590 F. 2d 1085 - Bradford National Clearing Corporation v. Securities and Exchange Commission

These two unconsolidated direct review proceedings involve challenges by subsidiaries of Bradford National Clearing Corporation to successive orders of the Securities and Exchange Commission (SEC or the Commission). In No. 77-1199, petitioners ask this court to set aside the Commission's conditional approval of the application of intervenor National Securities Clearing Corporation (NSCC) for registration as a clearing agency pursuant to section 17A(b) of the Securities Exchange Act, 15 U.S.C. § 78q-1(b). In re The Application of Nat'l Securities Clearing Corp. for Registration as a Clearing Agency (hereinafter Order I ), SEC Securities Exchange Act Release No. 13,163 (Jan. 13, 1977), 42 Fed.Reg. 3916 (1977). No. 77-1547 seeks reversal of a subsequent SEC order under section 19(b) of the Securities Exchange Act, 15 U.S.C. § 78s(b), allowing NSCC to adopt two self-regulatory rules that are purportedly aimed at meeting the conditions set by the Commission in approving NSCC's registration as a clearing agency. In re Nat'l Securities Clearing Corp. (hereinafter Order II ), SEC Securities Exchange Act Release No. 13,456 (Apr. 21, 1977), 42 Fed.Reg. 21881 (1977).

In light of the significant overlap in the issues involved in the two petitions, we have decided to treat both in the same opinion. The order involved in No. 77-1199 is affirmed, except insofar as the Commission approved NSCC's use of "geographic price mutualization" and its mode of allocating its facilities management contract. As to those issues the case is remanded to the SEC for further consideration. The order under review in No. 77-1547 is affirmed.

* Much of the historical and statutory background for this suit is laid out in considerable detail in Order I.1 From 1934 to the present, the Commission has exercised regulatory jurisdiction over transactions in major securities markets under the Securities Exchange Act of 1934 (hereinafter 1934 Act), 15 U.S.C. § 78a Et seq. For most of that period, the SEC's attention was directed to the registration and oversight of the major classes of participants in those markets, and particularly to the prevention of certain manipulative and abusive practices. In carrying out these duties, the SEC took the securities markets essentially as it found them, and attempted to establish and preserve a high degree of openness and fairness. See generally section 2 of the 1934 Act, 15 U.S.C. § 78b.

In the 1960's and early 1970's, however, more attention began to be paid to the possibility of changing the overall structure of the securities industry in order to make it more competitive, national, and efficient. Of particular relevance in this suit, the late 1960's saw the breakdown of the efficient functioning of brokers' "back offices" I. e., of the segment of the industry that effectuates trades after they are initially negotiated on an exchange or in the over-the-counter market.2 As a result of this "paperwork crisis," many purchasers never actually received their stock certificates nor sellers their money. Moreover, a goodly number of brokers, faced with liability for these incomplete transactions, went bankrupt.

In response to these "operational breakdowns and economic distortions," Congress and the Commission undertook "the most searching reexamination of the competitive, statutory, and economic issues facing the securities markets, the securities industry, and . . . public investors, since the 1930's." House Comm. of Conference, Conference Report on the Securities Acts Amendments of 1975, H.Rep.No.229, 94th Cong., 1st Sess. 91 (1975), U.S.Code Cong. & Admin.News 1975, pp. 179, 322 (hereinafter referred to as Conf.Rep.). The outgrowth of these investigations, See note 1 Supra, was the Securities Acts Amendments of 1975 (1975 Amendments), Pub.L. 94-29, 89 Stat. 141 (1975). With this legislation, the SEC's regulatory authority under the 1934 Act was expanded to enable it to effect major changes in the method of handling securities transactions.

Two such changes bear directly on the issues raised by the petitions. Most critically, in terms of these petitions, Congress recognized the need for a "(n)ational system for clearance and settlement of securities transactions," the objective of which is to interconnect all American clearing agencies and place them under uniform rules, so that together they can provide prompt, safe, and efficient clearance facilities that take full advantage of modern data processing and communications technology. Section 17A(a)(1) of the 1934 Act, 15 U.S.C. § 78q-1(a)(1). The 1975 Amendments direct the Commission to "facilitate the establishment" of this national system "in accordance with" the objective paraphrased above and "having due regard for" several other concerns, including the "maintenance of fair competition among brokers and dealers, clearing agencies, and transfer agents." Id. § 17A(a)(2), 15 U.S.C. § 78q-1(a)(2).3

To carry out this broad directive, Congress gave the SEC authority to register clearing agencies that meet certain specified criteria, including an ability to clear and settle securities transactions promptly and accurately and an absence of rules that impose "any burden on competition not necessary or appropriate in furtherance of the purposes" of the 1934 Act. Without such registration, or an SEC exemption therefrom, it is illegal to operate such an agency. Id. § 17A(b), 15 U.S.C. § 78q-1(b).4

That Congress conceived of the registration process as a means toward the end of a Commission-generated national clearing system is apparent from that process.5 Rather than mandating an adjudicatory procedure, as might be expected of an administrative mechanism aimed at conferring a government license, Congress made the process distinctly legislative in nature. After the application is filed, the agency must publish it and receive public comments thereon. The Commission may then grant registration, or institute proceedings to determine whether the application should be denied. Id. § 19(a), 15 U.S.C. § 78s(a).6 The quasi-legislative nature of registration decisions is further indicated by congressional references to the informal rulemaking provision in the Administrative Procedure Act and to the need to preserve the SEC's rulemaking authority in the clearing area,7 and by the fact that judicial review of the SEC's decision, while controlled by the "substantial evidence" rule in its factual aspects, is otherwise left unspecified, and, therefore, is apparently limited to review for arbitrariness, caprice, and abuse of discretion. Id. § 25(a)(4), 15 U.S.C. § 78y(a)(4). See generally Industrial Union Dep't v. Hodgson, 162 U.S.App.D.C. 331, 499 F.2d 467 (1974).

