## Facts

- MFS Securities Corp. was an NYSE member organization; Marco Savarese was its officer, director, and sole shareholder.
- In the 1990s, some NYSE floor brokers engaged in “stock flipping” (also called “trading for eights”), capturing a one-eighth-point profit spread in addition to commissions and often sharing profits with customers.
- Two MFS floor brokers, Mark and John Savarese, began flipping in 1993.
- Because the brokers shared in flipping profits, the practice created a prohibited interest in the trades and violated Securities Exchange Act § 11(a) and SEC Rule 11a-1.
- MFS alleged the NYSE knew of flipping for years and encouraged it because it increased trading volume and exchange-related revenues.
- In 1997–1998, the SEC and Department of Justice investigated flipping; on February 25, 1998, federal authorities arrested several MFS brokers (including Mark and John Savarese) and brought criminal charges; the SEC filed a civil enforcement action against MFS, Mark, and John.
- The same day, the NYSE summarily suspended Mark and John Savarese, effectively terminated MFS’s member-organization status, and cut off MFS’s floor phone lines; MFS alleged this occurred without notice or an opportunity to be heard.
- MFS sought temporary continuation under NYSE Rule 312(f), but NYSE staff denied the request.
- MFS and Marco Savarese sued in federal district court alleging (1) a Sherman Act § 1 “group boycott” based on exclusion from exchange access and (2) breach of contract based on an asserted membership-agreement duty to fairly and accurately advise MFS about NYSE rules, allegedly breached by failing to warn that flipping was illegal.
- The district court dismissed both claims under Rule 12(b)(6), and MFS appealed.

## Issues

1. Whether the NYSE’s suspension/termination of MFS’s exchange access, taken in its disciplinary/regulatory capacity, could plausibly constitute a Sherman Act § 1 group boycott actionable under antitrust law.
2. Whether MFS’s breach-of-contract claim was barred by the Exchange Act’s administrative review scheme (including exhaustion/SEC oversight) or could proceed in federal court as an independent contractual theory.

## Decision

- The Second Circuit affirmed dismissal of the Sherman Act § 1 claim.
- The Second Circuit vacated dismissal of the breach-of-contract claim in part and remanded with directions for further proceedings.
- The court held the antitrust theory improperly treated NYSE regulatory enforcement as ordinary private market conduct subject to boycott liability.
- The court held the district court erred by dismissing the contract claim in its entirety at the pleading stage because at least some portion could constitute a distinct contractual theory not wholly displaced by SEC review mechanisms.

## Legal Principles

- When a national securities exchange acts as a self-regulatory organization enforcing federal securities law and exchange rules under SEC oversight, antitrust claims attacking that disciplinary/access-related conduct may be barred or legally deficient because the conduct is intertwined with the Exchange Act’s regulatory scheme.
- A Sherman Act § 1 “group boycott” claim requires plausible allegations of concerted anticompetitive conduct; allegations focused on exchange discipline within the statutory framework do not, without more, state such a claim.
- Exchange membership relationships can have contractual aspects, but contract claims are constrained by the Exchange Act’s allocation of supervisory authority to the SEC.
- Courts must distinguish between (a) claims that are, in substance, collateral attacks on the merits of exchange disciplinary/access determinations (channeled through SEC review) and (b) genuinely independent contract theories that may be adjudicated in court, potentially subject to doctrines such as primary jurisdiction.

## Conclusion

The Second Circuit treated the NYSE’s challenged exclusion of MFS as regulatory discipline within a federally supervised self-regulatory regime, defeating the pleaded Sherman Act boycott claim, but it permitted further litigation on a limited breach-of-contract theory to determine whether any contractual duty claim existed independent of matters committed to SEC review.


MFS Sec. Corp. v. N.Y. Stock Exch., Inc., 277 F.3d 613 (2d Cir. 2002)