. Plaintiff Thill then took an appeal to this court.

In our consideration of the issues presented in this appeal we must begin with the teachings of the Supreme Court in Silver v. New York Stock Exchange, 373 U.S. 341, 83 S. Ct. 1246, 10 L. Ed. 2d 389 (1963). The controversy in Silver arose from the Exchange's unilateral direction to certain of its member firms to discontinue private wire connections with the plaintiff non-member broker-dealer. This conduct, as the Supreme Court noted in its opinion, had it occurred in a context free from other federal regulations, would constitute a per se violation of section one of the Sherman Act. Because the activities of the Exchange are at least in part subject to the regulation of another statutory scheme, the Securities Exchange Act of 1934, the Court was confronted with the issue as to whether the Securities Exchange Act, which created a duty of Exchange self regulation, constituted an implied repealer of the antitrust laws, thereby exempting the Exchange from liability. Upon consideration of the question, the Supreme Court soundly rejected any notion that the Exchange enjoyed blanket immunity from the enforcement of the antitrust laws simply because its activities were to a certain extent subject to the regulatory provisions iof the Securities Exchange Act. On the contrary, the Court concluded that the proper approach is an analysis which reconciles the operation of both statutory schemes (the antitrust laws and the Securities Exchange Act) with one another rather than holding one completely ousted. In undertaking the analysis to attempt to reconcile the two statutes, courts were admonished that repeal or ouster of antitrust laws is not favored.

'The Securities Exchange Act contains no express exemption from the antitrust laws or, for that matter, from any other statute. This means that any repealer of the antitrust laws must be discerned as a matter of implication, and 'it is a cardinal principle of construction that repeals by implication are not favored.' United States v. Borden Co., 308 U.S. 188, 198 (60 S. Ct. 182, 188, 84 L. Ed. 181); see Georgia v. Pennsylvania R. Co., 324 U.S. 439, 456-457 (65 S. Ct. 716, 725-726, 89 L. Ed. 1051); California v. Federal Power Comm'n, 369 U.S. 482, 485 (82 S. Ct. 901, 903, 8 L. Ed. 2d 54). Repeal is to be regarded as implied only if necessary to make the Securities Exchange Act work, and even then only to the minimum extent necessary. This is the guiding principle to reconciliation of the two statutory schemes.' 373 U.S. at 357, 83 S.Ct. at 1257)

Despite these admonitions the Exchange argues, as the court below concluded, that the antitrust court's analysis ends once it is determined that the conduct complained of, here the antirebate rule, is subject to potential review by the SEC under section 19(b).

This conclusion is said to follow from the reasoning of this court in Kaplan v. Lehman Brothers, 371 F.2d 409 (1967); affirming Kaplan v. Lehman Brothers, 250 F. Supp. 562 (N.D.Ill.1966), which concerned the Exchange's practice of fixing minimum rates of commission. That case was brought by certain shareholders in several mutual funds who charged that the practice of the Exchange in fixing minimum commission rates constitued a price fixing conspiracy in violation of section one of the Sherman Act. 15 U.S.C. 1. In granting summary judgment for the defendants in that case, the district court stressed the fact that the plaintiffs there had attacked the rules and the prescribed rates solely on the theory that the fixing of minimum rates of commission through the collective action of the Exchange was illegal per se under the Sherman Act. The court then correctly observed that as in Silver the conduct challenged, had it occurred in a context free from other federal regulation, would constitute a per se violation of section one of the Sherman Act. 373 U.S. at 347, 83 S. Ct. 1246, 10 L. Ed. 2d 389. But, because of the presence of the other statutory scheme, namely the Securities Act, the conduct was not illegal per se but rather called for an analysis, 'which reconciled the operation of both statutory schemes.' Accordingly, the court held as a matter of law that the per se attack could not stand.

On appeal, this court affirmed and in a very brief (2 page) opinion expressed agreement with the district court's 'holding that the antitrust laws are inapplicable to the New York Stock Exchange insofar as its prescribing of minimum commission rates is concerned.' 371 F.2d at 411.