Congress further cemented the SEC's control over the shape of the clearing industry by requiring its approval of any new or modified rules adopted by a clearing agency. A similarly quasi-legislative procedure is established for the Commission's consideration of such rules, and its decision is judicially reviewable under the same provision governing review of its registration decisions. Id. §§ 19(b), 25(a)(4), 15 U.S.C. §§ 78s(b), 78y(a)(4).8

The second major accomplishment of the 1975 Amendments, as relevant here, is the granting of responsibility to the SEC to facilitate the establishment of a "(n)ational market system for securities." Id. § 11A, 15 U.S.C. § 78k-1. The goal of this system is to use modern communication and data processing equipment to link all securities markets nationwide, so that (i) information is equally available, and securities transactions may be completed equally cheaply and easily, anywhere in the nation, and (ii) "fair competition" may exist between all investors, brokers, dealers, and securities markets, no matter where they are located. Id. § 11A(a)(1), 15 U.S.C. § 78k-1(a)(1). Once again the Commission is "directed" to carry out this objective, and is given several types of authority toward that end, including the authority and responsibility to register and regulate "securities information processors." Id. §§ 11A(a)(2), (b), (c), 15 U.S.C. §§ 78k-1(a)(2), (b), (c).9

The drafters of the 1975 Amendments assumed that the national market and national clearing systems would reinforce each other. See House Comm. on Interstate and Foreign Commerce, Securities Reform Act of 1975, H.Rep.No.123, 94th Cong., 1st Sess. 44, 51 (1975) (hereinafter referred to as H.Rep.). Together, they would allow an investor anywhere in the United States to initiate and then complete a securities transaction with the aid solely of a local broker of his choice, dealing on a regional exchange and clearing through a regional agency also of his choosing, and having available throughout the process the most complete and up-to-date national information possible. See S.Rep., Supra note 1, at 7. See also Section 2, 15 U.S.C. § 78b. Moreover, as to both of the projected systems Congress self-consciously refused to determine "the merits of any particular system." S.Rep., Supra note 1, at 5, U.S.Code Cong. & Admin.News 1975, p. 184. Instead, it hoped that the impetus for both would come from the private sector and it provided the Commission with "intentionally broad" and "clear power" and "discretion" to shape the developing systems.10 As to both systems, the Commission's primary directive from Congress was to be "bold and effective" and to act quickly. Id. at 55.

Despite their interdependence and their common subjection to broad SEC authority, the national market and clearing systems were not perceived by Congress as identical pillars supporting the legislators' conception of a modernized approach to securities marketing. Most importantly, Congress' directives to the Commission with respect to the two systems vary slightly but significantly. Although in facilitating the establishment of both systems, the SEC is required to adhere to "the findings and to carry out the objectives set forth" in the first subsection of each of the two relevant provisions, those findings and objectives are not entirely parallel. Sections 11A(a), 17A(a), 15 U.S.C. §§ 78k-1(a), 78q-1(a); See notes 3 & 9 supra. Thus, while both lists of objectives include the full exploitation of technological advances in communication and data processing equipment, efficiency, and the linkage of all relevant facilities nationally, only the national market system objectives include the "enhance(ment)" of "fair competition among brokers and . . . exchange markets . . . "11 and only the national clearing system objectives include promptness and the development of uniform standards and procedures. Id. § 11A(a)(1), 17A(a)(1), 15 U.S.C. §§ 78k-1(a)(1), 78q-1(a)(1).12

At the time of the passage of the 1975 Amendments, a separate clearing agency owned by each of the national and regional stock exchanges, and one owned by the National Association of Securities Dealers (NASD) which operates the over-the-counter (hereinafter "OTC") market performed all of the clearing services for transactions initiated on the exchange or in the market with which it was affiliated.13 Recently, petitioner Bradford National Clearing Corp. (BNCC) has made inroads into the clearing industry by competitively bidding on and winning two facilities management contracts under which it operates the clearing agencies owned by the Pacific Stock Exchange one of the regional exchanges and by NASD.14

In the past, the rigid division of the clearing market along the lines of the various trading markets virtually precluded any competition between clearing agencies. This division stemmed in large part from rules promulgated by each of the exchanges and by NASD that required brokers trading in that market to utilize only the clearing agency affiliated therewith.

Even before the 1975 Amendments passed, Congress, representatives of various exchanges, NASD, and independent associations of brokers and dealers had begun exploring the possibility of dramatically centralizing the clearing facilities in this country. The initial efforts in this discretion began in earnest in the fall of 1973 and contemplated the merger of several existing clearing agencies, including those owned by NYSE, AMEX, NASD, and most of the regional exchanges. The impetus for merger came from the expectation that by the elimination of duplicative services and facilities the clearing industry would reduce costs and avoid a recurrence of the "paperwork crisis." The negotiators particularly those representing brokers and dealers apparently concentrated on finding a way to combine the three clearing agencies (NYSE's SCC, AMEX's ASECC, and NASD's NCC (hereinafter, "the New York clearing agencies") then operating virtually identical facilities located within a few blocks of each other in downtown New York.15

Actually, NYSE and AMEX had already pioneered the merger approach by jointly establishing the Securities Industry Automation Corp. (SIAC), and by contracting with SIAC to operate the two clearing corporations (SCC and ASECC) affiliated with the two parent exchanges. Nevertheless, the NYSE-AMEX "merger" was not complete because SIAC continued to operate the two clearing corporations separately, and the exchanges continued to enforce their rules that tied each of their trading facilities to their clearing facilities. The 1973-74 merger negotiations seem to have contemplated an expansion of SIAC not only to take over the operation of all of the merged clearing agencies, but also to integrate them fully. Nonetheless, these negotiations proved unsuccessful and were discontinued in mid-1974.

Soon after passage of the 1975 Amendments, NYSE, AMEX, NASD, and committees made up of their member-brokers renewed their efforts to negotiate a merger of the New York clearing agencies. These efforts came to fruition on July 15, 1975 when representatives of NYSE, AMEX, and NASD signed an agreement in principle to establish a jointly owned entity to which would be transferred the operations of the three New York clearing corporations. The agreement further provided for participant control of the new entity by way of a board of directors composed in the main of brokers and dealers,16 although its structure and rules would be designed to "avoid any loss (of revenues) to the respective parent companies (NYSE, AMEX, NASD)."17

In addition, the agreement in principle specified that SIAC would act as facilities manager and processor for the new entity. The parties included this last provision in their agreement despite the fact that during these latest negotiations BNCC offered to bid competitively against SIAC for the management-processing contract with the new entity. The parties to the agreement informed BNCC that its offer was premature, because negotiations were still going on, and they refused to honor BNCC's request for information on which to base its bid. In the negotiators' eyes, however, the time for BNCC's proposal apparently never matured, as they accepted SIAC as the manager-processor without further exploration of BNCC's counter proposal.18

Final negotiations continued throughout 1975 and into 1976, leading in March of that year to the incorporation of the National Securities Clearing Corp. (NSCC), the entity into which the three New York clearing organizations were to be merged, and to the filing with the Commission of NSCC's application for registration as a clearing agency under sections 17A(b), 19(a)(1), 15 U.S.C. §§ 78q-1(b), 78s(a)(1). See notes 4-5 Supra.

In summary, NSCC's application contemplated that the merger would be accomplished in two phases. During Phase I, projected to last approximately four months,19 NSCC, through SIAC,20 would operate the three merged New York clearing agencies as separate divisions, and the rules tying each of the two parent exchanges and NASD's over-the-counter market to one of those divisions would be retained.

