PBW Stock Exchange, Inc. v. Securities & Exchange Commission

485 F.2d 718

• Court: Court of Appeals for the Third Circuit
• Decided: September 28, 1973
• Docket: Nos. 73-1116, 73-1165, 73-1266 and 73-1267
• Status: Published

Opinions

OPINION OF THE COURT

SEITZ, Chief Judge.

Petitioners here appeal directly from the promulgation of Rule 19b-2 ¹ by the Securities and Exchange Commission, effective January 16, 1973. Petitioners invoke the jurisdiction of this court under § 25(a) of the Securities Exchange Act of 1934 ² and § 10 of the Administrative Procedure Act. 15 U.S.C. § 78y(a); 5 U.S.C; §§ 702-04 (1971). The rule was not promulgated by an order of the Commission.

Rule 19b-2 was the product of many different hearings before, and studies by, the Commission. It is premised upon the basic theory that a condition attaching to membership on a public exchange is a willingness to serve the investing public. Therefore, the rule conditions future membership of both present and potential member brokerage firms upon a manifestation of such willingness. For purposes of this determination, the rule establishes a rebuttable presumption that any brokerage company is serving the public if at least 80% of its business volume is transacted for “nonaffiliated persons.” Procedurally, the exchanges are required to adopt the rule as part of their individual exchange rules and by-laws.

A three-year grace period has been built into the rule. To take advantage-of it, however, those currently not in compliance with the provisions of the rule must immediately adopt and begin putting into effect a plan designed to bring them into compliance within the three-year period. Each individual exchange is charged with ensuring the adoption and effectuation of a plan by its noncomplying members or itself be subject to proceedings before the Commission. 17 C.F.R. § 240.19b-2(d) (1973).

Because the rule requires the regulated public exchanges to supplement or alter their rules to bring themselves into conformance with its terms, it first was presented to the national exchanges by letter. This was pursuant to procedures mandated under § 19(b). However, in seeking authority to promulgate the substantive portions of this rule, the Commission relied upon §§ 2, 6, 11, 17 and 23(a), in addition to § 19(b). 15 U.S.C. §§ 78b, 78f, 78k, 78q, 78s(b) and 78w(a) (1971). When the exchanges, for various reasons, refused to adopt the rule voluntarily, the Commission held a rule-making proceeding under § 4 of the APA. 5 U.S.C. § 553 (1971). After the hearing, the rule was modified and adopted in its present form.

The rule applies to all members of all exchanges. However, the initial impact of the rule will be borne primarily by current institutional members of the various exchanges. Consequently, the rule has become known as the “institutional membership” rule. Collaterally, those exchanges which have noncomplying institutional members seemingly will be affected in the same proportion to which they have allowed such membership. On the PBW Stock Exchange, forty-three per cent of the trading volume is accounted for by institutional members which presently are not in compliance with the rule. This appears to be the high. Others, like the New York Stock Exchange (NYSE), which has not allowed institutional membership, will feel the initial impact of the rule much less.

The future impact of the rule will not be so limited. Those exchanges which have not permitted institutions to buy memberships — such as the NYSE — will be forced to allow them to do so if the brokerage affiliate of an institution complies with the rule’s standards. Thus, while certain exchanges may be prevented from dealing with those whose membership they would otherwise seek, other exchanges will be forced to deal with those they have sought to exclude in the past.

Along with the four named petitioners in this action, numerous amici have filed briefs for the information of the court, including the Antitrust Division of the Department of Justice. All challenge the provisions of the rule. The three preponderant bases of attack are: (1) the hearing procedure used here did not comport with that required by both § 19(b) of the Exchange Act and §§ 4, 7, and 8 of the APA [15 U.S.C. § 78s(b); 5 U.S.C. §§ 553, 556, & 557]; (2) the SEC lacked statutory authority to promulgate this rule; and (3) the SEC did not adequately attempt to reconcile the antitrust implications of the rule with the antitrust laws. A fourth underlying theme of these briefs is that the Commission’s definition of “investing public” is arbitrary. Petitioners and the amici claim it fails to recognize that many institutional investors — such as mutual funds, mutual insurance funds, and state welfare and pension funds— are actually serving a broad spectrum of the investing public even though their brokerage affiliates may only execute' the parent’s transactions.

Although the SEC vigorously defends its rule on the merits, it has also interposed a motion to dismiss this appeal for lack of jurisdiction. We turn to the disposition of the motion.

I. THE PROBLEM IN THE CONTEXT OF THE STATUTE.

Petitioners predicate this appeal upon both § 25(a) of the Exchange Act and § 10 of the APA. We note preliminarily that § 10 contains no independent grant of appellate jurisdiction to the court of appeals. Rather, it merely amplifies any jurisdictional grant to this court contained in the substance of the Exchange Act. Therefore, our examination must focus upon the terms of § 25(a). To provide perspective on the nature of the problem posed by this motion, and to provide' a basis for our examination of the terms of § 25(a), however, it is essential to first examine the provisions of § 19(b).

Section 19(b) provides procedures for both voluntary and compelled adoption of Commission recommendations in specified regulatory areas. If the Commission deems a recommendation in any of these areas to be of sufficient import to warrant formal adoption by an exchange, it must send a letter to the exchange requesting it to make voluntarily the recommended alteration in its rules or by-laws. Should the exchange accede, no formal action by the Commission is required. The Commission’s recommendation becomes binding upon members of that exchange because the exchange itself had adopted the rule. Once adopted, the exchange must enforce the rule or face possible disciplinary action by the Commission under § 19(a) of the Act.

