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SHEARSON/AMERICAN EXPRESS INC. v. McMAHON |
| Continued Page 4 of Section III |
III |
In 1953, when Wilko was decided, the Commission had only limited authority over the rules governing self-regulatory organizations (SROs) - the national securities exchanges and registered securities associations - and this authority appears not to have included any authority at all over their arbitration rules. See Brief for Securities and Exchange Commission as Amicus Curiae 14-15. Since the 1975 amendments to 19 of the Exchange Act, however, the Commission has had expansive power to ensure the adequacy of the arbitration procedures employed by the SROs. No proposed rule change may take effect unless the SEC finds that the proposed rule is consistent with the requirements of the Exchange Act, 15 U.S.C. 78s(b)(2); and the Commission has the power, on its own initiative, to "abrogate, add to, and delete from" any SRO rule if it finds such changes necessary or appropriate to further the objectives of the Act, 15 U.S.C. 78s(c). In short, the Commission has broad authority to oversee and to [482 U.S. 220, 234] regulate the rules adopted by the SROs relating to customer disputes, including the power to mandate the adoption of any rules it deems necessary to ensure that arbitration procedures adequately protect statutory rights. 3
In the exercise of its regulatory authority, the SEC has specifically approved the arbitration procedures of the New York Stock Exchange, the American Stock Exchange, and the NASD, the organizations mentioned in the arbitration agreement at issue in this case. We conclude that where, as in this case, the prescribed procedures are subject to the Commission's 19 authority, an arbitration agreement does not effect a waiver of the protections of the Act. While stare decisis concerns may counsel against upsetting Wilko's contrary conclusion under the Securities Act, we refuse to extend Wilko's reasoning to the Exchange Act in light of these intervening regulatory developments. The McMahons' agreement to submit to arbitration therefore is not tantamount to an impermissible waiver of the McMahons' rights under 10(b), and the agreement is not void on that basis under 29(a).
The final argument offered by the McMahons is that even if 29(a) as enacted does not void predispute arbitration agreements, Congress subsequently has indicated that it desires 29(a) to be so interpreted. According to the McMahons, Congress expressed this intent when it failed to make more [482 U.S. 220, 235] extensive changes to 28(b), 15 U.S.C. 78bb(b), in the 1975 amendments to the Exchange Act. Before its amendment, 28(b) provided in relevant part: |
"Nothing in this chapter shall be construed to modify existing law (1) with regard to the binding effect on any member of any exchange of any action taken by the authorities of such exchange to settle disputes between its members, or (2) with regard to the binding effect of such action on any person who has agreed to be bound thereby, or (3) with regard to the binding effect on any such member of any disciplinary action taken by the authorities of the exchange." 48 Stat. 903.
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The chief aim of this provision was to preserve the self-regulatory role of the securities exchanges, by giving the exchanges a means of enforcing their rules against their members. See, e. g., Tullis v. Kohlmeyer & Co., 551 F.2d 632, 638 (CA5 1977) ("[P]reserv[ing] for the stock exchanges a major self-regulatory role . . . is the basis of 28(b)"); Axelrod & Co. v. Kordich, Victor & Neufeld, 451 F.2d, at 840-841. In 1975, Congress made extensive revisions to the Exchange Act intended to "clarify the scope of the self-regulatory responsibilities of national securities exchanges and registered securities associations . . . and the manner in which they are to exercise those responsibilities." S. Rep. No. 94-75, p. 22 (1975). In making these changes, the Senate Report observed: "The self-regulatory organizations must exercise governmental-type powers if they are to carry out their responsibilities under the Exchange Act. When a member violates the Act or a self-regulatory organization's rules, the organization must be in a position to impose appropriate penalties or to revoke relevant privileges." Id., at 24.
The amendments to 28 reflect this objective. Paragraph (3) of 28(b) was deleted and replaced with new 28(c), which provided that the validity of any disciplinary action taken by an SRO would not be affected by a subsequent decision by the SEC to stay or modify the sanction. See 15 U.S.C. 78bb [482 U.S. 220, 236] (c). At the same time, 28(b) was expanded to ensure that all SROs as well as the Municipal Securities Rule-making Board had the power to enforce their substantive rules against their members. Section 28(b), as amended, provides: |
"Nothing in this chapter shall be construed to modify existing law with regard to the binding effect (1) on any member of or participant in any self-regulatory organization of any action taken by the authorities of such organization to settle disputes between its members or participants, (2) on any municipal securities dealer or municipal securities broker of any action taken pursuant to a procedure established by the Municipal Securities Rulemaking Board to settle disputes between municipal securities dealers and municipal securities brokers, or (3) of any action described in paragraph (1) or (2) on any person who has agreed to be bound thereby."
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| Thus, the amended version of 28(b), like the original, mentions neither customers nor arbitration. It is directed at an entirely different problem: enhancing the self-regulatory function of the SROs under the Exchange Act. |
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Supreme Court Case
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