New York Stock Exchange LLC v. Securities and Exchange Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 11, 2019 Decided June 16, 2020

No. 19-1042

N
EW YORK STOCK EXCHANGE LLC, ET AL.,
PETITIONERS

v.

S
ECURITIES AND EXCHANGE COMMISSION,
RESPONDENT

Consolidated with 19-1043, 19-1046, 19-1049, 19-1053,
19-1054

On Petitions for Review of a Rule of
the Securities & Exchange Commission

Thomas G. Hungar argued the cause for petitioners. With
him on the briefs were Amir C. Tayrani, Joshua M. Wesneski,
Paul S. Mishkin, George L. Brandley, Paul Greenwalt III, and
Michael K. Molzberger.

Robert T. Smith and Eric T. Werlinger were on the brief
for amici curiae GTS Securities LLC, et al. in support of
petitioners and vacatur of rule.

Tracey A. Hardin, Assistant General Counsel, Securities
and Exchange Commission, argued the cause for respondent.

2

With her on the brief were Michael A. Conley, Solicitor, and
John B. Capehart, Senior Counsel.

Thomas A. Sporkin was on the brief for amicus curiae
RBC Capital Markets, LLC in support of respondent and denial
of the petitions for review.

Dennis M. Kelleher and Stephen W. Hall were on the brief
for amicus curiae Better Markets, Inc. in support of
respondent.

Hyland Hunt and Ruthanne M. Deutsch were on the brief
for amicus curiae Investors Exchange LLC in support of
respondent.

James A. Brigagliano, Eric D. McArthur, and Paul Schott
Stevens were on the brief for amici curiae Investment
Company Institute, et al. in support of respondent and denial of
the petitions for review.

Before: P
ILLARD, Circuit Judge, and EDWARDS and
SENTELLE, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge
E
DWARDS.

Concurring opinion filed by Circuit Judge PILLARD.

E
DWARDS, Senior Circuit Judge: On December 19, 2018,
purportedly acting pursuant to its authority under the Securities
Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78a et
seq., the Securities and Exchange Commission (“Commission”
or “SEC”) adopted a Pilot Program, denominated Rule 610T,
reprinted in Joint Appendix (“J.A.”) J.A . 20-124. The Pilot
Program was not a trial run of a new regulation. Rather, it was

3

designed “to gather data” so that the Commission might be able
to determine in the future whether regulatory action was
necessary. Id. at 21. In February 2019, the New York Stock
Exchange LLC and other registered national securities
exchanges (“Petitioners”) filed timely petitions for review
challenging Rule 610T.

An outline of Rule 610T is as follows:

The Commission’s plan is to assign 1,460
randomly selected stocks to one of two “Test
Groups.” Half of those stocks will be subject to a
$0.0010 cap on the transaction fees that national
securities exchanges can charge for executing
trades—a substantial reduction of the current $0.0030
cap established by the Commission in 2005. Stocks
assigned to the other Test Group will be subject to a
prohibition on exchanges’ payment of rebates to
broker-dealers who send orders to the exchange for
execution. All other publicly traded stocks will be
assigned to a “Control Group” and will not be subject
to either of these restrictions. And even with respect
to the 1,460 stocks in the two Test Groups, the Rule’s
restrictions on fees and rebates will not apply
evenhandedly: The Rule will apply to transactions in
those stocks executed on national securities
exchanges, but not to transactions on alternative
trading systems (“ATSs”) or other off-exchange
trading venues, which together account for nearly
40% of securities transactions.

Br. for Petitioners at 1-2.

Petitioners contend that “[t]he Rule exceeds the
Commission’s statutory authority under the Exchange Act,

4

which does not authorize the Commission to change the
regulatory standards applicable to transactions in publicly
traded securities simply to determine the impact of those new
standards on the securities market.” Id. at 20. Petitioners also
point out that “the Commission conceded that the Rule might
‘harm execution quality and/or market quality,’ increase
transaction costs for investors, and impair competition.” Id. at
21 (quoting J.A. 84). Petitioners additionally argue that Rule
610T cannot survive review because: (1) the Commission
failed to determine the Rule’s effects on efficiency,
competition, and capital formation; (2) the Rule discriminates
against some securities exchanges; and (3) the Commission
failed to meaningfully consider alternatives to the Rule.

The Commission, in turn, contends that, although the Pilot
Program is not expressly authorized by the Exchange Act, it is
within the Commission’s general rulemaking authority under
15 U.S.C. §§ 78w(a), 78k-1(a)(2). The Commission also
claims that it was not required to adopt a “permanent” rule, nor
prohibited from collecting data through experimentation.
Finally, the Commission argues that its adoption of Rule 610T
was reasonable because it considered and explained the
economic consequences of the Pilot Program, as well as its
possible effects on efficiency, competition, and capital
formation, and considered alternatives proposed by Petitioners.

Because the SEC acted without delegated authority from
Congress when it adopted Rule 610T, we will grant the
petitions for review. The Pilot Program emanates from an
aimless “one-off” regulation, i.e., a rule that imposes
significant, costly, and disparate regulatory requirements on
affected parties merely to allow the Commission to collect data
to determine whether there might be a problem worthy of
regulation. Before acting, the Commission “identified a
fundamental disagreement among exchanges, market

5

participants, academics, and industry experts regarding the
impact of [maker-taker] fees and rebates on the markets.” J.A .
56. However, the Commission took no position in these
debates; and it did not identify any problems with existing
regulatory requirements or propose rules that might rectify any
perceived issues. Rather, according to the Commission, the
purpose of Rule 610T was to
induce “an exogenous shock” to
the market that might offer insights into “the effects of fees and
rebates on the markets and market participant behavior.” J.A. 44.
In other words, the Commission
acted solely to “shock the
market” to collect data so that it might ponder the “fundamental
disagreements” between parties affected by Commission rules
and then consider whether to regulate in the future. This was
an unprecedented action that clearly exceeded the SEC’s
authority under the Exchange Act. See 15 U.S.C. § 78w(a)(2);
id. § 78k-1(a)(2).