Should the exchange refuse to comply with the request of the Commission to adopt the recommendation, the statute provides:

The Commission is further authorized, if after making appropriate request in writing to a national securities exchange that such exchange effect on its behalf specified changes in its rules and practices, and after appropriate notice and opportunity for hearing, the Commission determines that such exchange has not made the changes so requested, and that such changes are necessary or appropriate for the protection of investors or to insure fair dealing in securities traded in upon such exchange or to insure fair administration of such exchange, by rules or regulations or by order to alter or supplement the rules of such exchange. .

15 U.S.C. § 78s(b).

In the instant case, the Commission considered the proposal sufficiently important to direct it to all the registered securities exchanges. Various exchanges refused to comply with the Commission’s rule, all for different reasons. After this refusal to comply, the statute vested in the Commission the option to effect the recommendation either by proceeding in a legislative manner— promulgation of a rule, or in an adjudicatory manner — issuance of an order. Here, the Commission chose to promulgate a rule.

The crux of the problem posed by this procedural discretion vested in the Commission under § 19(b) lies in the terms of the statutory review powers granted this court under § 25(a) of the Exchange Act.³ Although the SEC has the option to proceed either by rule or regulation or by order under § 19(b), § 25 is not similarly broad in its grant of review jurisdiction to this court. Rather, § 25(a) allows review here only when an order has been entered by the Commission. Neither any section of the Exchange Act nor of the APA vests jurisdiction in this court to review on direct appeal from the SEC rules or regulations which it has promulgated.

Despite this seeming statutory preclusion of our entertaining this appeal, petitioners steadfastly contend we have jurisdiction over this appeal. In their attempt to avoid the lack of a jurisdictional grant under the statute for direct appellate review of Commission rules, petitioners seek to show Rule 19b-2 is an order for purposes of the statute: (1) because of its substantive effect upon the business relationships between PBW and its members; and/or (2) because it was primarily aimed against one exchange, the PBW. On the former point, petitioners contend the decision of the Supreme Court in Columbia Broadcasting System v. United States, 316 U.S. 407, 62 S.Ct. 1194, 86 L.Ed. 1563 (1942), and its progeny are dispositive.

To deal with these contentions, we must first examine the structure and underlying legislative history of the Exchange Act, bearing in mind the admonition of the Supreme Court that:

We must look ... to the language of the statute, read in the light of its purposes and its legislative history, to ascertain whether the order for which review in court is provided is contrasted with forms of administrative action differently described as a purposeful means of excluding them from the review provisions.

AF of L v. NLRB, 308 U.S. 401, 60 S.Ct. 300, 84 L.Ed. 347 (1940).⁴ After we have completed our examination of these elements, we will turn and consider the petitioners’ contentions seriatim.

II. THE STRUCTURE OF THE EXCHANGE ACT.

The Exchange Act was carefully structured to give the regulatory commission which it established powers sufficiently broad that it could effectively oversee the securities industry. The main thrust of the operative provisions of the Act was toward regulation of the nation’s stock exchanges and trading thereon. The Act was passed against the backdrop of the catastrophic financial reverses suffered by this country in the period 1929-33. It was designed to supplement the initial efforts to protect investors manifested in the Securities Act of 1933 ⁵ and proscribed certain practices which had been regarded as major causes of those reverses in the securities markets. Additionally, it was left sufficiently open-ended that the regulatory agency which it established would have the power to deal with new and as yet unthought of schemes to defraud the investing public and manipulate the securities markets.

Procedurally, the Act is tailored and specific, dictating how functions delegated the Commission shall be handled. Some subsections prescribe an adjudicatory hearing with final issuance of an order; other sections mandate a rule-making proceeding with final promulgation of either a rule or regulation. In only six subsections of the entire Act is the Commission given the option to proceed either by order or by rule or regulation. Section 19(b) is one of those subsections.⁶

Comparison of § 19(a) and (b) illustrates this careful tailoring and delegation of procedural power. Section 19(a) is the subsection which provides, inter alia, for the disciplining of exchanges which do not comply with, or do not enforce, either the statute or the rules and regulations promulgated thereunder. 15 U.S.C. § 78s (a)(1). In exercising its power to suspend or withdraw the registration of an exchange, the statute specifies that the Commission shall proceed only by order. Thus, exercise by the Commission of the power vested in it by § 19(a)(1) would be immediately reviewable in this court under § 25(a). However, § (b) — which contains no grant of enforcement power against an exchange — provides that the Commission can proceed either by rule or regulation or by order. Further, it can proceed by either device even as to only one exchange under the terms of the subsection.

It is against this background that the grant of jurisdiction in § 25(a) must be examined. As with most sections of the Act, it is specific in the type of Commission action over which it allows direct appellate review in the court of appeals: it grants this court only the power to directly review orders of the Commission. Was the exclusion of rules or regulations promulgated by the Commission a deliberate omission? The answer is found in a review of the legislative history of the Act.

III. THE LEGISLATIVE HISTORY OF THE EXCHANGE ACT.

Examination of the Congressional history reveals that the omission of rules or regulations from the terms of § 25(a) was no mere oversight on the part of Congress. Rather, it was part of their specific intendment in drafting this legislation. This is most clearly revealed in the House floor debates on H.R. 9323 [73d Cong., 2d Sess.], the bill which eventually became the Securities Exchange Act of 1934.