In Phase II, NSCC would convert the three New York clearing operations into a single system capable of providing its participants with all of the services that previously were provided by at least one of the New York clearing agencies. At this point, of course, the rules tying trading markets to clearing agencies, if still intact, But see note 25 Infra, would become obsolete. Moreover, NSCC's plan called for its services to be made available not only to the current participants in the three New York clearing agencies but also to certain other (financially responsible and otherwise qualified) entities.

Nonetheless, even during Phase II, NSCC proposed to restrict its "comparison" services, See note 2 Supra, and thus the possibility of "one-shot" clearing and settlement, to (1) its participants located in New York who submit NYSE, AMEX, or OTC transactions for comparison, (2) its participants located outside of New York insofar as (a) they act through the regional network formerly operated by NCC, See note 15 Supra, and (b) the transactions submitted for comparison occurred over the counter. Only later would it compare NYSE and AMEX transactions through its regional offices. Hence, its restrictions on comparison facilities even in Phase II assured that only NYSE, AMEX, and OTC traders in New York, OTC traders outside of New York, and eventually NYSE and AMEX traders outside of New York would have direct access to its one-shot comparison, clearing, and settlement services.21 As in Phase I, a nonparticipant in NSCC, even if trading NYSE, AMEX, or OTC securities and even if trading with an NSCC participant, would not have access to NSCC's comparison facilities. Nor, of course, would anyone participant or nonparticipant in NSCC have such access if the trade took place on a regional exchange.

In both phases, NSCC proposed to base its fees to participants on the total cost of providing its services. See also note 17 Supra. The fees charged individual participants in a transaction, however, would not necessarily reflect the cost of that transaction. Instead, the merged entity would design its fee structure so that participants in New York and those outside of New York who utilized the regional network formerly operated by NCC, See note 15 Supra, would pay the same clearing fees, even though, as was likely, at least in the early stages, the New York transactions cost less. This pricing scheme, "geographic price mutualization," was designed to allow greater "competition" between brokers in and outside of New York.22

As required by statute, the SEC made NSCC's proposal the subject of public notice, and received comments thereon from various parties.23 In addition, the full Commission held informal hearings at which twenty-three organizations were represented. The SEC explicitly expanded the time and fora available for public comment as well as the substantive scope thereof beyond that required by the statute and traditionally afforded by the agency for registration applications. It did so in recognition of the "likely . . . determinative impact" this particular application would have on its accomplishment of its duty to facilitate the establishment of a national clearing system. See note 5 Supra.

In general, NSCC registration was supported by brokers and dealers whether located in New York or elsewhere. Opposing registration were the regional exchanges and their affiliated clearing agencies, as well as petitioners and the Antitrust Division of the Justice Department (hereinafter, the Justice Department). In November 1976, the Commission again issued a public notice soliciting comments this time concerning its tentative decision to approve registration contingent upon NSCC's meeting four conditions designed to ameliorate the anticompetitive effects that NSCC's opponents feared. Although most commentators reiterated their earlier positions, the opposition to registration softened somewhat, and on January 13, 1977, the Commission, in a lengthy order, granted NSCC registration with four conditions.

Under Condition 1, NSCC must, before Phase II begins, establish "full interfaces" or "appropriate links" with several specified clearing agencies most particularly, those affiliated with the regional exchanges, including one operated by petitioner BNCC.24 Other clearing agencies, including petitioners herein, have been offered the right to like interfaces as soon as they have the capability of offering minimally adequate clearing services.25 NSCC must offer these interfaces without any charges amounting to a fee for moving data through an interface. Consequently, all users of NSCC will help fund its establishment and maintenance of the interfaces.26

Condition 2 requires NSCC, before inaugurating Phase II, to provide at cost facilities to which other clearing agencies as well as its own branch offices may forward trade data for comparison. See note 21 Supra. Together, Conditions 1 and 2 assure that any clearing agency in which a broker chooses to participate either (1) may clear and settle that broker's transaction after the parties to it have compared their trade themselves through NSCC, or (2) may itself submit the broker's data to NSCC for comparison, and then complete the clearing and settlement functions. In either case, the agency may represent any broker no matter what clearing agency serves the broker or the other side of the transaction, what kind of security is traded, and what market or exchange is involved.

Under Condition 3, NSCC must share with any competing clearing agency that comes forward the operation (and expenses) of the regional branches that NCC has operated in the past. See note 15 Supra. By this mechanism, a regional clearing agency located in one city might find it easier to compete with NSCC in other cities as well.

Finally, Condition 4 attempts to fill the void created by NSCC's refusal to compare OTC trades between nonparticipants and between a participant and a nonparticipant. Under this requirement, NSCC (1) must, without charge, share its computer program technology with any clearing agency that proposes to compare OTC transactions between that agency's participants, and it (2) must convince some other clearing agency, or must itself offer, to compare OTC transactions between participants in different clearing agencies.

The upshot of the four conditions plus NSCC's proposal is that, for purposes of comparing NYSE and AMEX transactions, NSCC is essentially a public utility that is afforded a monopoly but must offer its services to all qualified customers (its own participants or other clearing agencies) at cost. NSCC (or some other clearing agency, if one comes forward) must also serve this utility function for purposes of making OTC comparisons for participants in different clearing agencies. By contrast, as to the remaining clearing functions, NSCC is perceived by the Commission as in competition with all other agencies offering like services. Given NSCC's geographic monopoly in New York as well as its established set of regional branches, however, the Commission realized that NSCC would be "likely to achieve a dominant position" as to All "securities processing" functions. Release No. 12,489, Supra note 5, at 2. Consequently, in order partially to blunt that competitive edge, the SEC insisted that NSCC allow full interfaces with other qualified clearing agencies so that they can clear and settle any of their customers' transactions even if an NSCC participant is on the other side of the trade. It also encouraged other agencies to expand their portion of the market at NSCC's expense by requiring the latter to share with them its computer program technology and its branch office facilities.

Several months after securing registration, NSCC once again approached the Commission concerning actions it desired to take in the clearing field. In this case, NSCC desired to initiate two new rules that it portrayed as necessary to aid it in achieving the conditions imposed on its registration by the SEC, and thus to move a couple of steps closer to Phase II. It sought the SEC's approval under section 19(b)(1), 15 U.S.C. § 78s(b)(1). See note 8 Supra. Here again, the Commission accepted public comments on the rules, and it made them the subject of a meeting before some of the Commissioners. Securities Exchange Act Release Nos. 13,308, 13,318 (Feb. 28, 1977). On the same day as the meeting, the Commission issued an order approving the proposed rules with minor modifications. Order II.

