## Facts

- After a securities “back-office” processing crisis, Congress enacted Exchange Act § 17A (1975), directing the SEC to facilitate a national clearance and settlement system and to regulate “clearing agencies.”
- NYSE, AMEX, and NASD agreed to create the National Securities Clearing Corporation (NSCC) as a unified clearing agency and to use Securities Industry Automation Corp. (SIAC) as facilities manager and data processor.
- NSCC applied to the SEC to register as a clearing agency under § 17A; the SEC granted registration subject to conditions intended to preserve opportunities for other clearing agencies (e.g., interfaces and access to specified services and software).
- NSCC’s plan included “geographic price mutualization” (uniform clearing fees regardless of participant location) and an exclusive facilities-management arrangement with SIAC that was not awarded through competitive bidding.
- Bradford National Clearing Corp. and affiliates operated competing clearing services and petitioned for direct review of (1) the registration order and (2) a later SEC order approving two NSCC rule changes under Exchange Act § 19.

## Issues

1. Whether the SEC lawfully and adequately explained its approval of NSCC’s registration under Exchange Act § 17A, including whether NSCC’s rules imposed any burden on competition not necessary or appropriate to the Act’s purposes.
2. Whether the SEC adequately justified NSCC’s use of geographic price mutualization under § 17A’s competition standard.
3. Whether the SEC adequately addressed the competitive effects of NSCC’s allocation of facilities management/data processing to SIAC without competitive procurement.
4. Whether the SEC lawfully approved two NSCC rule changes under Exchange Act § 19.

## Decision

- The court upheld the SEC’s registration of NSCC and the SEC’s broader structural approach to implementing § 17A, except as to two components.
- The court remanded for further SEC consideration and explanation regarding:
  - NSCC’s geographic price mutualization; and
  - NSCC’s mode of allocating its facilities-management contract to SIAC.
- The court affirmed in full the SEC’s approval of the two NSCC rule changes.

## Legal Principles

- Exchange Act § 17A grants the SEC broad authority to restructure clearance and settlement through registration and oversight of clearing agencies, subject to statutory constraints.
- A clearing agency’s rules may not impose any burden on competition unless the SEC reasonably explains why the burden is necessary or appropriate to further the purposes of the Exchange Act.
- In reviewing SEC action under the Exchange Act, courts generally defer to agency policy judgments within the statutory program but require reasoned decisionmaking supported by the administrative record.
- When challenged competitive effects are plausible (e.g., uniform pricing that may cross-subsidize participants or exclusive technology contracting that may foreclose rivals), the SEC must address the implications explicitly and justify its conclusions.

## Conclusion

The court sustained the SEC’s effort to create a centralized national clearing system through NSCC and affirmed later NSCC rule changes, but required the SEC to provide a fuller, record-based explanation of the competitive consequences and statutory justification for uniform pricing and the SIAC facilities-management arrangement.


Bradford Nat’l Clearing Corp. v. SEC, 590 F.2d 1085 (D.C. Cir. 1978)