Although § 19(b) was then numbered § 18(b), the procedural portion of the subsection was practically identical to its current form. The one difference of any notice is that the section at that point specified that the Commission would carry out its duties under § 19(b) only by rule or regulation.

Particularly relevant to our inquiry are the floor debates surrounding the proposed amendment of Rep. Fish of New York to delete the phrase “by rules or regulations” and substitute in the phrase “by order.” Rep. Fish stated the purpose of his amendment was to “permit recourse to the courts by the exchange [affected by Commission action], whereas under ‘rules or regulations,’ the . Commission can do about anything it wants to the exchange and its members . . . without the exchange having any recourse whatever to the courts.” 78 Cong.Rec. 8087 (5/4/34).

A supporter of the Fish amendment, Rep. Wadsworth, in seeking support for the amendment, clearly defined the purpose of the amendment:

[U]nder this section [as presently drafted], there is no recourse to the court. The final regulation of the Commission cannot be appealed from, and the amendment offered by the gentleman from New York [Mr. Fish] is merely for the purpose of allowing an exchange, in case of an extreme ruling which threatens to injure its legitimate business and the business of buying and selling securities all over the country, the right to appeal.

There are several other instances in which the Commission may, “by order”, suspend or put into effect its regulations. The use of the phrase “by order” automatically gives a person or an exchange thus to be regulated the right to appeal.

78 Cong.Rec 8092 (5/4/34). Rep. Wadsworth contended the Fish amendment additionally would make § (b) consistent with § (a), in which it was specified that the Commission would proceed only by “order.” Id.

Opponents of the proposed amendment, who eventually won out, replied that indeed, it was the express intention of the section as drafted to preclude direct appellate review of rules or regulations promulgated by the Commission under § 19(b). Rep. Snell, in response to Rep. Fish stated:

The proposal here is whether there shall be an appeal from the action of the Commission requiring a change in the rules of an exchange.

The section provides that an interested exchange be given the right to a hearing, and after the hearing the Commission by rules and regulations determines whether or not the change in rules shall be made. The practical question is whether or not the exchange shall be given an appeal to a court of law from the ruling of the Commission.

It is important that we shall not give the exchanges the right to appeal and go into court from the action of the Commission in making the rules and regulations. It would subject the Commission to endless harassment.

When we give the Commission the right, by rules and regulations to require that an exchange shall have a certain rule governing its functions, that is a quasi-legislative power of Congress. The Commission acts for Congress in establishing such rule or regulation. No one living ever heard of a claim that an interested party should have the right to restrain the action of Congress in passing laws to regulate the affairs of our country.

78 Cong.Ree. 8090-91.

Similarly, Congress did not mean to make direct appellate review available under § 25 by requiring rules and regulations to be promulgated by order. Rep. Rayburn, the floor manager of the bill, made this clear in opposing Rep. Fish’s amendment. He stated:

In my opinion, we have a good bill, a fine, reasonable, sane bill; but if we adopt the amendment offered by the gentleman from New York [Mr. Fish], we shall defeat practically everything we have done in the preceding 40 pages.

If you are going to say that the Commission may do this by rules and regulations, that is one thing. If you are going to say that the Commission shall formulate rules and regulations and issue them in the form of orders, that is another thing; and every one of them could be tied up in the courts from 12 to 24 months and thus absolutely negative the very things we have done in the preceding forty-odd pages of this bill.

In my opinion, the question involved in the Fish amendment is whether or not after writing a law you are going to give the administrative body the power to make the law effective and the power to enforce it.

78 Cong.Rec. 8093.

By later compromise in the Senate-House conference, the option to proceed either by rule or regulation or by order was granted the Commission. However, that in no way vitiated the Congressional feeling as to the insulation from review under § 25(a) enjoyed by a rule or regulation promulgated by the Commission.

Reinforcement on this point is provided in the legislative hearings on § 25(a) before the Senate Committee on Banking and Commerce. The New York Stock Exchange proposed redrafting § 25(a) (§ 24(a) in the bill) so as to give standing to appeal under that section to any party aggrieved by a rule or regulation of the Commission, as well as by an order. The NYSE contended that otherwise, rules or regulations of the Commission would be totally insulated from judicial review.

The committee rejected this change. Senator Barkley, in discussing the proposed change with the NYSE representative, made clear that avenues of review were open. For example, parties who did not wish to comply with the SEC rule could wait for enforcement proceedings to be instituted, and then challenge them in that proceeding. However, the dialogues make clear that although some might feel directly aggrieved by the application of the rule or regulation promulgated by the Commission, appeal under § 25(a) to the court of appeals would not lie. See Hearings on S.Res. 84, S.Res. 56, & S.Res. 97 before Senate Committee on Banking & Currency, 72d Cong., 2d Sess., and 73d Cong., 1st & 2d Sess., at 7568-7572 (1934). In fact, the committee expressly foresaw the type of situation arising where, as here, a party might be equally aggrieved whether the Commission acted by rule or regulation or by order. Even with such recognition, however, they refused to change the provisions of § 25(a).

The worry repeatedly expressed by Congress in these attempts to subject rules and regulations of the Commission to review under § 25(a) was that courts would be substituting their judgment for that of the Commission. While it was recognized that judicial review of some nature of Commission rules or regulations would be possible, particularly on the questions of whether they were constitutional or within the statutory authority of the Commission,⁷ Congress did not intend to make § 25(a) the vehicle for such review.