The court below read Kaplan, both the opinions of the district court and this court, as holding that because the subject of commission rates is subject to SEC review under section 19(b) of the Securities Act, it is not subject to antitrust attack, per se or otherwise. Premised on this reading of Kaplan the district court concluded that the bar against commission sharing, being an 'integral part of commission rate structure' was likewise immune from antitrust attack, per se or otherwise.

In reviewing the lower court's determination in this cause, we first observe that the district court correctly stated in its opinion that in Silver, the Supreme Court held that anti-competitive conduct by the Exchange, not subject to review by the SEC, may be reviewed by an antitrust court. It further opined, however, that the Supreme Court 'intimated' that a different result, i.e. antitrust immunity, would follow where the conduct complained of was subject to SEC revew. We disagree, as we find in the teachings of Silver, no 'intimation' that the mere possibility of SEC review wraps the conduct of the Exchange in an impregnable shielf of antitrust immunity. In our opinion this interpretation completely disregards the firm directive in Silver that 'Repeal is to be regarded as implied only if necessary to make the Securities Exchange Act work, and even then only to the minimum extent necessary.' 373 U.S. at 357, 83 S. Ct. at 1257. In our view, Silver teaches that a reconciliation of the two statutory schemes is not foreclosed simply because the Securities Act and the review jurisdiction of the SEC may tough upon the activity challenged under the antitrust laws. As the Court in Silver pointed out, the New York Stock Exchange's constitution and rules are permeated with instances of regulation of member relationships with non-members, including non-Ember non-members, including non-member public trust established by the Securities Exchange Act of 1934, the Exchange may properly adopt rules governing the relations of its members with non-members. That general power to adopt rules relating to the relations of its members with non-members, however, does not in and of itself place the application of such rules outside the reach of the antitrust laws. Rather it is at this point that the analysis of reconciliation really begins.

Before the investing public of the United States may be deprived of the benefit of competition through the vehicle of Exchange rules, it must be established that the Exchange's exemption from the antitrust laws is necessary to discharge its responsibilities under the Securities Exchange Act. See Baxter, NYSE Fixed Commission Rates: A Private Cartel Goes Public, 22 Stan.L.Rev. 675, 689 (1970); Nerenberg, Applicability of the Antitrust Laws to the Securities Field, 16 West.Res.L.Rev. 131 (1964); Johnson, Application Of Antitrust Laws To The Securities Industry, 20 S.W.L.J. 536 (1966); Comments of the United States Department of Justice, filed before the Securities Exchange Commission Inquiry into New York Stock Exchange Proposals to Permit Public Ownership of Member Corporations, SEC release No. 8717. In short, its exemption must be based on a showing of true necessity. As applicable here, it must be established that subjecting the antirebate rule to antitrust attack will frustrate the purpose of the Securities Exchange Act or make it substantially ineffective. 'Otherwise, the benefits of competition, acknowledged by Congress, would be sacrificed needlessly.' United States v. Third National Bank in Nashville, 390 U.S. 171, 189, 88 S. Ct. 882, 893, 19 L. Ed. 2d 1015 (1968).

In the record before us there is no evidence, save for the allegations of plaintiff, as to the effects of the anti-competitive conduct complained of; there is no evidence as to the extent to which the challenged rule is subject to actual review by the SEC; there is no evidence as to what in the regulatory scheme 'performs the antitrust function'; and, most notably, there is no evidence as to why the antirebate rule must be preserved as 'necessary to make the Securities Exchange Act work.' In sum, this record falls woefully short of the meticulous analysis called for in Silver.

As to the district court's reliance on the opinion of this court in Kaplan v. Lehman Brothers, we find essential distinctions between that case and the case presently before us. The most obvious distinction is that in Kaplan the plaintiffs argued only that the minimum commission rate structure was illegal per se. This contention directly contradicts the rationale of Silver, which made, 'plain that action taken by the Exchange and its members, pursuant to its statutory authority to make rules, is not illegal per se under the Sherman Act.' Kaplan, 250 F. Supp. at 564.3 In this case Thill does not contend that the anti-rebate rule of the Exchange is illegal per se, but asks for the application of a rule of reason. See Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619 (1911).

