Whistler v. DTCC

United States Court of Appeals, Ninth Circuit. No. 06-16088.
August 22, 2008
NSCC National Securities Clearing Corporation also a defendant.
Amazing case. Says the SEC can preempt state law by approving the policy/program/plan of a self regulatory organization. So basically the NSCC Stock Borrow Program allows stock broker-dealers to sell stocks which do not exist, as part of the naked short sale system, and then continuously fail to deliver them. So the private clearinghouse has essentially been given a monopoly and can write its own legislation to override state law. One wonders what happens when it comes time to vote the non-existent stocks and brokerage customers can’t vote them? Perhaps there is a lottery like for payments in lieu of dividends.

“Because the Commission, in accordance with the congressional directive set forth in Section 17A, has approved NSCC’s creation of the Stock Borrow Program and the rules it has promulgated to govern Stock Borrow Program operations, we hold that state-law challenges to the existence or the operation of the Stock Borrow Program are federally preempted because they would conflict with congressional directive, as set forth under Section 17A.”

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