The Commission points to no authority that expressly
authorizes it to adopt a “one-off” rule of this sort.
Rather, the
Commission argues that because it has rulemaking authority
under the Exchange Act, the Pilot Program is permissible
because “it is reasonably related to the purposes of the [SEC’s]
enabling legislation.” Br. for Respondent at 24 (quoting
Mourning v. Family Publ’ns Serv., Inc., 411 U.S. 356, 369
(1973)). This is a shortsighted view of the applicable law.
Mourning (the case cited by the Commission) was decided
decades ago, before the Supreme Court issued Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984), changing the framework for judicial review of agency
action. And Mourning has been effectively diluted by later
cases. See, e.g., Ragsdale v. Wolverine World Wide, Inc., 535
U.S. 81, 92 (2002).

The controlling principle here is that “[a]n agency’s
general rulemaking authority does not mean that the specific

6

rule the agency promulgates is a valid exercise of that
authority.” Colo. River Indian Tribes v. Nat’l Indian Gaming
Comm’n, 466 F.3d 134, 139 (D.C. Cir. 2006). When an agency
acts pursuant to its rulemaking authority, a reviewing court
determines whether the resulting regulation exceeds the
agency’s statutory authority or is arbitrary and capricious.
Sullivan v. Zebley, 493 U.S. 521, 528 (1990). A court does not
simply assume that a rule is permissible because it was
purportedly adopted pursuant to an agency’s rulemaking
authority. See Michigan v. EPA, 135 S. Ct. 2699, 2706-07
(2015). Nor does a court presume that an agency’s
promulgation of a rule “is permissible because Congress did
not expressly foreclose the possibility.” Motion Picture Ass’n
of Am. v. FCC, 309 F.3d 796, 805 (D.C. Cir. 2002).

Nothing in the Commission’s rulemaking authority
authorizes it to promulgate a “one-off” regulation like Rule
610T merely to secure information that might indicate to the
SEC whether there is a problem worthy of regulation.
“Regardless of how serious the problem an administrative
agency seeks to address . . . it may not exercise its authority ‘in
a manner that is inconsistent with the administrative structure
that Congress enacted into law.’” Ragsdale, 535 U.S. at 91
(quoting FDA v. Brown & Williamson Tobacco Corp., 529
U.S. 120, 125 (2000)). The Commission acted without
delegated authority when it adopted the Pilot Program.
Accordingly, we grant the petition for review, vacate the Rule,
and remand the case.

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I. BACKGROUND

A. Regulatory Background

1. The Exchange Act

Section 11A of the Exchange Act authorizes the SEC “to
facilitate the establishment of a national market system [NMS]
for securities.” 15 U.S.C. § 78k-1(a)(2). The Act directs the
Commission, “having due regard for the public interest, the
protection of investors, and the maintenance of fair and orderly
markets, to use its authority” to achieve this goal. Id.
Section 23 of the Act gives the Commission “power to
make such rules and regulations as may be necessary or
appropriate to implement the provisions” of the Act for which
it is responsible. Id. § 78w(a)(1). The Act also states that, “in
making rules and regulations,” the Commission:
[(1)] shall consider . . . the impact any such rule or
regulation would have on competition[;] . . . [(2)] shall
not adopt any such rule or regulation which would
impose a burden on competition not necessary or
appropriate in furtherance of the purposes of this
chapter[;] . . . [and (3)] shall include in the statement
of basis and purpose incorporated in any rule or
regulation . . . , the reasons for the Commission’s . . .
determination that any burden on competition
imposed by such rule or regulation is necessary or
appropriate in furtherance of the purposes of this
chapter.
Id. § 78w(a)(2).

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2. Transaction Fee Structures

Petitioners and their affiliated exchanges are national
securities exchanges registered with the Commission to
provide trading in equity securities. See id. § 78f. The
Commission regulates the principal functions of the
exchanges’ operations, including their transaction fees. See id.
§ 78f(b)(4).

According to the Commission:

NMS stocks are currently traded on 13 registered
national securities exchanges and 32 Alternative
Trading Systems (“ATSs”)—non-exchange trading
platforms that are subject to different regulatory
treatment under the securities laws. Some orders are
also “internalized” by broker-dealers, which fill them
through their own systems. When the Pilot was
adopted, approximately 66% of trading volume
occurred on exchanges. The remaining 34% of trading
volume occurred off-exchange at ATSs (14%) or
internalizing broker-dealers and wholesalers (20%).

Broker-dealers consider a number of factors in
choosing the trading venue for their orders, including
quoted prices, transaction costs, routing incentives,
impact of execution, and the certainty and speed of
execution. The pricing and fee structures in place at
various trading venues can thus have profound effects
on the NMS, influencing market efficiency,
competition between and among market participants
and trading venues, broker-dealers’ ability to obtain
best execution for their clients, and the opportunities
for execution of investors’ orders.

9

A typical NMS transaction involves two parties:
the “maker” who supplies liquidity by posting a
displayed offer to buy or sell a security at a given
price, and the “taker” of that liquidity who accepts the
maker’s offer. Historically, exchanges and other
trading venues charged transaction fees to all parties
to a trade on their systems. In the late 1990s, some
venues began offering rebates to makers who posted
liquidity on their venues. These rebates are typically
subsidized by transaction fees charged to the taker,
and where that fee is greater than the rebate, the
venues retain the difference. This “maker-taker” fee
model is now used by seven of the thirteen operating
national equities exchanges and accounts for the
majority of volume transacted across U.S. exchanges
today. [Footnote 2: Four exchanges have a “taker-
maker” model, in which they charge makers a fee and
pay takers a rebate. Two others charge a flat (or no)
fee and offer no rebates.]

Br. for Respondent at 6- 7, 7 n.2 (footnote and citations
omitted).

The record also indicates that exchanges offer rebates to
“enhance liquidity by incentivizing broker-dealers to publicly
display quotes and compete with one another in a manner that
narrows the bid-ask spread to the ultimate benefit of all market
participants. As a result, rebates have a beneficial effect on the
price discovery and formation function that publicly displayed
quotations provide.” Comment Letter from Douglas A. Cifu,
CEO, Virtu Fin. Inc., to Brent J. Fields, Sec’y, SEC 3 (May 23,
2018), J.A . 251. In addition, broker-dealers can use rebates “to
help fund price improvement and payment for order flow
programs for retail investors. As such, rebates indirectly
provide benefits to retail investors in the form of better

10

execution prices and lower commission rates, both of which
help reduce overall trading costs.” Id. (footnote omitted).