The first rule, the "Bond Rule," allowed NSCC, during Phase I, to transfer the clearing function for bonds traded on AMEX from its ASECC to its SCC division. In other words, it made its division that formerly was the sole clearing facility for all securities traded on the NYSE the sole clearing facility, in addition, for all debt securities traded on the AMEX. It argued that a further consolidation of services and data processing facilities in the SCC division, which already operates the limited RIO interfaces, See note 26 Supra, would enable it more easily to establish the full interfaces with other clearing agencies as required by Condition 1 in Order I.27

The second rule, the "Special Representative Rule," is much more complicated, but essentially takes some additional tentative steps in the direction of fully interfacing NSCC with other clearing agencies and of streamlining its own operations. In part, the rule expands the number of brokers and securities that are allowed access to the experimental interface program (RIO) begun in 1975 by SCC and several of the regional clearing agencies. See note 26 Supra. As a result, more nonparticipants in NSCC can use the regional clearing agency in which they do participate to clear NYSE and AMEX transactions, and they can do so even if they do not participate in the same clearing agency as the brokers on the other side of their trades.28

After each of the two SEC orders at issue here was issued by the Commission, petitioners brought separate direct actions for review. This court set both petitions down for argument on the same day before the same panel, in light of their related nature. Bradford Nat'l Clearing Corp. v. SEC, Nos. 77-1199, 77-1547 (D.C.Cir. Jan. 10, 1978).

During the spring of this year after the briefing of these cases the SEC held a series of hearings and received public comments exploring the reasons for NSCC's delay in meeting the four conditions imposed by the Commission and thus in inaugurating Phase II of its operations. SEC Securities Exchange Release Act No. 14,648 (April 11, 1978); SEC Securities Exchange Act Release No. 14,411 (Jan. 25, 1978); See note 19 Supra. Although in announcing these hearings, the Commission clearly broached the possibility of modification of Order I in light of the actual operation thereof, it made clear that it ordered the hearings not because it has lost confidence in its registration decision, but in order to carry out the expansive oversight role that it explicitly accepted for itself when it approved registration. Order I, at 111-12. Accordingly, we denied petitioners' pre-argument motion to remand these cases or hold them in abeyance pending the outcome of the current proceedings before the Commission.29

Petitioners' challenges in No. 77-1199 to Order I have a common theme that NSCC's clearing operation, as approved by the SEC, has anticompetitive effects that frustrate the provisions and policies of the 1975 Amendments. Petitioners argue both that the SEC misinterpreted the statute by underemphasizing the importance of enhancing and maintaining a competitive clearing environment, and that its predictions about the competitive and anticompetitive impact of registering NSCC do not have substantial support in the record and are arbitrary and capricious.

Before examining petitioners' specific arguments, a word is necessary about the narrowness of our review function. An overview of the administrative authority and action in this case reveals a broad statutory directive and informal administrative proceedings leading to predictive judgments about a variety of relevant factors, such as rapidity of development, geographically national access, and centralization of planning, as well as competition. In the interpretation of that statutory directive, the courts share an important responsibility and expertise with the agency. SEC v. Sloan, 436 U.S. 103, 98 S.Ct. 1702, 1712, 56 L.Ed.2d 148 (1978), but the latter's interpretation is worthy of significant deference insofar as it is contemporaneous with passage of the statute being interpreted, Norwegian Nitrogen Co. v. United States, 288 U.S. 294, 315, 53 S.Ct. 350, 77 L.Ed. 796 (1933), and insofar as its course of consideration envinces "specific attention" to that statute, Adamo Wrecking Co. v. United States, 434 U.S. 275, 98 S.Ct. 566, 570 n.5, 54 L.Ed.2d 538 (1978). See United States v. NASD, 422 U.S. 694, 719, 95 S.Ct. 2427, 45 L.Ed.2d 486 (1975).

This deference increases and becomes less qualified when courts are reviewing the exercise of administrative discretion and especially, when, as here, the agency's decision partakes primarily of "prediction(s) based upon pure legislative judgment." Industrial Union, supra, 162 U.S.App.D.C. at 338, 499 F.2d at 474; Accord, FCC v. National Citizens Comm. for Broadcasting,436 U.S. 775, 98 S.Ct. 2096, 2122, 56 L.Ed.2d 697 (1978); Braniff Airways, Inc. v. CAB, 126 U.S.App.D.C. 399, 409, 379 F.2d 453, 463 (1967). Even when faced with the perplexing combination of informal agency action and "substantial evidence" review that Congress occasionally includes in specific pieces of delegative legislation, including the 1975 Amendments, See generally Industrial Union, supra, the future-oriented "facts" involved as well as the undisciplined nature of the informal rulemaking record from whence those "facts" are derived impose obvious limitations and restrictions upon the intensity of judicial scrutiny.30

In delegating informal decisionmaking to an administrative agency, Congress generally expects the agency to draw heavily upon its expertise. Accordingly, in reviewing the resulting decisions while not sharing that expertise courts typically accord agency conclusions considerable respect. FPC v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 29, 81 S.Ct. 435, 5 L.Ed.2d 377 (1961); General Tel. Co. v. United States, 449 F.2d 846, 861 (5th Cir. 1971). This general congressional expectation is particularly manifest in the national market and national clearing provisions of the 1975 Amendments. First, the drafters of these provisions explicitly endeavored to leave the Commission substantial flexibility of choice in "bold(ly) and effective(ly)" accomplishing the herculean task of rapidly restructuring an entire industry. See Notes 3-4 & 10 Supra and accompanying texts. In addition, to the extent that they guided the Commission, it was by way of a list of relevant factors each of which generally calls for a difficult "determination( ) . . . of a judgmental or predictive nature," and none of which predominates. FCC v. National Citizens Comm., Supra, 98 S.Ct. at 2121. Hence, a wide range of conclusions will inevitably lie within the range of reasonable nonarbitrary choice.

It also bears remembering that, despite the undoubted relevance of competitive concerns to the disposition of these petitions, these are not cases brought initially in the courts under the antitrust laws, but are administrative review petitions brought under the 1975 Amendments to the 1934 Act. Thus, the tendency in antitrust adjudication to view business relationships in the black and white terms of legality or illegality, based solely on their competitive or anticompetitive impact, has no place here.31 Stated another way, we see no reason generally to treat competitive concerns as any more important or any less subject to judicial deference to administrative choices, than any other factor that is relevant to the legality of administrative action. See, E. g., California Gas Producers Ass'n v. FPC, 421 F.2d 422, 429 (9th Cir. 1970); California v. FPC, 111 U.S.App.D.C. 226, 231-32, 296 F.2d 348, 353-54 (1961), Rev'd on other grounds, 369 U.S. 482, 82 S.Ct. 901, 8 L.Ed.2d 54 (1962).

As noted, enhancing competition within the securities industry, while not an "objective" of the 1975 Amendments with respect to the establishment of a national clearing system, is a factor to be considered. Section 17A(a), 15 U.S.C. § 78q-1(a); See notes 3 & 11 Supra and accompanying texts. In addition, no clearing agency may be registered, if its rules "impose any burden on competition not necessary or appropriate in furtherance of the purposes" of the securities laws. Sections 17A(b)(3)(I), 78q-1(b)(3)(I); See note 4 Supra and accompanying text.

