Willkie Obtains D.C. Circuit Victory in NYSE Arca Data Fees Case

August 9, 2010

Firm wins significant victory for Bloomberg L.P. and NetCoalition (party in interest) in challenge to the SEC’s approval of new fees proposed by the NYSE Arca.

Willkie has won a significant victory in the U.S. Court of Appeals for the District of Columbia Circuit for Bloomberg L.P. and the party in interest, NetCoalition, a trade association that represents internet companies such as Google and Yahoo!, as well as Bloomberg. In May 2006, the stock exchange NYSE Arca filed a proposed rule change with the SEC seeking to charge fees for its "depth-of-book" market data, which it had previously given away for free. In December 2008, the SEC, charged under the Exchange Act with ensuring that exchange fees are "fair and reasonable," approved the fees over vigorous objections by, among others, NetCoalition and the Security Industry and Financial Markets Association ("SIFMA"), an organization that represents securities firms and banks. The SEC found that NYSE Arca need not provide cost data because its fees were fair and reasonable in that NYSE Arca faced significant competition in the market for order flow (that is, executed trades), which, the SEC argued, constrained the prices it could charge for market data. It also cited several alleged substitutes for the data in question, which, it argued, constrained the price NYSE Arca could charge.

Seeing no rational basis behind the SEC Order, NetCoalition and SIFMA joined forces and appealed to the D.C. Circuit. On appeal Willkie argued, among other things, that NYSE ARCA's costs were relevant and whatever competition NYSE Arca faced with respect to order flow, the SEC had not established that it had any impact on the prices NYSE Arca charged for market data and that the "substitutes" cited by the SEC were no such thing. In a decision written by Judge Henderson and joined by Judges Garland and Edwards, the Court agreed, finding that costs are relevant to the reasonableness of fees and the SEC had no evidence to support its theory that competition for order flow constrained the price of market data. The Court went on to reject the SEC’s "substitutes," ruling that several were not substitutes at all and that, in any case, the SEC provided no evidence that traders actually considered any of them as such. The Court reversed the SEC Order and remanded for further proceedings. This represents a important victory for Bloomberg and NetCoalition, and for all parties impacted by the agency rulemaking. The ruling comes at a time when agencies are being given significantly increased rulemaking authority, yet reaffirms that agencies must have a "reasoned basis" for their rulemakings and support their decisions with substantial evidence.

The Willkie team included partners Richard Bernstein, Roger Blanc, John Oller and William Rooney, and associate Norman Ostrove.