3. Fee Caps

In 2005, the Commission adopted a rule prohibiting
exchanges from imposing transaction fees in excess of $0.0030
per share for the execution of an order against a “protected
quotation.” See 17 C.F.R. § 242.610(c) (2020). The
Commission determined that the fee limitation would
“harmoniz[e] quotation practices and preclud[e] the distortive
effects of exorbitant fees,” and it selected the $0.0030 level
because it was “consistent with current business practices.” Br.
for Petitioners at 9 (alterations in original) (quoting Regulation
NMS, 70 Fed. Reg. 37,496, 37,545 (June 29, 2005)).

Ultimately, however, because of a continuing debate over
whether the fee cap was appropriate and whether the maker-
taker model furthered or frustrated Congress’s goals for the
national market system, the Commission proposed a
transaction fee pilot program. The Pilot Program is discussed
below.

B. Factual Background

1. The Debate Leading to the Pilot Program

“For several years, academics and industry participants
have questioned both whether the fee cap remains appropriate
and whether the maker-taker model furthers or frustrates
Congress’s goals for the NMS.” Br. for Respondent at 8. The
Commission explained the situation, as follows:

[S]ome have questioned whether the prevailing fee
structure has created a conflict of interest for broker-

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dealers, who must pursue the best execution of their
customers’ orders while facing potentially conflicting
economic incentives to avoid fees or earn rebates—
both of which typically are not passed through the
broker-dealer to its customers—from the trading
centers to which they direct those orders for
execution. . . . Others have expressed concern that
maker-taker access fees may (a) undermine market
transparency since displayed prices do not account for
exchange transaction fees or rebates and therefore do
not reflect the net economic costs of a trade; (b) serve
as a way to effectively quote in sub-penny increments
on a net basis when the effect of a maker-taker
exchange’s sub-penny rebate is taken into account
even though the minimum quoting increment is
expressed in full pennies; (c) introduce unnecessary
market complexity through the proliferation of new
exchange order types (and new exchanges) designed
solely to take advantage of pricing models; and (d)
drive orders to non-exchange trading centers as
market participants seek to avoid the higher fees that
exchanges charge to subsidize the rebates they offer.

By contrast, others have indicated that the maker-
taker model may have positive effects by enabling
exchanges to compete with non-exchange trading
centers and narrowing quoted spreads by subsidizing
posted prices. In particular, maker-taker fees may
narrow displayed spreads in some securities insofar as
the liquidity rebate effectively subsidizes the prices of
displayed liquidity. In turn, that displayed liquidity
may establish the national best bid and offer, which is
often used as the benchmark for marketable order
flow, including retail order flow, that is executed off-
exchange by either matching or improving upon those

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prices. Accordingly, retail orders may benefit
indirectly from the subsidy provided by maker-taker
exchanges.

Proposed Rules, Transaction Fee Pilot for NMS Stocks, 83
Fed. Reg. 13,008, 13,010-11 (Mar. 26, 2018), J.A. 127-28
(footnotes omitted).
The Commission expressed no views on these issues.
Rather, it decided to adopt the Pilot Program.

2. The Proposal to Adopt a Pilot Program

On March 26, 2018, the Commission published a proposal
to adopt an experimental program “to study the effects that
transaction-based fees and rebates may have on, and the effects
that changes to those fees and rebates may have on, order
routing behavior, execution quality, and market quality more
generally.” Proposed Rules, Transaction Fee Pilot for NMS
Stocks, 83 Fed. Reg. 13,008 (Mar. 26, 2018), J.A . 125-95. The
Commission expressed no intention of promulgating new
regulations on a trial basis. Instead, the Commission indicated
that any pilot program would be adopted merely to collect
information that might “facilitate a data-driven evaluation of
the need for regulatory action.” Id. at 125.

Initially, the Commission’s proposal was

to create three test groups of 1,000 NMS stocks each
and to cap the transaction fees at different levels:
$0.0015/share for Test Group 1; $0.0005/share for
Test Group 2; and for Test Group 3, permit
transaction fees at the current $0.0030/share cap, but
prohibit transaction rebates and “linked pricing.”
Trading data from stocks in these groups would be

13

analyzed against that of a control group, which would
continue trading under existing rules. The pilot would
apply to all equities exchanges, and all NMS stocks—
including Exchange Traded Products (“ETPs”)—
would be subject to the pilot if they satisfied certain
pricing and volume criteria.

Br. for Respondent at 12 (footnote and citations omitted).

The Commission solicited comments on this proposal and
received 150 letters in response, which included many letters
from issuers of publicly traded securities objecting to the
proposed rule and seeking to opt out if the proposal was
adopted. J.A . 30 n.137 (citing company issuer letters that
expressed concern about how the Pilot Program would affect
trading in their securities).

Before adopting a final rule, the Commission narrowed the
design of its proposal. It “reduced the Pilot to two test groups
instead of three, each containing 730 NMS stocks instead of
1,000.” Br. for Respondent at 13. The Commission also
“effectively combined the proposed $0.0015/share and
$0.0005/share test groups into a single group with a
$0.0010/share fee cap.” Id. at 14. The final Pilot Program
“continues to include as its second test group a ‘zero rebate’
group in which the existing $0.0030 fee cap applies, but rebates
and linked pricing are prohibited. Likewise, the Pilot applies to
‘all equities exchanges regardless of fee model’ but not ATSs,
and ETPs are subject to assignment in a Pilot test group if they
satisfy the Pilot’[s] stock pricing and volume criteria.” Id.
(citation omitted). “The Pilot will automatically sunset after
one year unless the Commission continues it for a second year,
and it includes six-month pre- and post-Pilot periods to
accommodate collection of benchmark data to assess the
Pilot’s effects.” Id.

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3. Rule 610T and the Pilot Program

On December 19, 2018, the Commission formally adopted
Rule 610T. Transaction Fee Pilot for NMS Stocks, Release No.
34-84875 (Dec. 18, 2018), published at 84 Fed. Reg. 5202
(Feb. 20, 2019), J.A. 20-124. The Rule is outlined in the
introduction to this opinion.