Petitioners argue that the statute charges the SEC with enforcing the antitrust laws or at least with avoiding any Unnecessary anticompetitive consequences. Their position thus approaches that taken by the Justice Department in the proceedings below that the Commission must achieve its objectives in the least anticompetitive manner possible. The statute, however, does not support such an interpretation. At most, it only requires the Commission to decide that any anticompetitive effects of its actions are "necessary Or appropriate " to the achievement of its objectives. In fact, Congress responding to importunities by the Justice Department explicitly refused to include a "least anticompetitive" requirement in the 1975 legislation.32 Competition was simply not to "become paramount to the great purposes of the (1934) Act. . . ." S.Rep., Supra note 1, at 14.

Instead, to the extent that the legislative history provides any guidance to the Commission in taking competitive concerns into consideration in its deliberations on the national clearing system,33 it merely requires the SEC to "balance" those concerns against all others that are relevant under the statute. Accordingly, only if some action's anticompetitive impact outweighs in importance the product of the 1975 Amendments' other objectives and the likelihood that the action will achieve those objectives, is the Commission prohibited from taking that action.34

Accordingly, an independent review of the statute and legislative history bears out the Commission's view that it need do no more than "balance the maintenance of fair competition and a number of other equally important express purposes of the Act." Order I, at 21; Accord, id. at 53-54. There is consequently no need in this case to resort to the rule of deference that would otherwise apply to the SEC's contemporaneous and reasoned statutory interpretation. See id. at 20-21, 53-54.

Petitioners' only other interpretive challenge to Order I Stems from the Commission's alleged unwillingness to consider "regulatory costs," See S.Rep., Supra note 1, at 14, as one of the factors relevant to its decisions. Were their characterization correct, petitioners would have a valid claim, for high enforcement costs mean reduced effectiveness in achieving the statute's other objectives and thus could result in the anticompetitive harms outweighing the benefits. Nonetheless, it is apparent to us that the Commission, not only in Order I itself, but also in the public notices preceding it, clearly acknowledged the relevance to its registration decision of the cost to it of overseeing NSCC's actions in the future. See Order I, 111-15; Release No. 12,489, Supra note 5, at 16. In large part, it accounted for those costs by making NSCC's registration contingent on its avoiding delay or other untoward activities that could increase enforcement costs and by repeatedly warning NSCC that such activities could result in modification or even revocation of its registration. See note 29 Supra.

We are consequently left with the question of whether, having properly identified the relevant statutory considerations, the Commission appropriately assessed their importance herein and balanced the results, and whether, in particular, the purely factual premises for its conclusions are supported in the record, and its legislative and predictive premises as well as the conclusions ultimately drawn are reasonable.

Petitioners make two basic claims to the effect that the SEC's decision lacks factual support and is irrational. First, they claim that the anticompetitive impact of NSCC's operation outweighs the beneficial effects thereof, and accordingly that registration should have been denied in favor of SEC efforts to put into operation an alternative approach proposed by petitioners and endorsed by the Justice Department. Second, they claim that even if conditional registration might be appropriate, the Commission at least should weed out two particularly anticompetitive aspects of NSCC's plan: "geographic price mutualization," and the awarding of NSCC's facilities management contract to SIAC without competitive bidding. See notes 18 & 22 Supra and accompanying text.

The Commission approved NSCC's registration with the recognition that doing so would largely determine the shape of the national clearing system. See note 5 Supra. It assumed, however and petitioners apparently do not disagree that, at the time, only two established plans existed that would allow such a system to be initiated with anything approaching the degree of dispatch desired by Congress. Order I, at 66, 110. The first plan, of course, is NSCC's while the second, referred to as Model II, was developed by petitioners.

Model II contemplated that NASD's clearing agency NCC (operated under contract by petitioner BNCC) would remain independent of the other, merged New York clearing agencies (SCC and ASECC), and that, bolstered by its regional branch offices, it would attempt to compete therewith. Under this approach, petitioners argued, two national clearing agencies would exist, and would compete with each other (and with the regional clearing agencies) for clearing business both within and without New York.

Although based on their former volumes of trade, NCC would be likely to begin competing with a much smaller market share (12%) than the SCC-ASECC group (73%), See note 13 Supra, petitioners nonetheless contend that, under Model II, NCC would confront the other New York clearing operation with a geographically and quantitatively closer competitor than would any of the regional agencies that are NSCC's chief competition under its plan. The result, it is argued, would be a greater likelihood that competition would have the congressionally desired effect of keeping clearing prices down, and, in turn, would relieve the SEC of much of the regulatory burden of assuring that a giant and peerless clearing agency such as NSCC does not attain and exploit a monopoly position. Put in the statutory terms developed earlier, petitioners claim that Model II would not only reduce the anticompetitive effects below those characteristic of NSCC's plan, but would increase the effectiveness of the Commission and industry efforts to achieve the other goals of the Act because it would reduce regulatory costs.

Whether or not petitioners' analysis of the comparative costs and benefits of NSCC's plan and Model II is correct,35 however, it cannot by itself convince us to overturn Order I. That is to say, even if the SEC could have struck a Better balance in favor of achieving the Act's goals and against anticompetitive impacts, its decision passes statutory muster so long as the former achievements by whatever margin outweigh the latter impacts. Stated differently, our task is not to decide whether the Commission made the "right" (or least anticompetitive) decision or the one that this court might have made were it charged with doing so but rather whether the Commission's decision falls within the boundaries of its broad authority. We think that, in its basic outlines, Order I meets this test.36

On the benefits side of the scale, the SEC made several predictions about NSCC operations. As undisputed matters, the Commission noted that those operations seem capable of providing "a first . . . important step" toward achievement of a national clearing system itself a "prior or at least contemporaneous" prerequisite to the "early achievement of a national market system." Order I, supra, at 60, 55. The past experience of the three merging clearing agencies and their more recently developed "proficiency" in molding communications and data processing equipment to the needs of the industry assured that the new entity would provide "prompt and accurate clearance and settlement of securities transactions" at current and expanding trade volumes. Id. at 60, 62, 63. Particularly ASECC and SCC, with their already operative continuous netting system, could provide the backbone of a national clearing system. Id. at 61.

