August 12, 1957
Per Curiam. -
Although neither appellant nor appellee sought a rehearing in this case, the Securities and Exchange Commission timely filed an application with us seeking our permission to file a petition, amicus curiae, for a rehearing. We readily granted such permission. The Commission represents to us that our opinion of June 7, 1957 should be clarified to remove any uncertainties with respect to our beliefs as to the validity of SEC Rule X-16B-3 (17 C.F.R. 240.16b-3). We are grateful to the Commission for the interest it has shown, and we order that the brief offered by it in support of its petition be filed and made a part of the records in the case. The petition and brief demonstrate that the Securities and Exchange Commission understands, without further clarification, the content of our opinion. We learn therefrom that it is re-evaluating its Rule X-16B-3. In the meantime, pending any modification of the Rule after such re-evaluation, it would seem that any reliance upon it by persons entitled to exercise stock purchase options under employee stock option plans substantially similar to that here in issue would be illadvised.
The petition for rehearing is denied.
LUMBARD, C.J. (dissenting) - The petition for rehearing filed by the Securities and Exchange Commission should be granted; we should hold Rule X-16B-3 to be valid.
The Commission's brief reinforces my original view that not only is the Rule clearly valid but that in any event, the majority's doubts as to its invalidity, which really amount to a holding of invalidity, should be based on more than a possibility of abuse as supposed and conjectured by judges.
As the Commission points out, the question we must ask is not whether isolated instances of abuse may result from this exemption, but whether the Commission was reasonable in deciding that "the possibility of the use of inside information * * * appeared slight by comparison with the interference by the statute with legitimate trading." Memorandum of Securities and Exchange Commission, Amicus Curiae, page 5. As the Commission further points out, the majority's approach which looks only to whether any abuse is possible, writes the Commission's rule-making power out of the statute for almost any exemption will permit some possibility of abuse. To put the matter in another way, it may hardly be said as to any exemption that some abuse is not possible.
This balancing of the desirability of some exemption against the likelihood of its abuse is a function of the Commission and, unless clearly unreasonable and irrational, is not the function of judges. Therefore a decent respect for the powers and duties of an administrative agency should impel us to exercise our powers - here the power of a dictum - with some humility and self-restraint.
I would grant the rehearing and hold Rule X-16B-3 to be valid.
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