To further distinguish the cases, we recite the following comments of the trial court in Kaplan, relating to the anticompetitive conduct there complained of. In distinguishing Silver the court stated (at 565):

'The power to deny information to non-members of an exchange is plainly susceptible to misuse as a means to destroy competition. The power to fix rates, unlike the power to exclude, is not a weapon that can be used to injure a particular competitor. The rates, once fixed, apply equally to all Exchange members and to all customers. It is not suggested by the plaintiffs here that the rates are not uniformly applied, that the schedules are discriminatory, or that the power has been used to eliminate competition beyond that elimination inherent in any system of authorized price-fixing.'

The power to refuse to share commissions with certain non-members is 'plainly susceptible to misuse as a means to destroy competition.' It is a weapon 'that can be used to injure a particular competitor.' The rates once fixed, apparently do not 'apply equally to all.' (See pp. 815-816, infra). And, it is 'suggested by plaintiffs here that the rates are not uniformly applied,' are discriminatory, and that the 'power has been used to eliminate competition.'

While we are of the opinion that the distinctions between this case and Kaplan firmly support the result we reach here, we should note that the district court could have been misled by the abbreviated rationale of this court in Kaplan, particularly by the statement that, 'the antitrust laws are inapplicable to the New York Stock Exchange insofar as its prescribing of minimum commission rates is concerned.' 371 F.2d at 411. This statement apparently could imply a broader immunity than is warranted by the teachings of Silver. See Baxter, NYSE Fixed Commission Rates: A Private Cartel Goes Public, 22 Stan.L. Rev. 675, 690 (1970); Johnson, Application Of Antitrust Laws To The Securities Industry, 20 S.W.L.J. 536, 558-9 (1966); Note, Monopolies-- Immunity From Antitrust Liability-- Minimum Commission Rates Of Stock Exchanges, 19 Case Wes.Res.L.Rev. 167 (1967). It was such an interkpretation that obviously impelled thje sharp criticism of this court's opinion by Chief Justice Warren when he dissented from the Supreme Court's denial of Certiorari in Kaplan. The Chief Justice discussed the importance of the issues presented in the case and complained that the substantial allegations of the plaintiffs were never affored the hearing called for in Silver.

'The court below, in a two-page opinion, held that a repeal of the antitrust laws was required to make the Securities Exchange Act work, and that 'the self-regulatory function of the exchange has been exercised by virtue of 19(b),' 371 F.2d, at 411. In my view, this blunderbuss approach falls far short of the close analysis and delicate weighing process mandated by this Court's opinion in Silver.

'The importance of the New York Stock Exchange in the functioning and livelihood of this Nation can not be gainsaid. Every-increasing millions of persons and billions of dollars are affected by the Exchange's practices. Without expressing any final view on the merits of the controversy, I am concerned that the law on this subject is to be permitted to lie where it has aimlessly fallen by virtue of the scanty opinion below. In my judgment, the claims advanced by petitioners raise importand questions not only as to the compatibility of the Exchange's ratefixing practice with this Nation's commitment, embodied in the antitrust laws, to competitive pricing, but also as to the fulfillment of the goal of investor protection embodied in the securities laws.' 389 U.S. 954 at 957-958, 88 S. Ct. 320, 19 L. Ed. 2d 365.