Examination of § 25(a) reveals the reason for the Congressional reservations. That section allows the court of appeals, in reviewing a final order entered by the Commission, “to affirm, modify, and enforce or set aside such order, in whole or in part.” Further, if the court finds the record .deficient, it can remand to the Commission for the taking of further evidence. Thus, under the drafting of § 25(a), the court of appeals, in reviewing Commission orders, has considerable discretion as to the terms under which it will enforce that order.^{7 8} Congress did not want such a substitution of the court’s view for that of the Commission on legislative policy matters.

At the time of the enactment of the Exchange Act, there was neither the APA nor the Declaratory Judgment Act. Thus, as to legislation, no preenforcement declaratory review was available. However, judicial review of federal legislation was always available, even if only in the enforcement proceeding itself; parties could challenge the constitutionality of an act or the regularity of its enactment. Consequently, when Congress stated that it intended to insulate rules and regulations of the Commission to the same degree that acts of Congress were insulated from judicial review, it was circumscribing very closely the limits of judicial cognizance of quasi-legislative action by the Commission.⁹ Allowing judicial review of the type established under § 25(a) of Commission rules and regulations was totally incompatible with the legislative powers delegated to the Commission and which Congress intended to be shared by the Commission only with Congress itself.

Despite the bulk and substance of the legislative history of the Exchange Act against their position, petitioners take solace from an isolated remark of Rep. Rayburn concerning the availability of appeal from Commission rules or regulations whose promulgation “exceeded its jurisdiction and its authority under the act.” 78 Cong.Rec. 8091. However, his later amplification of this remark makes clear he was referring to the limited right to challenge the rule or regulation as one would challenge an act of Congress. 78 Cong.Rec. 8093. Although petitioners would have us equate the word “appeal” with the right to appeal under § 25(a), it is clear from the whole of the history that the appeal which he was referring to in that context was appeal to the courts for judicial review of the statutory or constitutional basis of an action. As with Congressional action, such “appeal” would only lie in an enforcement proceeding or, as postulated by Senator Barkley, after a secondary consideration of the matter as to a particular party by the SEC.

Finally, it is worth noting that Congressional statements about the intention to insulate SEC quasi-legislative action from judicial review was even more imperative at the time than such statements would be considered today. That was because of the aforementioned lack of available alternatives — such as the APA and the Declaratory Judgment Act —for seeking judicial review of congressional or quasi-legislative action.

Thus, an examination of the legislative history reveals a clear and unequivocal intention to insulate Commission rules or regulations from review under § 25(a). Having the benefit of this history, we can now turn to relevant Supreme Court decisions to determine whether intervening precedent has modified the impact of the legislative history as it relates to the question of § 25 review of Commission rules and regulations.

IV. APPLICABLE SUPREME COURT PRECEDENT.

We believe the starting point for our discussion must be AF of L v. NLRB, 308 U.S. 401, 60 S.Ct. 300, 84 L.Ed. 347 (1940). There, the Court was faced with a petition by the AF of L and its affiliated unions seeking review of a Board certification of the CIO-affiliated union as bargaining representative for the West Coast longshoremen. Petitioners contended that the certification was a “final order” of the Board, that they, were aggrieved by the “final order,” and that the certification, effectively determining the bargaining representative for an entire region, was beyond the Board’s power.

Petitioners predicated their petition for review upon § 10(f) of the NLRA (Wagner Act). 29 U.S.C. § 160(f). That section provides for direct appellate review of final orders in the court of appeals by any aggrieved party. Petitioners contended the certification was a final order for purposes of review under § 10(f). However, certification was nowhere spoken of as an order of the Board. Thus, the Court was required to ascertain whether these certifications of bargaining representatives by the Board were “final orders” for purposes of the statute. 308 U.S. at 408, 60 S.Ct. 300.

In examining the statutory history, the Court noted that the predecessor statute to the Wagner Act had allowed for review of the predecessor Board’s certifications of bargaining representatives ; in that statute, they had been denominated “orders of certification.” By the time of the debates on the Wagner Act, some experience under the prior act had been gained. As to the provisions allowing review of these “orders of certification,” Congress noted, with strong disapproval, that review of these orders had caused significant problems in gaining prompt , compliance with the dictates of both the act and the Board. Resultantly, Congress deleted the phrase “orders of certification” in the Wagner Act and substituted only the word “certification.” With this history, the Court, in holding the certifications of the Board under the Wagner Act immune from direct appellate review under the terms of § 10(f), stated:

Here it is evident that the entire structure of the Act emphasizes for purposes of review, the distinction between an “order” of the Board restraining an unfair labor practice [reviewable under § 10(f)] and a certification in representation proceedings. [Certification], authorized by § 9, is nowhere spoken of as an order, and no procedure is prescribed for its review apart from an order prohibiting an unfair labor practice. . The statute on its face thus indicates a purpose to limit the review afforded by § 10 to orders of the Board prohibiting unfair labor practices, a purpose and construction which the legislative history confirms. [I]n considering the provisions of § 9(d) the committee reports were emphatic in their declaration that the provisions of the bill do not extend to § 9 except as incidental to review of an order restraining an unfair labor practice under § 10. . The conclusion is unavoidable that Congress, as the result of a deliberate choice of conflicting policies, has excluded representation certifications of the Board from review by federal appellate courts authorized by the Wagner Act.