In addition to technical proficiency and one-step (I. e., efficient) processing, the Commission cited several other benefits of NSCC registration that we find adequately supported. The Commission, for example, pointed to cost savings incident to the combination of the three New York clearing agencies into one and the consequent "discontinuation of unnecessary operations." Id. at 65. Although the SEC is unconvinced at this stage that the clearing business nationally "is a natural monopoly," Id. at 109 & n.198, its data indicate that higher trade volumes, as will occur from consolidation of the formerly separate clearing operations, will reduce costs perhaps by as much as $17.4 million annually.37

Another crucial reason for the SEC's registration decision was NSCC's technological and financial "capacity to make . . . substantial contributions to the establishment of a national system. . . ." Id. at 68. Especially by utilizing and expanding NCC's system of branch offices and SCC-ASECC's Regional Interface Operation, See notes 21 & 26 Supra, the Commission felt that NSCC could quickly establish a stable framework for a national clearing system. Id. at 68-71, 73-74. Most important, the NSC plan would allow brokers formerly forced to deal with several clearing agencies to deal with one, and to have only one daily settling position in each NYSE, AMEX, or OTC security, and one daily money settlement. Moreover, in response to petitioners' warning that NSCC might have important incentives Not to take advantage of its capacity to foster a national clearing system or at least not to do so in cooperation with the regional clearing agencies and their participants the Commission adopted Conditions 1 and 2. These requirements are designed to make full and free clearing interfaces with other agencies, and the national availability of NSCC comparison facilities (either through its own regional offices or through arrangements with other clearing agencies), prerequisites to NSCC's entering Phase II.

As a final important benefit of the NSCC plan, the Commission noted that it would significantly improve competition between brokers and dealers, particularly between those located inside and outside of New York. Id. at 76-79. This improvement primarily would follow from the "expansion and upgrading of the existing NCC branch network" and also from the interface and comparison requirements in Condition 1 and 2 all of which would enhance the range and quality (and reduce the cost38) of services that brokers outside of New York could offer their customers. Id. at 76-77. The SEC placed considerable emphasis on this benefit, both because of the acute congressional interest in aiding regional brokers and their customers, See S.Rep., Supra note 1, at 7; H.Rep., Supra, at 90, and because broker-dealer competition has much greater impact on the overall level and cost of securities services available to the public than does competition between clearing agencies. Order I, at 78.

Ranged against these benefits is the admitted monopolistic potential of NSCC's merger of the three New York clearing agencies. Simply by its likely attractiveness, at least initially, to the former participants in SCC, ASECC, and NCC (representing about 85% Of the market), NSCC will begin operating its integrated services with a huge market share. Moreover, its continued ability to perform comparison on all NYSE and AMEX traded securities, its exclusive geographical proximity to the nation's securities center, its control of the most modern and sophisticated clearing technology, and its operation of the only set of integrated regional clearing offices suggest that NSCC may well be able to hold on to its initial participants centered in New York and to secure new participants elsewhere. Not only might this economic power undermine the viability of the regional clearing agencies, but it could deny potential entrants in the market any access to a sufficiently large clientele.

The evils generated by unregulated aggregation of economic power need not be reiterated here. See, e. g., United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); United States v. Von's Grocery Co., 384 U.S. 270, 86 S.Ct. 1478, 16 L.Ed.2d 555 (1966); United States v. First Nat'l Bank & Trust Co., 376 U.S. 665, 84 S.Ct. 1033, 12 L.Ed.2d 1 (1964); United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945). But cf. note 31 Supra. As required by Congress, the SEC paid close attention to these evils and to NSCC's susceptibility thereto. Rather than downplaying these problems,39 the Commission has taken one step and promised to take another that together, it believes, will alleviate the problems sufficiently so that they do not outweigh the benefits of registration. Order I, at 79-95.

First, the SEC imposed four conditions aimed at assuring that (1) brokers everywhere can obtain full and inexpensive clearing services, including comparison of NYSE and AMEX trades, even if they participate in a clearing agency other than NSCC (Conditions 1, 2, and 3), (2) any clearing agency that now has, or later develops, a capacity for continuous netting may, without charge, interface with NSCC (Condition 1),40 and (3) NSCC shares its network of branch offices with any current or new competitors (Conditions 2 and 4). Order I, at 87-95.

Second, the Commission promised in the future, and particularly when NSCC declares itself ready to enter Phase II, to monitor the actual anticompetitive effects of NSCC operations to make sure that its four conditions are being effectuated and will have their desired impact, and, generally, to assure that registration has occasioned no "unnecessary or inappropriate burdens on competition." Id. at 81. If necessary, the Commission will even consider "revoking NSCC's registration," "(u)ndoing the . . . combination" already effected during Phase I, and adopting some plan similar to Model II.41

Thus, the Commission assumed that by taking these two steps it could keep the anticompetitive debits to a minimum, while incurring only moderate regulatory costs, and that those debits and costs would not overcome the substantial benefits of registration. On the assumption that the SEC will indeed take the second step, if necessary, See note 29 Supra, we find these two steps sufficient to justify the Commission's conclusion that the benefits of registering NSCC outweigh the anticompetitive and regulatory costs thereof.

In sum, we find as much support in the record and in logic as may be expected in a proceeding of this kind for the SEC's predictions about the future benefits and anticompetitive impacts of registering NSCC. Moreover, the Commission's weighing of those predictive assessments is not irrational. Essentially, the Commission felt that the establishment of a national clearing framework that was virtually certain to be dependable, stable, efficient and more rapidly achievable than any other alternative justified it in risking considerable amounts of its regulatory time and effort in restraining NSCC's monopolistic tendencies. See Order I, at 79-80, 83-84. In the mind of the Commission, this approach made more sense than establishing an admittedly more competitive and eventually less regulated system that for years to come would be still developing, precarious, and thus less certain to provide safe, efficient, and inexpensive services.

We also find reasonable the SEC's expectation that its vigilance can forestall any irreparable anticompetitive harms from accompanying NSCC's registration. The four conditions generally seem designed to do just that, and to the extent they are unsuccessful, the Commission has committed itself to reevaluating the situation looking toward further modifications, conditions, or even a withdrawal of registration in favor of a more competitive approach. See note 29 Supra. Having no cause at this time to doubt the Commission's willingness and ability to honor this commitment, we generally uphold the registration decision. See id.

Petitioners next contend that, even if the Commission was within its discretion in finding that the benefits of registering NSCC generally outweigh the anticompetitive impact thereof, as to two aspects of NSCC's plan it miscalculated those benefits and impacts. In both cases, petitioners argue, the SEC should have conditioned registration on NSCC's deletion of the offending aspects of its plan. We do not agree with petitioners that the Commission's asserted errors in assessing and balancing the benefits and impacts of these two parts of NSCC's plan are grievous enough on their face to invalidate registration absent imposition of the conditions requested by petitioners. Nonetheless, we do find insufficient the Commission's explanation of its conclusions in these two limited instances, and we accordingly remand both for further study and explication.

a.

