Full opinion text
FINDINGS AND OPINION POLLACK, District Judge. Preliminary This is a private antitrust action brought against the Put and Call Brokers and Dealers Association (the Association), a New York membership corporation, by one of its former members and the two wholly-owned corporations through which he conducted business. The complaint alleges that the Association unlawfully suspended Lee Vandervelde from membership, in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and that the suspension caused the termination of the business of the two corporate plaintiffs. The Court’s jurisdiction is based on § 4 of the Clayton Act, 15 U.S.C. § 15. Lee Vandervelde became a member of the Association in October, 1959. He was the President and sole shareholder of the corporate plaintiffs, L. Vandervelde & Co., Inc., a California corporation organized in 1959, and L. Vandervelde New York Corp., a New York corporation organized in 1961. The companies acted as dealers in and writers of puts and calls from November 1, 1959 and November, 1961, respectively, until early November, 1963. For convenience, Vandervelde and his enterprises will hereafter be referred to simply as “Vandervelde” unless otherwise indicated. The corporate plaintiffs seek damages for loss of income and the termination of their business activities and Vandervelde himself seeks to recover for loss of salary as an employee of the corporate plaintiffs. The defendants herein, in addition to the defendant Association, are 13 of its members and 8 put and call firms associated with Association members. The plaintiffs also named as defendants six member firms of the New York Stock Exchange. The Court dismissed the action against these defendants at the close of the trial. Summary Statement of the Action On August 27, 1963, Lee Vandervelde and Donald Cohen, the manager of Vandervelde’s New York office, were each suspended from the Association for their failure to pay $125 fines levied on each of them by the Association’s Board of Directors, upon recommendation by its Committee on Business Conduct. Two months earlier, the same Committee had ruled that Vandervelde and Cohen had engaged in improper business conduct by informing another put and call member firm that an option advertised by Vandervelde was no longer available for sale, which was untrue, and further that Vandervelde had refused in violation of an Association rule, to grant a discount or allowance to a co-member of the Association who desired to purchase an advertised option from Vandervelde. The Committee also found that Vandervelde unfairly discriminated against co-members of the Association by granting discounts to stock brokerage firms upon sale to or through them of advertised options, by accepting discounts from Association members, but refusing to grant discounts to other members. Plaintiffs contend that the discount rule of the Association, among others, is invalid as a restraint upon competition among option dealers, prohibited by § 1 of the Sherman Act, and that the suspension constituted an unlawful boycott of their business by the Association, also void under § 1. They make the additional claim that the suspension and ensuing boycott were part of an attempt by the Association and its members to monopolize trade in options, prohibited by § 2 of the Act. The suspension is claimed to have resulted in the loss of business from the six stock exchange firms mentioned above, depriving Vandervelde of his major source of options and customers, and rendering continuation of profitable operations impossible. The defendants contend that none of the rules of the Association which plaintiffs cite in their allegations is unlawful and that the suspension was a justified instance of a trade association’s acting to insure the ethical conduct of its members. Moreover, they contend that issues of antitrust liability need not ever be reached in this action because the facts demonstrate that the business had previously lost significant amounts of its capital and was worthless as a going concern at the time of the suspension and that the termination of the Vandervelde business was a voluntary one prompted by economic failure. The resolution of the controversy between the parties requires a preliminary understanding of the nature of the option business and the organization and activities of the Association. Put and Call Options Put and call options are negotiable contracts in which the writer of the option, for a certain sum of money called the “premium”, gives the buyer of the option the right to demand within a specified time the purchase or sale by the writer of a specified number of shares of a stock at a fixed price called the “contract price”. A “put” gives the purchaser an option to sell, and commits the writer to buy, the shares covered by the option; a “call” gives the purchaser an option to buy, and commits the writer to sell, the subject shares. Options are always written in 100 share units. The put and call broker-dealer firms are the intermediaries through whom trading in options is carried on. A person who wishes to sell or to