The purpose of the Pilot Program is vague. According to
the Commission, the Pilot Program is intended to “facilitate an
empirical evaluation of whether the existing exchange
transaction-based fee and rebate structure is operating
effectively to further statutory goals.” Id. at 20. The
Commission explained that it intended to gather data “to study
fees and rebates that exchanges assess to broker-dealers and
observe the impacts of those fees and rebates on the markets
and market participants.” Id. at 62. The Commission expressed
the hope that the data would reveal “the extent . . . to which
broker-dealers route orders in ways that benefit the broker-
dealer but may not be optimal for customers, and the extent to
which exchange pricing models create distortions that may
have adverse impacts.” Id. The Commission assumed that the
data collected would “inform future regulatory initiatives to the
ultimate benefit of investors.” Id. The Commission also noted
that, without the data, it could “use theory—and [its] best
judgment based on [its] expertise—to guide [its] decision
making.” Id. at 66. However, the Commission expressed the
belief that, in this case, “empirically assessing the various
theories, causal impacts, and effects of the transaction fee-and
rebate pricing model is appropriate.” Id.

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4. The Troubling Aspects of the Pilot Program

As noted above, Rule 610T is a “one-off” regulation, i.e.,
it imposes significant, costly, and disparate regulatory
requirements merely to secure data that may or may not
indicate to the SEC whether there is a problem worthy of
regulation. There is no serious dispute between the parties over
this.

Petitioners’ concerns about the Pilot Program usefully
highlight some of the troubling aspects of Rule 610T:

[F]ar from finding that the Rule’s requirements [are
necessary or appropriate for the protection of
investors, and for the maintenance of fair and orderly
markets or that the Rule] will benefit market
participants, the Commission conceded that the Rule
might “harm execution quality and/or market
quality,” increase transaction costs for investors, and
impair competition. JA84. . . .

The Commission also failed to make a
determination about the Rule’s effects on efficiency,
competition, and capital formation, see 15 U.S.C.
§ 78c(f), which the Commission declared itself
“unable to determine ex ante,” JA98. . . .

In addition, the Rule . . . discriminates against
issuers whose stock is included in the two Test Groups
and against securities exchanges. . . . Because the Rule
applies only to exchanges, not to off-exchange
venues, it . . . disadvantages securities exchanges in
comparison with ATSs and other off-exchange
trading venues with which exchanges directly
compete to attract order flow. The Commission failed

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to provide a reasoned justification for . . . exempting
off-exchange trading venues from new regulatory
restrictions that will impede exchanges’ ability to
attract order flow.

Br. for Petitioners at 21-22.

In response, the Commission’s brief to the court does not
seriously deny that the Pilot Program would impose
significant, costly, and disparate regulatory requirements.
Rather, it says that:

The Commission reasonably considered the
economic consequences of the Pilot. It
comprehensively explained the Pilot’s potential costs
and benefits, as well as its possible effects on
efficiency, competition, and capital formation. It
provided detailed, quantified estimates of those
effects where it could, and exhaustive qualitative
analyses where it could not.

Br. for Respondent at 22. The Commission objects that for it
“to venture an unsupported guess about the Pilot’s impact in
the absence of the data the Pilot is designed to obtain would do
nothing to further inform consideration of its potential
economic consequences.” Id. However, this objection does not
really counter Petitioners’ outline of some of the many
uncontested costs and other adverse effects that will likely be
caused by the regulatory requirements of the Pilot Program.
See Br. for Petitioners at 15-18; see also J.A . 85- 98 (setting
forth the Commission’s discussion of the anticipated costs of
the Pilot Program).

In sum, it is clear from the record in this case that, if
implemented, the regulatory requirements of Rule 610T would

17

have significant, costly, and disparate effects on the market and
on regulated parties. It is also undisputed that the Pilot Program
is not, and was never intended to be, a trial run of a new
regulation. The Commission adopted the Pilot Program
without any regulatory agenda. Indeed, the record makes it
plain that the Commission does not know whether data from
the Pilot Program might be useful. Nor does the Commission
know whether it might pursue any regulatory initiatives at the
conclusion of the Pilot Program if the plan is implemented.

C. Procedural History

On February 14 and 15, 2019, Petitioners filed their
petitions for review in this court. As a protective measure,
Petitioners filed additional petitions for review on February 21
and 25, 2019. Petitioners also filed a motion with the
Commission seeking a stay of Rule 610T pending judicial
review. The Commission granted in part the request for a stay,
leaving unchanged the exchanges’ data-compilation
obligations. Order Issuing Stay in the Matter of Rule 610T of
Regulation NMS, Exchange Release No. 34-85447, Admin.
Proc. File No. 3-19124 (Mar. 28, 2019),
https://www.sec.gov/rules/other/2019/34-85447.pdf.

* * * *

Before turning to the merits of Petitioners’ claims, we first
address the Commission’s challenge to Petitioners’ standing to
contest the Pilot’s treatment of issuers. The Commission
argues that Petitioners have no “standing to complain about the
Pilot’s potential effects on securities issuers because they have
failed to show that any of the issuer-specific harms they allege
would affect them.” Br. for Respondent at 22. The Commission
does not contest Petitioners’ standing to challenge the Pilot
Program on their own behalf.

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In response, Petitioners argue, somewhat obscurely, that
they “are the ‘regulated parties’ that would be injured by
implementation of the Rule, and [their] argument that the Rule
impermissibly discriminates against issuers would result in
vacatur of the Rule in its entirety. Because that relief would
provide ‘redress for injuries done to’ petitioners—rather than
merely redress for injuries done to issuers—petitioners
[contend that they] have standing to challenge the Rule’s
discrimination against issuers.” Reply Br. for Petitioners at 20-
21 (citations omitted).

We view this debate as much ado about nothing. In order
to establish Article III standing, a plaintiff “must have (1)
suffered an injury in fact, (2) that is fairly traceable to the
challenged conduct of the defendant, and (3) that is likely to be
redressed by a favorable judicial decision.” Spokeo, Inc. v.
Robins, 136 S. Ct. 1540, 1547 (2016) (citing Lujan v. Defs. of
Wildlife, 504 U.S. 555, 560-61 (1992)). And it is generally
understood that, in establishing standing, a plaintiff must assert
and rely on its own alleged injuries, not those of a third party
who is not a plaintiff in the case. See Sessions v. Morales-
Santana, 137 S. Ct. 1678, 1689 (2017). However, the Supreme
Court has made it plain that “[t]he fact that [a plaintiff’s] injury
may be suffered by a large number of people does not of itself
make [the plaintiff’s] injury a nonjusticiable generalized
grievance.” Spokeo, 136 S. Ct. at 1548 n.7.

