To Establish a Nasdaq Official Opening Price, 69 Fed. Reg. 716 (Jan. 6, 2004) (“[T]he Commission believes that the proposed rule change is consistent with Section 15A of the Act [15 U.S.C. § 78o-3] in general, and furthers the objectives of Section 15A(b)(6) [15 U.S.C. § 78o-3(b)(6)] in particular”). Case 5:07-cv-03683-RMW Document 5 Filed 07/23/2007 Page 11 of 15 MOTION TO DISMISS COMPLAINT Case No.

Nasdaq carries out its duty of calculating and disseminating the Nasdaq- 100 Index prices in furtherance of its statutory responsibility to “perfect the mechanism of a free and open market and a national market system.” 15 U.S.C. § 78o-3(b)(6); see Weissman, 468 F.3d at 1311 (recognizing Nasdaq’s regulatory responsibility “‘to remove impediments and perfect’ the free market”), reinstated in relevant part en banc, 2007 WL 2701308 at *1 n.3; 50 Fed. Reg. at 12,673; 50 Fed. Reg.

The SEC must ensure, among other things, that the SROs’ rules “are designed to . . . remove impediments to and perfect the mechanism of a free and open market and a national market system.” See 15 U.S.C. § 78o-3(b)(6). And the Exchange Act requires the SEC to find, prior to approving them, that SRO rules are in the public interest and will protect investors.

(B) will be a covered security upon completion of the transaction; (2) shall directly or indirectly prohibit, limit, or impose condi- tions upon the use of— (A) with respect to a covered security described in sub- section (b)(1) or (c)(1)— (i) any offering document that is prepared by the is- suer; or (ii) any offering document that is not prepared by the issuer if such offering document is required to be and is filed with the Commission or any national securities organization registered under section 15A of the Secu- rities Exchange Act of 1934 (15 U.S.C. 78o-3); (B) with respect to a covered security described in para- graph (2), (3), or (4) of subsection (b), any offering docu- ment; or (C) any proxy statement, report to shareholders, or other disclosure document relating to a covered security or the is- suer thereof that is required to be and is filed with the Commission or any national securities organization reg- istered under section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3); or (3) shall directly or indirectly prohibit, limit, or impose condi- tions, based on the merits of such offering or issuer, upon the offer or sale of any security described in paragraph (1). (b) COVERED SECURITIES.—For purposes of this section, the fol- lowing are covered securities: (1) EXCLUSIVE FEDERAL REGISTRATION OF NATIONALLY TRAD- ED SECURITIES.—A security is a covered security if such security is— (A) listed, or authorized for listing, on the New York Stock Exchange or the American Stock Exchange, or in- cluded or qualified for inclusion in the National Market System of the National Association of Securities Dealers Automated Quotation System (or any successor to such enti- ties); (B) listed, or authorized for listing, on a national securi- ties exchange (or tier or segment thereof) that has listing standards that the Commission determines by rule (on its own initiative or on the basis of a petition) are substan- tially similar to the listing standards applicable to securi-

These laws are rigorously enforced by the SEC, among other agencies. Financial services are also regulated by fifty state regulators and by self- regulatory organizations (or SROs) such as the Financial Industry Regulatory Authority (“FINRA”) (see 15 U.S.C. § 78o-3(b)(6)).

Financial services are also regulated by fifty state regulators and by self- regulatory organizations (or SROs) such as the Financial Industry Regulatory Authority (“FINRA”) (see 15 U.S.C. § 78o-3(b)(6)). See Appendix (“App.”) 15-16, 884-85.

denied, 531 U.S. 1069 (2001); see also FINRA Certificate of Incorporation and By-Laws (both available at http://finra.complinet.com/). Although FINRA is registered with the SEC as a self-regulatory organization pursuant to 15 U.S.C. § 78o-3(a), it was not created by statute. Desiderio, 191 F.3d at 206.

a. FINRA History The 1938 Maloney-Eicher Act amendment to the Securities Exchange Act of 1934 (Exchange Act) authorized securities markets to organize bodies of self-regulatory organizations ("SROs”) to police the actions of their members. See 15 U.S.C. § 78o-3(a). Pursuant to the Exchange Act, 15 U.S.C. §§ 78a-78oo, the United States Securities and Exchange Commission ("SEC") is authorized to delegate certain regulatory functions to SROs, which are therefore considered "quasi-governmental" bodies.

Regarding FINRA Rules, the Rules are designed and promulgated pursuant to federal law explicitly “to protect investors and the public interest.” 15 U.S.C. 78o-3(b)(6). Contrary to the argument of Defendants, these breach of contract claims are not asserting an independent cause of action for violation of FINRA Rules, but are instead an independent breach of contract action.

The suitability duty applicable to broker-dealers arose after passage of the Securities Exchange Act of 1934 (the “Exchange Act”), which directs national securities associations to establish and enforce rules to regulate member-broker-dealers. See 15 U.S.C. § 78o-3. The National Association of Securities Dealers (“NASD”) has enacted a suitability rule.