A firm that engaged in short sales could not pursue antitrust claims against brokerage firms based on allegedly inflated fees paid in connection with the borrowing and purported borrowing of securities for these short sales. According to the U.S. District Court for the Southern District of New York (In re Short Sale Antritrust Litigation, CCH Federal Securities Law Reporter ¶94,547), in light of the U.S. Supreme Court's June 2007 decision in Credit Suisse Securities (USA) LLC v. Billing, the securities laws implicitly precluded application of the antitrust laws to the conduct in question.
District Judge Victor Marrero cited the four factors identified by the Supreme Court for determining whether in a particular situation the antitrust and securities laws are incompatible. A finding of preemption is appropriate when 1) the possible conflict affected practices that lie squarely within an area of financial market activity that the securities laws seek to regulate, 2) there exists regulatory authority under the securities law to supervise the activities in question, 3) the responsible regulatory entities exercise that authority and 4) there is a resulting risk that the securities and antitrust laws, if both applicable, would produce conflicting guidance, requirements, duties, privileges, or standards of conduct.
As in Billing, which dealt with IPO practices, the fourth factor was the pivotal consideration. As stated by Judge Marrero,
The securities laws are in serious conflict with the antitrust laws within the short sale context at issue. After Billing, the serious conflict question now before this Court is, assuming that the SEC disapproves of (and will continue to disapprove of) the conduct at issue, whether "allow[ing] an antitrust lawsuit would threaten serious harm to the efficient functioning of the securities market."The district court noted Justice Breyer's concern that "evidence tending to show unlawful antitrust activity and evidence tending to show lawful securities marketing activity may overlap, or prove identical." Preemption was appropriate in this instance because the threat of a "nonexpert jury" mistaking lawful conduct under the securities laws as evidence of a conspiracy under the antitrust laws and exacerbated by the prospect of trebled damages, would place immense pressure on Defendants to curtail the open exchange of information. 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.