In this case, the redress sought by Petitioners, vacatur, is
for the alleged injuries that would be suffered by Petitioners if
the Pilot Program is implemented. And the relief given by the
court in this case is solely for the injuries that allegedly would
be suffered by Petitioners. It is irrelevant that the relief afforded
Petitioners may also benefit issuers. We understand that
Petitioners suggest that the SEC’s Pilot Program would cause

19

injuries to issuers as well as to Petitioners. However, we
express no view on this claim and our judgment does not rest
on it. Therefore, there is no concern about standing in this case.

II. A
NALYSIS

A. Standard of Review

Petitioners’ action is governed by the Court’s seminal
Chevron decision. Under Chevron step one, we must first
decide “whether Congress has directly spoken to the precise
question at issue.” 467 U.S. at 842; see also Kingdomware
Techs., Inc. v. United States, 136 S. Ct. 1969, 1976 (2016)
(“[W]e begin with the language of the statute. If the . . .
language is unambiguous and the statutory scheme is coherent
and consistent . . . the inquiry ceases.” (internal quotation
marks and citation omitted)). If the statutory provision in
question is “silent or ambiguous with respect to the specific
issue,” we then assess the matter pursuant to Chevron step two
to determine whether the agency’s interpretation “is based on
a permissible construction of the statute.” 467 U.S. at 843. See
generally E
DWARDS & ELLIOTT, FEDERAL STANDARDS OF
REVIEW 211-22 (3d ed. 2018). “Chevron directs courts to
accept an agency’s reasonable resolution of an ambiguity in a
statute that the agency administers. Even under this deferential
standard, however, agencies must operate within the bounds of
reasonable interpretation.” Michigan v. EPA, 135 S. Ct. at 2707
(internal quotation marks and citations omitted).

“A precondition to deference under Chevron is a
congressional delegation of administrative authority.” Adams
Fruit Co. v. Barrett, 494 U.S. 638, 649 (1990). An agency is
owed no deference if it has no delegated authority from
Congress to act. La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355,
374 (1986) (“[A]n agency literally has no power to act . . .

20

unless and until Congress confers power upon it.” ). “Mere
ambiguity in a statute is not evidence of congressional
delegation of authority.” Michigan v. EPA, 268 F.3d 1075,
1082 (D.C. Cir. 2001). And for an agency “[t]o suggest . . . that
Chevron [deference is due] any time a statute does not
expressly negate the existence of a claimed administrative
power . . . is both flatly unfaithful to the principles of
administrative law . . . and refuted by precedent.” Am. Bar
Ass’n v. FTC, 430 F.3d 457, 468 (D.C. Cir. 2005) (first
alteration and final two ellipses in original) (quoting Ry. Labor
Execs.’ Ass’n v. Nat’l Mediation Bd., 29 F.3d 655, 671 (D.C.
Cir. 1994) (en banc)).

Finally, under the Administrative Procedure Act, we will
set aside an agency action that is “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.”
5 U.S.C. § 706(2)(A). In applying the arbitrary-and-capricious
standard of review, we must assure ourselves that an agency
has “examine[d] the relevant data and articulate[d] a
satisfactory explanation for its action including a rational
connection between the facts found and the choice made.”
Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins.
Co. (State Farm), 463 U.S. 29, 43 (1983) (internal quotation
marks omitted). We have also made it clear that the SEC has a
“statutory obligation to determine as best it can the economic
implications of [a proposed] rule.” Chamber of Commerce of
U.S. v. SEC, 412 F.3d 133, 143 (D.C. Cir. 2005); see also Bus.
Roundtable v. SEC, 647 F.3d 1144, 1148 (D.C. Cir. 2011).

B. The Commission Lacked Delegated Authority from
Congress to Promulgate the Pilot Program

The Commission argues that it properly invoked its
rulemaking authority under section 23(a) of the Exchange Act
when it promulgated the Pilot Program. In particular, the

21

Commission points out that, under the Exchange Act, it is
empowered to “to make such rules and regulations as may be
necessary or appropriate to implement the provisions of [the
Act],” 15 U.S.C. § 78w(a)(1), and that this was sufficient to
justify its adoption of Rule 610T. The Commission does not
contend that it has explicit authority under the Exchange Act to
adopt a “one-off” regulation like Rule 610T that imposes
significant, costly, and disparate regulatory requirements
merely to secure information that the Commission may or may
not use in the future to determine whether there is a problem
worthy of regulation. Indeed, the Commission can find no such
delegated authority in the Exchange Act.

Furthermore, Section 23 of the Exchange Act states that
the SEC “shall not adopt any . . . rule or regulation which would
impose a burden on competition not necessary or appropriate
in furtherance of the purposes of [the Act].” 15 U.S.C.
§ 78w(a)(2). As explained above, it is uncontested that Rule
610T would impose significant burdens on competition.
However, the Commission did not promulgate Rule 610T on a
determination that the regulatory requirements of the Pilot
Program (as distinguished from its objective of data collection)
were necessary or appropriate to further the purposes of the
Exchange Act.

In Michigan v. EPA, the Supreme Court set forth the
principles that govern the disposition of this case:

Not only must an agency’s decreed result be within
the scope of its lawful authority, but the process by
which it reaches that result must be logical and
rational.

135 S. Ct. at 2706 (emphasis added) (internal quotation marks
and citation omitted). As we explain below, the Commission

22

did not come close to satisfying these standards when it
adopted the Pilot Program.