The Commission originally approved NSCC's adoption of "geographic price mutualization" (GPM), See note 22 Supra and accompanying text, because it felt that that GPM would allow NSCC participants outside of New York to obtain the same services For the same price as participants in New York. Order I, at 76-77, 86. It was believed that this price equalization would allow regional brokers better to "compete" with those in New York. Although it is unclear whether GPM actually fosters competition, in the strict sense, or whether it simply subsidizes regional brokers at the expense of those in New York, it would at least seem capable of accomplishing the congressional goal of improving the status of the former brokers vis-a-vis the latter. See note 22 Supra.

Not only petitioners, but also the Justice Department and the regional clearing agencies have vigorously opposed GPM, both before and since the issuance of Order I, leading the Commission to specify the pricing mechanism as one subject of its recent hearings on NSCC's progress from Phase I to Phase II. See Release No. 14,411, Supra ; Comments of the United States Department of Justice, Supra note 36, at 27-29; note 29 Supra and accompanying text. The primary objections to GPM are, first, that it is anticompetitive because it forces New York brokers to pay more for clearing than they would if free competitive forces were allowed to force the price down to the level of cost.42 In addition, GPM is seen by its opponents as allowing NSCC essentially to engage in predatory (I. e., unduly Low ) pricing in the branch offices so that it may underprice and eventually put out of business its regional competitors.

The Commission has responded to these arguments by noting that without GPM, NSCC's regional offices may not attract enough customers to justify their expansion. Order I, at 86. And expansion of those offices is considered crucial to the establishment of a national clearing system. The Commission further claims that by providing NSCC's regional competitors with the right "to participate in the branch network by paying a proportionate share of the branches' operating overhead," those regional agencies can "compete with NSCC in offering services to brokers . . . outside New York City." Id. at 87 (footnotes omitted) (discussing Condition 3).

This justification for GPM appears to contradict other parts of the Commission's analysis of NSCC's plan. Most importantly, the SEC represents that there is no evidence indicating that, nationally, clearing is a natural monopoly. Id. at 109 & n.198. Consequently, it believes that competition between NSCC and the regional exchanges is achievable, and worthy of its encouragement by way of Conditions 1-4. Id. at 77. In fact, the Commission relied in part on this competition in arguing that the overall anticompetitive effects of NSCC's plan were not so large as to outweigh its benefits. Yet, the rationale behind GPM appears to be that regional competition between NSCC's branches and the local exchanges will not push regional prices down enough to make them competitive with New York prices, and, therefore, that NSCC, in order to aid its participant-regional brokers and to aid itself in obtaining those brokers' participation, must be permitted to set regional prices below cost, and, presumably, to price its competitors out of the market.43

Nor does Condition 3 appear to ameliorate the tension between the Commission's expressed belief in regional competition, on the one hand, and its willingness, on the other, to allow NSCC to thwart that competition through below-cost pricing. A clearing agency other than NSCC that chose to join in the operation of a branch office would still have to charge its participants enough so that it could pay its "proportionate share of the branches' operating overhead." Id. at 87. By contrast, NSCC would Not have to charge its regional participants enough to cover Its share of that overhead because it can recover part of those expenses from the mutualized (I. e., artificially high) price it charges its New York participants. Consequently, GPM still appears to afford regional brokers a great incentive to affiliate with NSCC, and correspondingly appears to dim the supposedly bright prospects for NSCC's regional competitors (whether or not they participate in NSCC's branch operations).

The upshot of the foregoing analysis is that Order I has apparently relied on two benefits of NSCC registration that cannot coexist: Either NSCC's plan and the four conditions will allow and even foster regional competition among clearing agencies, Or, through GPM, it will provide local brokers who participate in NSCC with a subsidy that allows them to operate at the same levels of cost and service as New York brokers. We have accordingly resolved to remand the GPM issue to the Commission for a better explanation, if one exists, of how GPM may be utilized without thwarting regional competition. Failing that, the Commission must either condition registration on NSCC's abandonment of GPM, or at least convincingly conclude that the loss of regional competition engendered by GPM will not upset the favorable balance of benefits and anticompetitive effects that it originally calculated on the assumption that such competition would exist.44

b.

In its application for registration, NSCC, a subsidiary of NYSE and AMEX as well as NASD, listed SIAC, itself a subsidiary of the two national exchanges, as its facilities manager and data processor. Earlier, NSCC's parent organizations had rejected petitioner BNCC's offer to bid against SIAC for that privilege. Petitioners, with the support of the Justice Department, argued before the Commission that NSCC should be forced to put the management-processing contract up for competitive bids. See note 18 Supra and accompanying text.

The Commission chose not to force NSCC to open up the subject contract for competitive bidding a decision we do not find inherently unsupportable. The issue is remanded, however, because of the SEC's reasoning for this particular decision that, so long as SIAC's ability to assure safe, accurate, and efficient clearing services is not in doubt, NSCC's choice of that facilities manager is not of statutory concern and is a matter for the exercise of NSCC's "business judgment." Order I, at 104. Or, as the Commission framed the argument in its brief, the statute regulates clearing agencies, "not data processors." Brief of Respondent in No. 77-1199, at 60. The result of such an analysis, of course, is to shield NSCC's choice of manager-processor from the 1975 Amendments' concern for competition.

The simple answer to the Commission's argument in this respect is found several pages earlier in Order I itself:

In legal structure the clearance and settlement operations of the AMEX, NASD and NYSE are separate wholly-owned subsidiaries, ASECC, NCC and SCC; each clearing corporation is, however, Essentially a shell corporation with relatively limited assets and a small number of administrative employees. The extensive data processing and clerical operations required to accomplish clearance settlement are housed in or furnished by Other corporate entities (I. e., SIAC, which operates SCC and ASECC, and BNCC, which operates NCC).

Order I, at 40-41. Without the ability to scrutinize NSCC's choice of manager-processor in the full light of the Act's objectives and requirements, therefore, the Commission's "broad powers (to act in a) bold and effective manner to facilitate the rapid development of a nationwide system for processing securities transactions," Order I, at 18, Quoting S.Rep., Supra note 1, at 55, would amount to nothing more than the ability to regulate "shell corporation(s)" while leaving the "extensive" operations that actually "accomplish clearance" beyond its reach.

Actually, the SEC did not totally succumb to the argument that the manager-processor contract is insulated from the requirements of the statute. It conceded that it has the power to condition approval of NSCC's choice of manager-processor on proof that "the processor will . . . provide the safeguards and efficiencies required by the Act. . . . " Order I, at 105. Yet, the Commission offered no reason, and we can think of none, that explains why NSCC's manager-processor decision must further two objectives of the Act (safety and efficiency) but not a third objective (competition). It thus is not enough for the SEC to note that "(t)he Act does not compel . . . competitive bidding," and then thrice to incant "business judgment." See id. at 104-05. The Act does not in terms compel NSCC to share its offices and computer programs with competitors or to establish interfaces, nor does it explicitly withdraw such issues from the realm of "business judgment." And yet in these areas, the Commission, by way of its four conditions, has assumed that there are no barriers to its exercise of regulatory authority.

