In one of the first cases to apply the U.S. Supreme Court’s opinion in Credit Suisse Securities (USA) v. Billing, 127 S.Ct. 2383 (2007), a New York District Court found “clear incompatibility” between federal securities and antitrust laws and dismissed allegations that brokerage firms fixed prices charged to short sellers. In re Short Sale Antitrust Litig., 2007 U.S. Dist. LEXIS 94116 (S.D.N.Y. Dec. 20, 2007).
If plaintiff Electronic Trading Group LLC (“ETG”) were allowed to pursue its price-fixing claim against major brokerages, U.S. District Court Judge Victor Marrero wrote, a lay jury might mistake lawful conduct authorized by the securities laws for a conspiracy. “Such antitrust suits would likely chill a broad range of activities that the securities laws permit and encourage, and would likely inhibit the short selling activity that provides market liquidity and pricing efficiency.” Id. at *18.
ETG sought to represent a class of short sellers. In a typical short-sale transaction, a seller, anticipating that a security’s price will decline, borrows the security from a broker and sells it on the open market. Later, the seller buys the same security on the market and returns it to the broker, reaping any decline in price as profit. Id. at *2 to *3.
Brokers charge short-sellers a fee for locating securities available for borrowing. They also charge a fee for each day the short seller borrows the security. If a security is classified as “hard-to-borrow,” the borrowing fee may be higher. Id. at *3 to *4.
ETG alleged that defendants violated Sherman Act Section One by agreeing which securities to classify as hard-to-borrow, and...