The Commission is of the view that the statutory reference
to “regulations as may be necessary or appropriate” gave it
authority to act, as it saw fit, without any other statutory
authority to adopt the Pilot Program. The Supreme Court’s
decision in Michigan v. EPA debunks the Commission’s
position. In Michigan v. EPA, the Court makes it plain that the
mere reference to “necessary” or “appropriate” in a statutory
provision authorizing an agency to engage in rulemaking does
not afford the agency authority to adopt regulations as it sees
fit with respect to all matters covered by the agency’s
authorizing statute. 135 S. Ct. at 2706-07. In that case, for
instance, the Court concluded that “EPA strayed far beyond
th[e] bounds [of reasonable interpretation] when it read
[“appropriate and necessary”] to mean that it could ignore cost
when deciding whether to regulate power plants.” Id. at 2707.

The larger point here is that an agency cannot purport to
act with the force of law without delegated authority from
Congress. See Chevron, 467 U.S. at 843-44; see also Gonzales
v. Oregon, 546 U.S. 243, 258 (2006); Sullivan, 493 U.S. at 541.
“[T]he question a court faces when confronted with an
agency’s interpretation of a statute it administers is always,
simply, whether the agency has stayed within the bounds of its
statutory authority.” City of Arlington v. FCC, 569 U.S. 290,
297 (2013). And deference under Chevron step two is premised
on either an “express delegation of authority” or an “implicit”
“legislative delegation to an agency.” Chevron, 467 U.S. at
843-44; see also Am. Library Ass’n v. FCC, 406 F.3d 689, 705
(D.C. Cir. 2005); Aid Ass’n for Lutherans v. U.S. Postal Serv.,
321 F.3d 1166, 1174 (D.C. Cir. 2003).

23

Merely because an agency has rulemaking power does not
mean that it has delegated authority to adopt a particular
regulation. See, e.g., Sullivan, 493 U.S. at 528, 541; see also
Ragsdale, 535 U.S. at 92. As noted at the outset of this opinion,
“[a]n agency’s general rulemaking authority does not mean
that the specific rule the agency promulgates is a valid exercise
of that authority.” Colo. River Indian Tribes, 466 F.3d at 139.
And “[w]ere courts to presume a delegation of power absent an
express withholding of such power, agencies would enjoy
virtually limitless hegemony, a result plainly out of keeping
with Chevron and quite likely with the Constitution as well.”
Ry. Labor Execs.’ Ass’n v. Nat’l Mediation Bd., 29 F.3d 655,
671 (D.C. Cir. 1994) (en banc).

In this case, the Commission adopted the Pilot Program
without any regulatory agenda. That is, the Commission acted
without explaining what problems with the existing regulatory
requirements it meant for the Rule to correct. Rather, the
Commission promulgated Rule 610T on the belief “that the
success or failure of the Pilot will be determined by whether it
produces an exogenous shock that generates measurable
responses capable of providing insight into the effects of fees
and rebates on the markets and market participant behavior.”
J.A . 44. “In the name of collecting ‘data’ for ‘subsequent’
regulatory decisions ‘that the Commission can neither predict
nor commit to at this time,’ it wants to ‘shock’ the market by
upheaving the current fee-and-rebate incentive structure—
solely to judge reactions.” Br. for Amicus in Support of
Petitioners at 17-18. The Commission also made it clear “that
there is significant uncertainty regarding the effect, if any, that
the Pilot will have on liquidity and trading volume on
exchanges.” J.A . 98. And faced with conflicting claims from
commentators regarding whether the Pilot Program would
harm efficiency, competition, and capital formation, the
Commission simply said that it was “unable to determine ex

24

ante” how the Pilot will impact the market. Id. Nothing in the
Exchange Act gives the Commission authority to follow this
aimless regulatory approach.

Indeed, as noted above, Section 23 of the Exchange Act
forbids the Commission from adopting a rule that will
unnecessarily burden competition, 15 U.S.C. § 78w(a)(2), and
this statutory command was not met. It is also noteworthy that
the regulatory requirements of the Pilot Program were adopted
to collect data, not to maintain “fair and orderly markets,” 15
U.S.C. § 78k-1(a)(2), as required by the Exchange Act. The
record thus indicates that the Commission acted with no
obvious regard for the limits on its regulatory authority under
the Exchange Act.

If implemented, the Pilot Program would have serious,
market-altering effects. It is not merely a benign quest for data,
as the Commission appears to suggest. Although the
Commission has no regulatory mission, and it insists that the
Pilot Program is not meant to be a trial of a new regulation, the
fact is that Rule 610T establishes major regulatory
requirements. However, the Commission has no delegated
authority to promulgate a “one-off” regulation like Rule 610T
that imposes significant, costly, and disparate regulatory
requirements merely to secure information that may or may not
indicate to the SEC whether there is a problem worthy of
regulation. If agencies were allowed to regulate in this way,
absent delegated authority from Congress, the ramifications
would be extraordinary.

The Commission claims “that the Pilot will provide useful
data that will better inform future policy recommendations of
the effects of fees and rebates on price efficiency.” J.A . 98.
Even if the Commission has authority to seek data from
regulated parties, it does not follow that the Commission may

25

impose new and stringent regulatory requirements designed to
“shock” the market. J.A . 44 & n.304. This is especially true in
this case, where: (1) the Commission has never previously
adopted a “one-off” regulation such as Rule 610T without
congressional authority; (2) the Commission has no regulatory
agenda (either for the present or the future) supporting the Pilot
Program; (3) the Commission has taken no position on the
conflicting views expressed by members of the regulated
community and other commentators regarding the efficacy of
the disputed Rule; (4) the Commission concededly cannot
reasonably assess the effects of the new Rule; and (5) the
Commission has no real idea whether the data collected will be
useful or to what end. The Commission’s action is not only
unprecedented, it finds no support in the law.

As noted above, the Commission relies heavily on
Mourning, 411 U.S. 356, to support its claim that it has
delegated authority to adopt Rule 610T. The Commission
argues that the Pilot Program is permissible because it is
“reasonably related to the purposes of the [Exchange Act].” Br.
for Respondent at 25 (alteration in original) (quoting
Mourning, 411 U.S. at 369). This argument fails.

First, as we have already explained, Michigan v. EPA,
which post-dates Mourning, makes it clear that a “necessary or
appropriate” provision in an agency’s authorizing statute does
not necessarily empower the agency to pursue rulemaking that
is not otherwise authorized. There is nothing in the Exchange
Act that authorizes a “one-off” regulation like Rule 610T.