308 U.S. at 409-411, 60 S.Ct. at 304-305 [footnotes omitted].

The relevance of the decision in AF of L is immediate and compelling. As in the legislative history of the statute the Court there examined, Congress here made it unequivocally clear that it did not intend rules or regulations promulgated by the Commission to be subject to direct appellate review. Amendments to both §§ 19(b) and 25(a) were proposed to accomplish the very result which petitioners here seek, and those amendments were rejected. And the language used by the floor manager of the bill — Rep. Rayburn — was no less emphatic in the instant case as to an intent to preclude judicial review under § 25(a) of Commission rules and regulations than was the Congressional history in the AF of L case.

Petitioners contend, however, that the opinion of the Supreme Court in Columbia Broadcasting System v. United States, 316 U.S. 407, 62 S.Ct. 1194, 86 L.Ed. 1563 (1942), made Commission rules and regulations subject to review under § 25(a) despite the statutory language and Congressional history to the contrary. They maintain the Court in the Columbia, Broadcasting decision eliminated distinctions between orders and rules and regulations for purposes of review under the Exchange Act. Thus, they argue, the determinative factor for predicating review jurisdiction under § 25(a) is not whether the action is in form an order, but rather, what is the impact of the SEC’s action upon the regulated parties.

In Columbia Broadcasting, the Court was confronted with a challenge to an order of the Federal Communications Commission promulgating the “Chain Broadcasting Regulations.” The effect of those regulations was to annul the provisions of the network’s contracts with its affiliates and to outlaw its previous method of conducting business. The regulations effectively stated that any station which complied with the terms of its network contract would have its license denied at renewal time. Thus, the regulations operated to terminate the entire contractual basis on which the petitioner had built its business.

Section 402 of the Communications Act of 1934 [47 U.S.C. § 402] governed the reviewability of Commission orders and procedures to be used in obtaining such review. Under § 402(a), all orders of the Commission were subject to challenge, except those specified in § 402(b). This latter section, enumerated certain orders which were to be reviewed exclusively by direct appeal to the Court of Appeals for the District of Columbia Circuit. Orders subject to review under § (b) only involved exercise by the Commission of its quasi-adjudicatory powers. For example, a denial of a license was subject to review under § (b).

Section 402(a) at the time of the Columbia Broadcasting decision, unlike § (b), bore little procedural semblance to its modern-day counterpart. Rather, Congress had incorporated the provisions of the Urgent Deficiencies Act, 38 Stat. 219,¹⁰ into the section. This latter act had been passed in 1913 and established procedures for review of orders of the Interstate Commerce Commission. During the intervening twenty-one years between its original passage and its engraftment onto the Communications Act of 1934, a significant body of law had been compiled under the UDA. For present purposes, one of the most important propositions which had been established was on the scope of review jurisdiction of ICC orders under the UDA. It had been held they could be reviewed under its provisions whether they involved “the quasi judicial function of determining controversies or ... the delegated legislative function of rate making and rule making.” United States v. Los Angeles & S.L. R.R., 273 U.S. 299, 309, 47 S.Ct. 413, 414, 71 L.Ed. 651 (1927). This entire structure was effectively incorporated into § 402(a) at the time of its passage.

Although orders effecting exercise of delegated legislative power by a regulatory agency subject to the UDA had been held reviewable thereunder, the availability of such review had not been without qualification. Rather, the court, in resolving the appealability issue, had to examine the substance of the orders. This examination focused upon whether the orders were “affirmative” or “negative”: whether they ordered someone to do something or granted the requested relief; or whether they denied the requested relief. A third group had the characteristics of neither, i. e., an order assigning a case for hearing. Orders of the first category had been held subject to review under the UDA, while those of the last category had been held not so subject. See, e. g., Chicago Junction Cases, 264 U.S. 258, 263-264, 44 S.Ct. 317, 68 L.Ed. 667 (1924). Negative orders had been held subject to review only where certain criteria were met. See, e. g., Rochester Telephone Corp. v. United States, 307 U.S. 125, 131-132, 59 S.Ct. 754, 83 L.Ed. 1147 (1939).¹¹

To make the determination of whether the order was of the type subject to review, courts looked beyond the mere form in which the order was couched to determine the substantive effects upon the parties. For purposes of the UDA, it made no difference whether the substantive effect was created by the agency’s exercise of its adjudicatory or quasi-legislative function. In Powell v. United States, 300 U.S. 276, 57 S.Ct. 470, 81 L.Ed. 643 (1937) — one of the jurisdictional cases primarily relied upon by the Supreme Court in Columbia Broadcasting,12 the Court grappled with the parameters of the problem in weighing the Government’s contention that the form of the order determined reviewability under the UDA. The order involved revoked a tariff which had been filed by a railroad; the impetus for the ICC’s action had been a complaint filed by a competing railroad. The Government contended that the order neither named any party nor compelled any action. Rather, it contended, it was merely a record of the ICC’s action revoking the tariff and was, therefore, nonreviewable under the UDA. The Court disagreed, stating:

But overemphasis upon the mere form of the order may not be permitted to obscure its purpose and effect . . . . In effect, the order grants the [requested] relief sought by the Central’s complaint. . . . Interpreted according to its purposes, the order is in substance an affirmative one and therefore reviewable under the statute.

300 U.S. at 285, 57 S.Ct. at 475 [emphasis supplied; citations omitted].

As in Powell, the Government in Columbia Broadcasting contended the FCC’s order promulgating the regulations was not subject to review under § 402(a). It argued that since the order was not directed against any particular person, penalized no past conduct, and merely established future guidelines for the renewal of radio licenses by the FCC, the order was not the type of order reviewable under § 402(a).

