Board Of Trade Of The City Of Chicago v. Securities And Exchange Commission

923 F.2d 1270 (7th Cir. 1991)

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Nature of the Case

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Facts

The Delta system works roughly as follows. The system specifies the form of option contract that shall be the security traded. Some of the terms of the contract are fixed, such as the maximum term of the option and the day of the month on which it expires. Others are left open to be negotiated by the parties, such as the premium, the exercise price, and the month of expiration. The traders, who consist not only of securities dealers but also of banks, pension funds, and other institutional investors, communicate their buy or sell offers to a broker, which enters the offers in the system's computer. Delta, the clearing agency, monitors the computer and when it sees a matching buy and sell offer, it notifies the traders that they have a deal (but doesn't tell them with whom) and it takes the necessary steps to effectuate the completed transaction. The interposition of Delta between the traders protects the anonymity of each from the other as well as guaranteeing to each that the other will honor the terms of the option traded. P contends that this makes the Delta system an exchange, that is, 'any organization, association, or group of persons . . . which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood' There is no doubt that the Delta system creates an electronic marketplace for securities traders, and Ps say that no more is required to establish that the system must register as an exchange. D's reply emphasizes the words 'generally understood.' D held that Delta did not have to register as an exchange, but D did not determine whether Delta was an exchange or not. The case was then remanded back to D, which in fact determined that Delta was not an exchange. P appealed.