Second, the Supreme Court’s decision in Ragsdale, 535
U.S. 81, indicates that the statement in Mourning, to which the
Commission refers, has little play in the post-Chevron area.
Ragsdale says that the Court’s “previous decisions, Mourning
included, do not authorize agencies to contravene Congress’

26

will” by adopting an unauthorized regulation. Ragsdale, 535
U.S. at 92. And, as the Court pointed out in Ragsdale, the
agency’s rulemaking authority in Mourning was broad enough
to cover the rule at issue in that case. Id. (citing Mourning, 411
U.S. at 361-62, 371, 376). That is not the situation in this case.

Mourning simply suggests that when an agency acts
pursuant to a clear and broad “empowering provision,” “courts
will sustain a regulation that is ‘reasonably related’ to the
purposes of the legislation.” Doe, 1 v. FEC, 920 F.3d 866, 870-
71 (D.C. Cir. 2019) (quoting Mourning, 411 U.S. at 369). It is
noteworthy that the court’s decision in Doe only cites
Mourning after finding that the agency action at issue was
within the bounds of its delegated authority. This is the thrust
of the Supreme Court’s decisions in Ragsdale, 535 U.S. at 92
and Sullivan, 493 U.S. at 528. In other words, “Mourning
applies only after a court has determined that Congress has
indeed delegated interpretative powers to [an] agency.”
Chamber of Commerce of U.S. v. NLRB, 721 F.3d 152, 158
(4th Cir. 2013).

The Commission also cites United Telegraph Workers v.
FCC, 436 F.2d 920 (D.C. Cir. 1970), in support of its claim
that it permissibly adopted the Pilot Program under its
rulemaking authority. However, the decision in United
Telegraph Workers, which predates the Supreme Court’s
decision in Michigan v. EPA, is easily distinguished. In that
case, this court rejected a challenge to a decision by the FCC
not to suspend a proposed tariff for a new telegram service
offered for a two-year experimental period. In denying the
petition for review, the court noted that Congress had directed
the FCC “to inform itself of technical advancements and
improvements,” and there was no statutory prohibition against
that type of experimental program at issue in the case. Id. at
923-24. It is also noteworthy that in United Telegraph

27

Workers, the agency implemented a rule to demonstrate that it
was a feasible regulatory solution to an identifiable problem,
id. at 921, 923-24, not to “shock” the market solely to judge
reactions.

Normally, unless an agency’s authorizing statute says
otherwise, an agency regulation must be designed to address
identified problems. See Mendoza v. Perez, 754 F.3d 1002,
1021 (D.C. Cir. 2014) (holding that “[a] rule is legislative if it
supplements a statute, adopts a new position inconsistent with
existing regulations, or otherwise effects a substantive change
in existing law or policy”). Rules are not adopted in search of
regulatory problems to solve; they are adopted to correct
problems with existing regulatory requirements that an agency
has delegated authority to address.
That is not the situation that
we see in this case.

One more point should be stressed regarding the
Commission’s claim that it acted pursuant to delegated
authority from Congress. As already noted, the Commission
does not claim that it had express authority to adopt a “one-off”
regulation of the sort at issue here. Instead, the Commission
argues that it had implied authority under the Exchange Act to
adopt the Pilot Program and, therefore, its decision is due
deference under Chevron step two. See Br. for Respondent at
25. We find no merit in this claim.

As explained above, it is well understood that an
agency
action cannot be “permissible” under Chevron step two if the
agency acts in excess of its authority under the applicable statute,
see, e.g.,
Goldstein v. SEC, 451 F.3d 873, 878 (D.C. Cir. 2006),
or if the agency’s interpretation of the statute is unreasonable,
see, e.g., Michigan v. EPA, 135 S. Ct. at 2708, 2712. See
generally E
DWARDS & ELLIOTT, supra, at 223-24, 226-30. It
does not matter that the statute is arguably ambiguous. See,

28

e.g., Michigan v. EPA, 268 F.3d at 1082 (“Mere ambiguity in
a statute is not evidence of congressional delegation of
authority.”); see also Glob. Tel*Link v. FCC, 866 F.3d 397,
418 (D.C. Cir. 2017) (Silberman, J., concurring) (pointing out
that Chevon step two is “a meaningful limitation on the ability
of administrative agencies to exploit statutory ambiguities,
assert farfetched interpretations, and usurp undelegated
policymaking discretion”). Nor does it matter that a disputed
agency action is not expressly foreclosed by the statute. See
Am. Bar Ass’n, 430 F.3d at 468 (rejecting agency suggestion
“that Chevron step two is implicated any time a statute does
not expressly negate the existence of a claimed administrative
power” (quoting Ry. Labor Execs.’ Ass’n, 29 F.3d at 671 (en
banc))); Motion Picture Ass’n of Am., 309 F.3d at 805 (same).

In advancing the claim that it had implied authority to
adopt Rule 610T, the Commission confuses the issues by
debating with Petitioners over its right to adopt rules
implementing “experimental initiatives.” That is not the issue
in this case, however. The problem in this case is that the
Commission acted in excess of its authority under the exchange
Act. It adopted the Pilot Program without any regulatory
agenda. The Commission acted without explaining what
problems with the existing regulatory requirements it meant to
address. And the Commission proposed to impose significant,
costly, and disparate regulatory requirements on only a subset
of the securities market just to gather data. In other words, in
adopting the Pilot Program, the Commission acted “on a bare
desire to conduct an information-gathering experiment to
justify the Rule’s restrictions.” Br. for Petitioners at 28.
Nothing in the Exchange Act – either express or implied –
authorizes this.

This conclusion is only reinforced by Petitioners’
observation that, unlike Rule 610T, the Commission’s “Tick

29

Size Pilot” – an experimental rule whose disputed effects bear
on Petitioners’ arbitrary-and-capricious claim – “was the result
of a statutory command from Congress, which directed the
Commission to study the impact of the current tick size on the
number of initial public offerings.” Br. for Petitioners at 18 n.5
(citing Jumpstart Our Business Startups Act, Pub. L. No. 112-
106, § 106(b), 126 Stat. 306, 312 (2012)); see 15 U.S.C. § 78k-
1(c)(6). There is no such congressional directive authorizing
the Pilot Program.

