Jacobs, Ch.J., Sack and Lynch, C.JJ.

http://nycourts.law.com/CourtDocumentViewer.asp?view=Document&docID=118616

PLAINTIFF short-seller sued certain financial institutions serving as “prime brokers” in short-sale transactions. Plaintiff’s putative class action charged the prime brokers with violating Sherman Act §1 by “arbitrarily inflating” borrowing fees by designating certain securities as hard-to-borrow and then fixing the price to borrow them. Evaluating the four considerations outlined by the U.S. Supreme Court in Credit Suisse Securities (USA) LLC v. Billing, the district court dismissed plaintiff’s antitrust claim with prejudice on the ground of implied preclusion of the antitrust law by the securities law. It also dismissed three state law claims without prejudice to refiling in state court. The circuit affirmed after de novo review. Short-selling is an “area of conduct squarely within the heartland of securities regulation” and the SEC has authority to regulate the role of prime brokers in short-selling—and their fees—pursuant to §§10(a) and 6 of the Securities Exchange Act of 1934 and 15 USC §§78o(c)(2)(D) and 78j(b). Also, Regulation SHO constitutes exercise of the SEC’s authority to supervise the role of prime brokers in short-selling. The panel also concluded that antitrust liability would create actual and potential conflicts with the securities law regime.