Against the background of the mass of precedent arising under the UDA as to amenability of agency orders to review under its provisions, the Court rejected the Government’s arguments. It stated the “label” put upon an order by the FCC was not decisive for purposes of review under the statute. Rather, the order had to be examined to determine its net impact upon the regulated parties, as mandated in Powell. Then the order had to be examined to determine whether it was the type of order for which review was intended under the statute, as mandated in AF of L v. NLRB. The carry-through of these central concepts into the Columbia Broadcasting decision is reflected in the Court’s conclusion predicating reviewability that: (1) the order (2) promulgates regulations which operate to control contractual relationships of the regulated parties; (3) even though not directed against any particular party, (4) it determines rights generally and (5) is therefore reviewable under the UDA. 316 U.S. at 417, 62 S.Ct. 1194.

Petitioners here contend, however, the fact that review of an FCC order was involved in Columbia Broadcasting was inconsequential to the Court’s resolution of the jurisdictional issue there presented. They point to repeated statements by the Court that because these regulations, issued by the Commission in the avowed exercise of its quasi-legislative powers, had a substantial impact upon the business affairs of the petitioner, they were subject to review under § 402(a). Thus, they contend, the operative factor determining reviewability is not the form of the administrative action; rather, it is the substantive effect of the agency’s action upon the regulated parties.

First, the Court in Columbia Broadcasting was not faced with the question of whether quasi-legislative actions of the agency per se were subject to review under the UDA. It had long been a settled doctrine that orders of those agencies subject to review under the UDA, e. g., the ICC, could be reviewed whether they involved a quasi-judicial or -legislative exercise of that agency’s powers. The crucial factor for jurisdictional purposes was the substantive effect upon the parties.

Second, whereas orders of the FCC involving the exercise of certain of its quasi-adjudicatory powers could be reviewed only under § 402(b), quasi-legislative orders of the Commission, if they were subject to immediate appellate review at all, were so subject only under § 402(a). The Government interposed an argument that the proper procedure for obtaining review of the FCC’s action was under § 402(b), the subsection specifically intended only for clearly adjudicatory orders of the Commission.

The Court rejected the Government’s contention. The Court emphasized the Commission had chosen to exercise its delegated legislative powers to implement the challenged guidelines. Consequently, the Court would not entertain an argument that the petitioners be relegated to judicial review under § 402(b), or otherwise, which would be the proper procedure for reviewing the Commission’s actions had it acted by adjudicatory order. Rather, because the Commission’s order was a quasi-legislative exercise of its delegated powers, the only proper method of reviewing that order lay exclusively under § 402(a). And because of its impact upon the parties, the order was of the type reviewable under the UDA. 316 U.S. at 421-422, 62 S.Ct. 1194.

Thus, in Columbia Broadcasting the Court was faced with the contention that a clearly quasi-legislative exercise of power should be subjected to review under the provisions set up exclusively for review of adjudicatory orders of the FCC. Although the contention was pressed there to defeat the Court’s exercise of its jurisdiction while petitioners press the argument upon us here in their attempt to invoke our jurisdiction, the mandate of the Court is still directly applicable to the instant case: the contention must be rejected.

Finally, although the Court in Columbia Broadcasting talked of the impact of the regulations upon the parties and the use by the Commission of its rule-making power, the Court made clear it was not concerned with the reviewability of the regulations qua regulations. Rather, the regulations and their impact upon the regulated industry were relevant only because they constituted the substance of the order under review. The substance of the order had to be analyzed to determine whether it was an affirmative order or the type of negative order subject to review under the UDA —-in which case, the Court had jurisdiction to review the order under § 402(a) —or whether it was an unreviewable order under the precedent attaching under the UDA. Resultantly, the terms and effects of the regulations had to be scrutinized. In this regard, the Court stated:

Such regulations have the force of law before their sanctions are invoked as well as after. When, as here, they are promulgated by order of the Commission and the expected conformity to them causes injury cognizable by a court of equity, they are appropriately the subject of attack under the provisions of § 402(a) and the Urgent Deficiencies Act.

The purposes sought to be accomplished by § 402(a) and the Urgent Deficiencies Act would be defeated if a suitor were unable to resort to them to avoid reasonably anticipated injury resulting from such legal consequences of the Commission’s order, merely because the Commission as yet had neither refused to renew a license, as the regulations require, nor cancelled a license, as the regulations permit. Such an argument addressed to the form rather than the substance of the order was rejected in Powell

316 U.S. at 418-419, 62 S.Ct. at 1201 [emphasis supplied; citations omitted].

Thus, following the mandate of earlier cases, the Supreme Court analyzed the review provisions of the statute, as well as the obvious understanding by Congress ¹³ of what incorporation of the UDA into the review provisions of the Communications Act meant. Next, it compared the types of actions under the two review subsections of the statute to determine which was applicable. Finally, it concluded because of the terms of the order promulgating the regulations, that it was the intendment of the statute to subject such orders to review under § 402(a). In fact, it concluded that by not allowing judicial review of the challenged order, it would actually be defeating the design of the Communications Act and, inter alia, the UDA, as drafted.