In short, the Commission’s action exceeds its authority
under the Exchange Act. Therefore, the Commission is due no
deference under Chevron. As Justice Thomas noted in his
concurring opinion in Michigan v. EPA, “[a]lthough we hold
today that [the agency] exceeded even the extremely
permissive limits on agency power set by our precedents, we
should be alarmed that it felt sufficiently emboldened by those
precedents to make the bid for deference that it did here.” 135
S. Ct. at 2713 (Thomas, J., concurring).

C. Petitioners’ Claim that the Commission’s Adoption of
the Pilot Program Defied Reasoned Decision Making

The analysis of disputed agency action under Chevron step
two and arbitrary and capricious review is often “the same,
because under Chevron step two, [the court asks] whether an
agency interpretation is ‘arbitrary or capricious in substance.’”
Judulang v. Holder, 565 U.S. 42, 52 n.7 (2011) (quoting Mayo
Found. for Med. Educ. & Research v. United States, 562 U.S.
44, 53 (2011)). In some circumstances, agency action that is
impermissible under Chevron step two is also unreasonable
under the arbitrary and capricious standard articulated in State
Farm. See 463 U.S. at 42-44. A good example of such a case
is the Court’s decision in Michigan v. EPA, discussed above.
In that case, the Court found that the EPA’s interpretation of

30

the statute was unreasonable and, thus, due no deference under
Chevron step two. The Court also found that the agency’s
regulatory action was not based on reasoned decision making,
and therefore was arbitrary and capricious. 135 S. Ct. at 2706-
07.

This case presents a situation that is similar to what the
Court faced in Michigan v. EPA. Petitioners argue that:

[W]hen the Commission adopts a rule imposing new
regulatory standards for the national market system—
regardless of whether it labels the rule an
experimental “pilot” measure—it must satisfy the
requirements that apply to all such rulemakings,
which include demonstrating that its regulatory action
is “necessary or appropriate in the public interest,” for
the protection of investors, and for the maintenance of
fair and orderly markets. 15 U.S.C. § 78c(f); see also
id. § 78k-1(a)(2). The Commission did not make any
of those findings with respect to the new fee cap and
rebate restrictions imposed by the Rule. . . .

The Commission also failed to make a
determination about the Rule’s effects on efficiency,
competition, and capital formation, see 15 U.S.C.
§ 78c(f), which the Commission declared itself
“unable to determine ex ante,” JA98. The
Commission’s claim that it was unable to make this
statutorily mandated determination flouts its
obligation under the Exchange Act “to determine as
best it can the economic implications of the rule it has
proposed.” Chamber of Commerce of the United
States v. SEC, 412 F.3d 133, 143 (D.C. Cir. 2005).

Br. for Petitioners at 20-22.

31

Likewise, Amicus points out that:

[N]umerous commenters came forward with
arguments and evidence demonstrating that the
Transaction Fee Pilot would harm efficiency,
competition, and capital formation. Others came
forward with arguments and evidence to the contrary.
Faced with this evidence, the Commission cannot just
throw up its hands and say that it is “unable to
determine ex ante” how the Pilot will impact the
market.

This shortcoming matters because there is no way
the Commission could have conducted a proper cost-
benefit analysis without actually making a judgment
call as to the degree of harm the Pilot would inflict.

Br. for Amicus in Support of Petitioners at 19-20 (footnotes
and citation omitted).

These claims focus on the Commission’s alleged failure to
satisfy the requirements of reasoned decision making when it
adopted the Pilot Program. The Commission claims that it was
unable to complete a thorough analysis of the possible effects
of the Pilot Program “because it lack[ed] the information
necessary to provide reasonable estimates” of the “economic
effects” of its Rule. J.A . 64. Petitioners argue that the
Commission’s response defies the commands of State Farm,
463 U.S. at 43, and, therefore, the Commission’s promulgation
of the disputed Rule was arbitrary and capricious.

As the Court said in State Farm, “[r]ecognizing that
policymaking in a complex society must account for
uncertainty . . . does not imply that it is sufficient for an agency

32

to merely recite the terms ‘substantial uncertainty’ as a
justification for its actions.” 463 U.S. at 52; see also Allentown
Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 374 (1998)
(discussing the requirements of reasoned decision making);
Chamber of Commerce of U.S. v. SEC, 412 F.3d at 143
(holding that, even when the SEC has difficulty in determining
the cost of compliance of a proposed rule, and it can determine
only the range within which the cost of compliance will fall,
this “does not excuse the Commission from its statutory
obligation to determine as best it can the economic
implications of the rule it has proposed”); Bus. Roundtable,
647 F.3d at 1150 (holding that “[b]ecause the [SEC] failed to
‘make tough choices about which of the competing estimates
is most plausible, [or] to hazard a guess as to which is correct,’
. . . it neglected its statutory obligation to assess the economic
consequences of its rule” (third alteration in original) (citation
omitted) (quoting Pub. Citizen v. Fed. Motor Carrier Safety
Admin., 374 F.3d 1209, 1221 (D.C. Cir. 2004))).

According to Petitioners, the Commission failed reasoned
decision making because it never explained its regulatory
agenda (if it had one), and it failed to assess whether the
perceived benefits of the Pilot Program justified the substantial
costs imposed by the new regulatory requirements. In other
words, Petitioners contend that reasoned decision making
would have required the Commission to have some goals in
mind – apart from the mere collection of data – and to show,
not that the perceived benefits of the Pilot Program’s new
regulatory requirements exceeded the costs, but that the new
regulatory requirements were reasonable and justified under
the standards enunciated in the Exchange Act.

Because we hold that the Commission lacked delegated
authority to adopt the Pilot Program, it is unnecessary for us to
determine whether the Commission’s adoption of the Rule

33

violated the commands of Michigan v. EPA and State Farm
regarding the requirements of reasoned decision making. See
Pub. Citizen v. Fed. Motor Carrier Safety Admin., 374 F.3d
1209, 1216 (D.C. Cir. 2004) (holding that because the court
was vacating and remanding the matter on another ground,
there was no reason to address other objections to the contested
rule).

III. C
ONCLUSION

We grant the petitions for review and vacate Rule 610T
and the Pilot Program. The case will be remanded to the
Commission for further proceedings consistent with this
opinion.