Even the 'broad language' of Kaplan, however, does not go so far as the Exchange now would urge. It argues that potential review by the SEC vests that agency with exclusive jurisdiction over the subject to the exclusion of the antitrust court. The lower court, at least in part, adopted this theory finding that it would not 'be in the interest of making the 1934 Act work' to undertake 'an inquiry into the reasonableness of the Exchange's prohibition or to apply the antitrust laws to the challenged practice.' In so finding the court stressed that the, 'SEC is currently exercising its supervisory duty over this area of Exchange self regulation, and I am of the opinion that such supervision constitutes more than adequate review and control of the Exchange practices.' This conclusion, relating to the adequacy of the SEC's review, was apparently based on the fact that the SEC has from time to time reviewed and approved the rate structure of the Exchange and more particularly on May 28, 1968 the SEC announced the commencement of an investigation and public hearing to consider changes in the rules, policies and practices of all exchanges respecting commission rate structure. The announcement published by the SEC listed 'Economic Access to the Exchange Market by Non-Member Broker Dealers' as one of the matters to be inquired into. These hearings are still in progress. From these limited facts the court concluded, 'It thus appears clear that the SEC has and is currently exercising its 19(b) duty of supervision over the Exchanges' commission structure'.

As we observed above, there is no evidence in the record that the SEC is exercising actual and adequate review jurisdiction under the Act. Furthermore, even the fact that the SEC may be exercising its proper supervisory power over the rules of the Exchange does not in and of itself cloak the Exchange with antitrust immunity for its conduct relating to those rules. Of course it is not disputed that in exercising its review power under section 19(b), the SEC, like other regulatory agencies, may weigh and consider antitrust factors. See The Rules of The New York Stock Exchange,10 S.E.C. 270 (1941).

But, that fact does not vest the Commission with primary responsibility for the enforcement of competition as mandated by Congress in the antitrust laws. United States v. First National Bank and Trust Co. of Lexington, Ky., 376 U.S. 665, 84 S. Ct. 1033, 12 L. Ed. 2d 1 (1964); United States v. Philadelphia National Bank, 374 U.S. 321, 83 S. Ct. 1715, 10 L.Ed.id 915 (1963); California v. Federal Power Commission, 369 U.S. 482, 82 S. Ct. 901, 8 L. Ed. 2d 54 (1962).4 These cases, particularly the Philadelphia National Bank case, squarely reject the Exchange's contention that the court's inquiry must end once it is established that its rules were adopted pursuant to its duty of self regulation under the 1934 Act and are subject to SEC review.

In Philadelphia National Bank, a merger of two large banks in the Philadelphia area was approved by the Comptroller of the Currency pursuant to the Bank Merger Act of 1960. Under the Act the Comptroller is required to consider the effect on competition in passing on merger applications. And, before granting approval under the Bank Merger Act, the Comptroller received reports from the Attorney General and from other government agencies as to the effect of the merger on competition. Despite the Comptroller's statutory approval, the Justice Department attacked the merger as a violation of section 7 of the Clayton Act. 15 U.S.C. 25. In resisting the attack, the banks argued that because the Bank Merger Act directed the Comptroller to consider competitive factors before approving mergers, any merger so approved was immunized from challenge under the antitrust laws. In rejecting this contention, the Supreme Court observed that, 'No express immunity is conferred by the Act', and that, 'Repeals of the antitrust laws by implication from a regulatory statute are strongly disfavored'. 374 U.S. at 350, 83 S.Ct. at 1734, citing a legion of cases including Silver v. New York Stock Exchange.

In our view the facts here are much stronger in favor of application of the antitrust laws than were those in the Philadelphia Bank case. In reviewing the rules of the Exchange the SEC is not required to consider their effect upon competition. On tdhe contrary, its history in reviewing rules adopted by the Exchange indicates a reluctance to do so. It has been suggested that the SEC has never, 'forcibly altered an Exchange's commission rate structure, and there is little to indicate that it has even thoroughly investigated proposed rate revisions'. Note: Monopolies-- Immunity From Antitrust Liability-- Minimum Commission Rates Of Stock Exchanges, 19 Case Wes.Res.L.Rev. 167, 173 (1967). In the Kaplan case discussed in detail above, it was alleged without contradiction that the underlying data used by the SEC in reviewing each of the five rate increases since 1934 have been essentially those supplied by the Exchange, and have been very limited in scope and content. See dissenting opinion of Chief Justice Warren, 389 U.S. at 956, 88 S.Ct. at 321.