The proper test, it seems to us, is whether any exercise of "business judgment" by a clearing agency may affect the realization of the national clearing system envisioned by Congress I. e., one that is safe, efficient, And competitive. By the Commission's own admission, a facilities manager and data processor Is, in substance, the clearing agency. Consequently, if one such processor (SIAC) is offered an opportunity by a clearing agency "shell" that is not available to any other processor (whether it be BNCC or one controlled by the regional clearing agencies), the impact on competition and new entry in the industry and thus the nexus to statutory authority is manifest.

Order I does intimate that the SIAC contract serves some of the extra-competitive objectives of the Act such as rapidity of development, safety, efficiency, and encouragement of interclearing agency cooperation (especially on the part of SCC-ASECC). Order I, at 104, 105-6. We do not question the relevance of these concerns, but only note that, in addition to them, "the Commission (must) focus with particularity on the competitive implications" of this part of SIAC's application. S.Rep., Supra note 1, at 14. Accordingly, on remand the SEC should consider whether the SIAC contract has anticompetitive impacts,45 and, if so, whether they are justifiable in terms of the overall balance of benefits and anticompetitive impacts that it otherwise has calculated in a salutary manner.

In No. 77-1547, petitioners, albeit in the guise of challenging the two rather technical rule changes initiated by NSCC and approved by the Commission in Order II, repeat many of the arguments raised in No. 77-1199. To the extent that we have dealt with those arguments above, we will not treat them here.46

Petitioners do make several fresh arguments that again break down into two basic contentions: first, that the Commission failed to identify the anticompetitive effects of the rule changes and to balance them against the benefits thereof,47 and, second, that Order I enjoins the Commission from "piecemeal" approval of any rule changes by NSCC that expand its services, and instead requires the Commission to disapprove all such changes until NSCC has satisfied the four conditions.

It is perhaps true that the Commission expended no excess energy in explaining its decision in Order II. That explanation devotes only two paragraphs to petitioners' complaints about the anticompetitive impact of the rule changes. Order II, supra at 3-4. Nonetheless, in light of the references therein to Order I, which does address at length the general competitive effects and benefits of NSCC's registration, and in light of the discussion by the Commissioners and SEC staff just preceding the issuance of Order II which help to explain that order, we are satisfied that the Commission undertook the minimal steps necessary to assure that the rule changes do not impose unnecessary or inappropriate burdens on competition.

Primary attention, of course, must be focused on Order II, for it is the subject of our review. That order finds that both the Bond Rule and the Special Representative Rule are essentially designed to put Condition 1, the free interface condition, into operation. Together, the rules increase the number of securities (by adding AMEX bonds) and brokers (by adding certain brokers participating in clearing agencies interfaced with SCC through RIO, See note 26 Supra ) qualified to take part in RIO. Since NSCC plans to use RIO as the foundation for the more complete interface system contemplated by Condition 1, See note 26 Supra, which in turn is designed to ameliorate the anticompetitive impacts of NSCC's registration, the Commission concluded that the rule changes actually "allow broker-dealers a wider choice in clearance and settlement" than before, and, accordingly, Enhance competition.48

Given, in addition, the extensive discussion in Order I of the procompetitive effects of expanded interfaces between NSCC and its competitors, Order I, at 69-73, and given the conclusion of SEC staff members expressed to the Commission on the eve of its issuance of Order II that these beneficial effects would accompany the rule changes and would overcome any anticompetitive fallout therefrom,49 we cannot say that the Commission did not undertake the appropriate balance of the statutory concerns before approving the changes. Accordingly, we hold that the Commission's course of approval of the changes comported with the 1975 Amendments.

As petitioners correctly point out, even if Order II is consistent with the 1975 Amendments, it may be found arbitrary and capricious if it is inconsistent with expectations created by Order I at least if the departure from those expectations is not explained in a rational fashion. International Union v. NLRB, 148 U.S.App.D.C. 305, 317, 459 F.2d 1329, 1341 (1972). In this context, Order I states that during Phase I "(e)ach division (of NSCC, I. e., SCC, ASECC, and NCC) will operate under Substantially the same rules, procedures and agreements used by the division's predecessors," at least "until each of the clearing corporations which must establish links with NSCC in order to (implement Condition 1) has, in the judgment of the Commission . . . had an adequate opportunity (to do so)." Order I, at 43, 69-70 (emphasis added). The Commission concedes that Condition 1 was not satisfied at the time it issued Order II and, in fact, has not yet been implemented. See note 19 Supra.

The question, then, is whether Order I prevents NSCC from changing Any one of its division's rules (at least insofar as those changes improve NSCC's position) until it is ready to make All of the rule changes and other arrangements necessary to implement fully the four conditions. The upshot of petitioners' affirmative answer to this question is that NSCC's move from Phase I to Phase II and its satisfaction of the four conditions must occur virtually instantaneously. The Commission for its part contends that, insofar as these rule changes Implement Condition 1, See note 48 Supra and accompanying text, they are consistent with Order I ; and thus it implicitly rejects the argument that Order I requires the move from Phase I to Phase II to be made in one comprehensive step rather than in several small ones. Order II, at 3.

We, too, are unable to detect anything in Order I that prevents NSCC from taking interim steps in the direction of implementing the four conditions, insofar as the steps are (1) consistent with the 1975 Amendments' balancing test and other requirements and (2) do not allow NSCC "substantially" to change its rules, and thus, to "cement (its) monopoly position in a way that would be inappropriate." Order I, at 43; JA at 107 (remarks of Comm'r Evans).50 Although Order I would not be inconsistent with a one-step transition, it also appears to leave open the possibility of a multi-step approach, as limited above. See Order I, at 43 (contemplating Phase I rule changes that are not "substantial"); Id. at 81 (SEC will monitor "Each step NSCC takes toward implementing Phase II") (emphasis added). Because the rationale for using such an approach is readily "apparent," See Industrial Union, supra, 162 U.S.App.D.C. at 344, 499 F.2d at 480 I. e., to let the necessary changes occur as the result of a relatively undisruptive "evolution," rather than requiring NSCC to coordinate and implement an instantaneous "revolution" the Commission's choice in Order II between the alternatives left open in Order I is not to be disturbed.

The order at issue in No. 77-1199 is affirmed in all respects excepting its treatment of geographic price mutualization and the facilities management-data processing contract. The case is remanded for further exploration of whether these two aspects of NSCC's registration application are consistent with the 1975 Amendments' admonition that anticompetitive impacts not outweigh other regulatory benefits. The order at issue in No. 77-1547 is affirmed.

It is so ordered.