Before LUMBARD, Chief Judge, WATERMAN and HAYS, Circuit Judges.
HAYS, Circuit Judge: This is an action for damages and injunctive relief brought under Sections 4 and 16 of the Clayton Act. The principal issue is whether defendant by instructing its members to deny private wire service to the plaintiffs engaged in an activity prohibited by Section 1 of the Sherman Act. The lower court, granting plaintiff's motion for summary judgment, held that defendant's action constituted a concerted refusal to deal which was per se unlawful, and gave plaintiff a permanent injunction. 196 F.Supp. 209 (S.D.N.Y. 1961). This is the order from which the present appeal is taken. We reverse on the ground that the defendant acted in pursuance of powers granted to it by the Securities Exchange Act of 1934.
The plaintiffs, Municipal Securities and Municipal Securities, Inc. are engaged in the securities business in Dallas, Texas. Municipal Securities deals almost exclusively in municipal bonds, Municipal Securities, Inc. in over-the-counter corporate securities. They are not members of the New York Stock Exchange. Harold. J. Silver was, until his death, sole proprietor of Municipal Securities. He and his wife were the principal officers and directors of Municipal Securities, Inc.
In June, 1958, Municipal Securities, Inc. applied to the New York Stock Exchange for approval of private wire connections*fn1 with several offices of firms which were members of the Exchange.*fn2 The Exchange gave "temporary approval" to the proposed arrangement and the connections were installed.
Following its usual practice in such cases the Exchange ordered an investigation of Municipal Securities, Inc. and its officers. The investigation revealed several matters which appeared to the Exchange to have a bearing on whether approval of the application of Municipal Securities, Inc. should be made permanent. According to the Exchange, plaintiff Silver, in providing the information requested by the Exchange in connection with his application, had failed to list two corporations with which he and his wife had been connected, the Defense Department had suspended the security clearance of Silver and his wife and of another corporation in which the Silvers held a major interest, the Silvers had "apparently" breached an agreement involving the exchange of certain shares of stock, and there were "further disclosures of a derogatory nature."
On February 12, 1959, relying upon the results of its investigation and without notice to Municipal Securities, Inc., the Exchange "requested" its members to discontinue the private wire connections with Municipal Securities, Inc. They did so.
The results of the investigation were disclosed only in the course of the proceedings in the lower court, and, then, according to the Exchange, only in part. Silver's attempts to learn from the Exchange the reasons for the cancellation of the wire services were unavailing. He was informed that the practice of the Exchange did not permit the disclosure of this information.
The lower court held that the action of the Exchange and its members constituted a concerted refusal to deal which violated Section 1 of the Sherman Act and was illegal per se .
It is quite clear that there would be, at the very least, a grave doubt as to the legality of the action of the defendant if it is not insulated from liability under the Sherman Act for such action by reason of the duties and obligations imposed upon it by the Securities Exchange Act of 1934. We hold, however, that the action of the Exchange in bringing about the cancellation of the private wire connections with members of the Exchange was within the general scope of the authority of the Exchange as defined by the 1934 Act and therefore outside the coverage of the Sherman Act.
The broad scope of the Securities Exchange Act is indicated by Section 2, Necessity for Regulation, which reads in part as follows:
"transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto, * * * and to impose requirements necessary to make such regulation and control reasonably complete and effective, in order to protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions."
The basic scheme of the Act contemplates that control over the conduct of members of securities exchanges will be shared by the Securities and Exchange Commission and the securities exchanges themselves, with the Commission exercising general supervisory power over the exchanges' self-regulation. The report on stock exchange regulation by the so-called Dickinson Committee which, at the request of the President and in collaboration with the Senate Committee on Banking and Currency, formulated the fundamental plan for the legislation in this field, stated:
"It is not proposed that the Government so dominate exchanges as to deprive these organizations of initiative and responsibility * * * We propose the formation of a Government agency operating in this field, and endowed with wide powers to license or close exchanges, coupled with the reserve power to license individual brokers * * *, and to make rules and regulations concerning a delicate mechanism like the stock exchange which must be * * * so constituted as to place responsibility to the fullest extent possible on the private bodies now handling the work of security exchanges."
"It seems distinctly better, in the opinion of your committee, to stimulate the exchange to further disciplinary activity by holding it to a high degree of accountability for the conduct of its members."*fn3
The House Committee Report on the bill which became the 1934 Act said:
"It is hoped that the effect of the bill will be to give to the well-managed exchanges that power necessary to enable them to effect themselves needed reforms and that the occasion for ...