Consequently, we are compelled to reject petitioners’ contention that the Court’s decision in Columbia Broadcasting requires this court to assume jurisdiction over this appeal under § 25(a). On the contrary, we believe the Court’s deference to statutory design and intention reinforces our conclusion that in fact no jurisdiction lies in this court under § 25(a) to undertake direct appellate review of Rule 19b-2.¹⁴

We find the progeny of Columbia Broadcasting, also cited to us by petitioners, to be similarly distinguishable. The first, United States v. Storer Broadcasting Co., 351 U.S. 192, 76 S.Ct. 763, 100 L.Ed. 1081, involved another set of FCC regulations promulgated by order of the Commission. Although § 402(a) had been changed procedurally to its present form, the Court found the decision in Columbia Broadcasting controlling on the substantive question of whether the order was subject to review under the terms of § 402(a). As before, the decisive factor for purposes of determining reviewability of the order promulgating the regulations was the impact of those regulations upon the parties. However, as with Columbia Broadcasting, examination of the regulations was relevant only to ascertaining the effect of the order for purposes of review. Thus again, the Court was not faced with the question of the reviewability of regulations qua regulations nor of a statutory design precluding certain types of review of specified agency actions.

The second case is equally uncompelling. Frozen Foods Express v. United States, 351 U.S. 40, 76 S.Ct. 569, 100 L.Ed. 910 (1956). That decision merely involved the reviewability under the UDA of an ICC order promulgating regulations. Therefore, it involved the same jurisdictional issue discussed and settled in Columbia Broadcasting and its predecessors. Resultantly, it advances petitioners’ case no further than did these previous cases.

The final ease urged as mandating our exercise of jurisdiction under § 25(a) which merits our consideration is Florida East Coast Railway v. United States, 410 U.S. 224, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973). Jurisdictionally, the case was in the same posture as that involved in Columbia Broadcasting, Frozen Foods Express, and Storer Broadcasting, and is therefore equally unavailing to petitioners. However, we note in that opinion a continuing admonition that courts pay the legislative history and intendment of a statute great deference in determining the scope of that statute and the specific burdens delegated thereunder.

Thus, our examination of the authority cited to us by petitioners convinces us that not only have the dictates of the Supreme Court of AF of L v. NLRB not been questioned, but in fact they have been reiterated again and again, even in the cases cited to us by petitioners. The thrust of each of them is that courts should carefully scrutinize the statute and its history to determine the intendment of Congress as manifested in the terms of the statute. Such an examination convinces us that Congress intended to withhold the type of review here sought by petitioners. We conclude this cQurt has no jurisdiction under § 25(a) to review on direct appeal rules and regulations promulgated by the Commission. Therefore, we reject petitioners’ contention that jurisdiction lies in this court under § 25(a) to review Rule 19b-2 because of its substantive impact upon their business relationships.

V. THE PERMISSIBLE SCOPE OF COMMISSION RULES AND REGULATIONS.

In the alternative, petitioners contend that even if Rule 19b-2 is not constructively an order — and therefore reviewable as such under § 25(a) — because of its impact upon the regulated parties as a whole, it is constructively an order because of the singular nature of its impact. The major premise of petitioners’ syllogism is that agency action directed against a single regulated party is in substance an order. Their minor premise is that this rule is directed solely against the membership practices of the PBW. Therefore, they conclude, Rule 19b-2 is an order. Since this court has jurisdiction under § 25(a) to review orders of the Commission, Rule 19b-2 is properly subject to § 25 review.

Initially, we note that § 19(b) gives the Commission the power to proceed against a single exchange by rule or regulation or by order. The courts have consistently held that where an agency, as in this case, is given an option to proceed by rulemaking or by individual adjudication the choice is one that lies in the informed discretion of the administrative agency. N.L.R.B. v. Wyman-Gordon Co., 394 U.S. 759, 772, 89 S.Ct. 1426, 22 L.Ed.2d 709 (1969) (concurring opinion); S.E.C. v. Chenery Corp., 332 U.S. 194, 203, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947). This proposition is not altered by the fact that the resultant rule may be directly applicable to specific individuals or situations when it has enough other characteristics of a rule. Section 2(c) of the Administrative Procedure Act, 5 U.S.C. § 551(4) (1970), explicitly recognizes this policy in its definition of a rule as any “agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy” (emphasis added). See 1 K. Davis, Administrative Law Treatise, § 5.02 (1958). However, significant evidence exists that the rule in fact was not directed solely against the PBW. Although the PBW has perhaps been a leader in seeking the membership of certain types of institutional investors whose membership other exchanges have excluded, all exchanges have had rules prohibiting certain types of institutional membership. Now, however, all exchanges will have to bring their rules into compliance with Rule 19b-2. Thus, whereas the PBW may be forced to not solicit certain types of firms whose membership it might otherwise desire, all exchanges, including the PBW, may be forced to deal with companies as members in the future whose membership in the past they have excluded. Because of this, as oral argument developed, certain exchanges which originally supported adoption of the rule have had second thoughts about its implementation when they have realized the latent manifestations of its application to them.

While no attempt precisely to define rulemaking can be wholly successful, the essence of its meaning is generally understood. Rulemaking by an agency characteristically involves the promulgation of concrete proposals, declaring generally applicable policies binding upon the affected public generally, but not adjudicating the rights and obligations of the parties before it. See 1 K. Davis, Administrative Law Treatise, § 5.01 (1958). Furthermore, rules ordinarily look to the future and are applied prospectively only, whereas orders are directed retrospectively, typically applying law and policy to past facts. Given these general guidelines, Rule 19b-2 is most easily classified as the product of a rule-making rather than an adjudicatory proceeding. The rule applies to all members of all exchanges, not just to PBW and its members. Further, it provides specific standards to regulate the future membership practices of the exchanges rather than focusing on the past practices of any particular exchange. Thus, on its face, Rule 19b-2 appears to be a rule of prospective application and applicable across the board, although the rule may affect each of the exchanges to differing degrees. Cf. Florida East Coast Railway v. United States, 410 U.S. 245-246, 93 S.Ct. 810.

