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March 13, 1974

Clyde H. Cutner, et al., Plaintiff
Albert Fried, et al., Defendants.

MacMahon, District Judge.

The opinion of the court was delivered by: MACMAHON

MACMAHON, District Judge.

Plaintiff moves under Rule 23(c) (1), Fed. R. Civ. P., and Civil Rule 11A of this court for a determination that this action is a class action. Defendants cross-move under Rule 12(b), Fed. R. Civ. P., to dismiss Counts IV and V of the complaint for failure to state a claim.

 This action is brought under §§ 10(b) and 11(b) of the Securities Exchange Act of 1934 ("the Act") *fn1" and Rules 10b-5 and 11b-1 of the Securities and Exchange Commission. *fn2"

 Count IV of the complaint, which defendants challenge as insufficient, alleges that defendant New York Stock Exchange ("Exchange") "failed and refused to establish adequate rules in its governance of specialists as mandated by Rule 11(b)-1(a) (2)." Count V, also challenged by defendants, alleges that defendants' conduct, including the aforementioned alleged violation of Rule 11 and § 11 of the Act, constitutes negligence.

 Plaintiff, a stockholder of Skyline Corporation ("Skyline"), claims that defendant Albert Fried, Jr., a registered specialist in Skyline stock, wrongfully suspended trading in the stock on December 22, 1972. Plaintiff contends that the Exchange is liable for damages allegedly caused by the suspension because it failed to establish adequate rules governing specialists. *fn3" Plaintiff also seeks injunctive relief directing the promulation of new rules governing specialists.

 Defendants contend that Counts IV and V should be dismissed because § 11 of the Act does not confer a private right of action upon a person wronged by its violation. They argue that, even if a private right of action for damages does exist, it would be an improper exercise of our equity powers to direct that new regulations be promulgated.

 Section 11(b) of the Act provides that, except when in contravention of SEC rules and regulations, "the rules of a national securities exchange may permit . . . a member to be registered as a specialist." SEC Rule 11b-1 specifically authorizes a national securities exchange to promulgate rules authorizing a member to act as a specialist.

 There can be no question that the rules promulgated by the SEC, pursuant to § 11 of the Act, place a duty upon the Exchange to make adequate rules governing specialists. *fn4" Whether that duty may be enforced by a private party, however, is another question. Thus, we must determine whether the statutory scheme for regulation of specialists permits this court to decide if the Exchange has violated its duty to make adequate rules and whether plaintiff may seek legal or equitable relief for a violation of that duty.

 Section 11(b) of the Act does not provide for a private right of action by its express terms, but private rights of action have been recognized under other sections of the Act which likewise do not expressly grant them. *fn5"

 Plaintiff contends that Weinberger v. New York Stock Exchange, 335 F. Supp. 139 (S.D.N.Y. 1971), permitting a private right of action under § 6 of the Act, *fn6" should be extended to permit a private claim under § 11. We disagree.

 In Weinberger, plaintiff sued as a third-party beneficiary of an agreement between the Exchange and the SEC which had been filed with the SEC in 1934 pursuant to § 6 of the Act, under which the Exchange agreed to comply with the Act and its rules and to enforce compliance by its members. The complaint alleged that the Exchange had violated § 6 by failing to promulgate or enforce rules properly regulating members and thereby had breached its contract with the SEC. The Weinberger court held that the agreement between the Exchange and the SEC was made for the benefit of investors and that, therefore, an investor had a private right of action for its breach as a third-party beneficiary.

 Here, however, plaintiff does not allege a breach of contract. Rather, Count IV alleges that the Exchange "failed and refused to establish adequate rules in its governance of Specialists as mandated by Rule 11b-1(a) (2)." All that is alleged, therefore, is a direct violation of Rule 11b-1(a) (2) and the Act (since the Rule is promulgated under the Act), a situation clearly distinguishable from Weinberger.

 Plaintiff also contends that he has a private right of action under the rule of Baird v. Franklin, 141 F.2d 238 (2d Cir.), cert. denied, 323 U.S. 737, 89 L. Ed. 591, 65 S. Ct. 38 (1944). Baird permits a private right of action for violation by the Exchange of its statutory duty to enforce its rules regulating member firms, as required by § 6, because the congressional intent underlying the Act was to protect investors. Unlike Baird, however, there is no allegation here that the Exchange failed to enforce its rules.

 While we have no doubt that § 11(b), like § 6, was enacted for the protection of the investing public, it does not follow that a rule made by the Exchange under the regulatory eye of the SEC is open to question in the courts. Plainly, determination of whether a rule governing specialists on the Exchange is adequate or inadequate raises issues calling for the exercise of judgmental factors which are within the special competence of the SEC and outside the conventional experience of judges and juries. *fn7" Precisely because the SEC possesses expert and specialized knowledge in this field, congress expressly placed the responsibility for resolution of such issues under this comprehensive regulatory scheme on the SEC, not on the courts.

 Thus, § 19(b) of the Act empowers the SEC to request an exchange to make changes in its rules and to disapprove any rules adopted by an exchange which it does not deem adequate. *fn8" The SEC also possesses the power "by rules or regulations or by order to alter or supplement the rules of such exchange. . . ." *fn9"

 Pursuant to its powers under §§ 19(b) and 11(b), the SEC has promulgated Rule 11b-1(a) (3), which provides that the SEC may disapprove any change in or addition to any exchange rule governing specialists "if the Commission finds that it is inadequate . . . or is inconsistent with the public interest or the protection ...

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