In saying this, we do not mean to imply that even were this rule directed solely against the PBW, we would thereby have power under § 25(a) to subject the rule or regulation to direct appellate review. Congress gave the Commission the power to proceed against a single exchange by rule or by order.¹⁵ Further, as in the instant ease, whether or not the rule is so directed may be open to considerable dispute. Such questions are better resolved by a forum whose function is fact-finding, a function which the court of appeals in the first instance is singularly ill-equipped to perform.

As to the question of whether a rule can be constitutionally aimed against a single exchange, and whether due process mandates have been complied with in making the rule against the exchange, Congress made clear that such questions were not immune from judicial review. However, as we earlier stated, the availability of judicial review is not to be equated exclusively with the jurisdictional grant to this court under § 25(a).

Therefore, like the petitioners’ first contention, we find the petitioners’ second contention insufficiently founded in law to warrant this court’s assumption of jurisdiction under § 25(a).

VI. CONCLUSION.

Our review of the statute and its legislative history convinces us that Congress intended to insulate rules or regulations promulgated by the Commission under § 19(b) from direct appellate review in this court under § 25(a) of the Exchange Act. Further, we conclude that applicable Supreme Court precedent binds us to giving full effect to the Congressional preclusionary intendment. We reject petitioners’ contentions that Supreme Court decisions subsequent to the passage of this legislation nullified, or even diluted, distinctions between Commission rules and orders for purposes of direct appellate review, in derogation of the statutory design. Finally, we cannot accept without any fact-finding that as a matter of law, this rule was aimed solely against the PBW. Nor can we, at this juncture, even conclude that were this so, this court would thereby acquire jurisdiction under § 25(a).

Therefore, we believe the motion of the SEC to dismiss this appeal for lack of jurisdiction under § 25(a) of the Exchange Act, or any other applicable statute, must be granted. We emphasize that in so doing, we express no opinion on the merits. Nor, we reiterate, do we mean any statement concerning the availability of direct appellate review in this court under § 25(a) to reflect adversely on the availability of other forms of judicial review, including preenforcement relief under the Declaratory Judgment Act and § 10 of the APA.

The motion of the Securities and Exchange Commission to dismiss these petitions for lack of jurisdiction will be granted.

1 . 17 C.F.R. § 240.19b-2 (1973).

2 . Hereinafter cited as Exchange Act.

3 . We note that petitioners, in their brief opposing the SEC’s motion to dismiss, attempt to equate the question of whether they can obtain judicial review of this rule with the question of whether jurisdiction lies in this court to review this rule under § 25(a). We reject this attempt to unnecessarily obfuscate the issue of the availability of direct appellate review of Commission rules and regulations. We emphasize that in this opinion we are dealing only with this latter question. The availability of other types of review, particularly in the district court, is governed by § 30 of the APA and provisions of Title 28. See Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1067); Leedom v. Kyne, 358 U. S. 184, 79 S.Ct. 180, 3 L.Ed.2d 210 (1958).

We wish nothing stated in this opinion as to the availability of relief in this court under § 25(a) to reflect negatively on the question of whether judicial review is otherwise available in another forum.

4 . Cf. Schwab v. Quesada, 284 F.2d 140 (3d Cir. 1960).

5 . 15 U.S.C. § 77a et seq. (1971).

6 . The other five subsections are: 15 U.S.C. §§ 78d-1; 781(g) (3) & (h) ; 78m(d) (5) ; 78o(a)(2) (1971). Parenthetically, it should be noted that the remaining sections under which the Commission purported to act do not give it the power to proceed otherwise than by rule or regulation,

7 . See, e. g., comment of Rep. Rayburn, 78 Cong.Rec. 8091, and amplification at 8093. Cf. Leedom v. Kyne, supra.

8 . It must be remembered that the standards for judicial review of agency action were not definitively established until 1951 in Universal Camera Corp. v. NLRB, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456.

9 . To the extent Congress relented by its actions in 1946 — enactment of the APA, and in 1948 — the Declaratory Judgment Act, courts may take cognizance of a legislative intention to broaden the availability of judicial review of both Congressional and agency action, at least within limited parameters. See, e. g., Abbott Laboratories v. Gardner, supra. However, that in no way affects the question of whether Congress intended to allow § 25 review of Commission rules and regulations.

10 . Hereinafter cited as UDA. At the time of the Columbia Broadcasting decision, it was codified at 28 U.S.C. § 47 (superseded).

11 . The Court noted there that one of the hurdles to be overcome in seeking review of certain types of “negative” orders under the UDA was the “specific terms of the statute granting to the district court jurisdiction in suits challenging ‘any order’ of the Commission.” 307 U.S. at 132, 59 S.Ct. at 758.

12 . We note that Powell was always cited in tandem with AF of L v. NLRB, supra, in the Columbia Broadcasting opinion.

13 . We note the same session of the same Congress enacted both the Exchange Act and the Communications Act of 1934. They were enacted one day apart — June 6 & 7, 1934, respectively.

14 . Additionally, we note § 25(a) has never borne any semblance to the provisions of the UDA, nor did the draftsmen express any intent to incorporate any element of that act. Thus, the legislative history and precedent under that act cannot be attributed in any way to § 25.

15 . Of course, if a court wore confronted with a situation in which the Commission attempted to cloak clearly quasi-judicial action in quasi-legislative garb, different factors might militate in favor of this court’s review. We are not faced with such a situation in the instant case.