purchase an option will utilize an option dealer to create the trade he seeks. In June, 1959, the Securities and Exchange Commission conducted a statistical survey of the option business and ascertained that there were two types of option firms; those which performed only a brokerage function and those which traded in options, purchasing options from writers for inventory in the hope of arranging a later, profitable sale. Securities and Exchange Commission, Report on Put and Call Options 69 (1961) (hereinafter cited as SEC 1961 Report). The SEC found that the ten firms which acted solely as intermediaries for specific trades between buyers and sellers dealt almost exclusively through New York Stock Exchange member firms. SEC 1961 Report at 69. The report further showed that the great majority of options are written by persons who are not dealers in puts and calls, and that the put and call firms wrote less than 6.3% of the options outstanding at the time. SEC 1961 Report at 56, 55. It is not necessary to be a put and call dealer in order to write options. Dealing in put and call options is a highly speculative and volatile sector of the securities industry. These options have several potential uses for buyers and present an opportunity for profit for option writers who feel that their judgment about the future course of activity in a security is correct. For both parties, the key factor on which an option trade is based is a competing prediction of market movement in a given security during a given period of time. However, the fact that an option’s desirability is based on the fluctuation of stock prices creates a potential incentive for market manipulation and unscrupulous treatment of prospective option buyers. It was to prevent the development of such practices that self-regulation of the option business by the Association was initiated. The Association of Dealers The Association is composed entirely of individuals engaged in the put and call business. Any person may become a member of the Association if approved by the Board of Directors. The Board, with the assistance of the Committee on Admissions, considers the character and reputation of the applicant and also the applicant’s knowledge of the put and call business and an affirmative vote of two-thirds of the Board is required for acceptance as a member. A corporation conducting a put and call business may have the benefit of the use of a membership held by an executive officer of such corporation and such firms are considered associated members. The Association was formed in August, 1934. The impetus for its creation was provided by congressional hearings, prior to passage of the Securities Exchange Act, which contemplated abolition of all option trading. After passage of the Exchange Act in 1934, which accepted regulation of option trading, 15 U.S.C. § 78i(b) (1971), as a substitute for prohibition of such trading altogether, the Association was formally organized. Fifty-five individuals became members of the Association at its first meeting. At the time Vandervelde joined the Association in 1959 there were 30 members, representing a somewhat smaller number of active put and call firms, and there are presently 30 members. The purposes of the Association are: To foster the maintenance of high standards of integrity and honor in all business dealings by its members; to prevent any trade practices which may be or may tend to be unfair or inequitable; to establish trade practices which are conducive to harmonious relations among its members and to efficiency in the conduct of their business, and thus to enable them to better serve the persons with whom they deal, or on whose behalf they act; and to provide for the settlement by arbitration of all differences and disputes arising between members, and otherwise to promote their welfare. Constitution and By-Laws of the Put and Call Brokers and Dealers Association, Inc., Art. II. (hereinafter cited as “Constitution”). The SEC’s Special Study of the Securities Markets, described the Assoeiation as “the most highly organized” of all the unofficial self-regulatory agencies in the securities industry. The Study' continued: “In many respects the association is as highly institutionalized as an exchange and the business in which its members engage is as strictly controlled as are dealings in listed securities. . . . Although the PCBDA has no official standing, the association has assumed as firm control over its members and the put and call market as certain official self-regulatory bodies have over their members and members’ activities.” See 4 Report of Special Study of Securities Markets of the Securities and Exchange Commission, H.R.Doc.No. 95, 88th Cong., 1st Sess. Pt. 4 (1963) at 687, 690 (hereinafter cited as SEC Special Study). The Association’s most important achievement has been adoption of a standard form of option contract and creation of a mechanism by which the obligations of the writer of the option are guaranteed — effectively rendering the option contract a negotiable instrument. The standard form of option contract specifically sets out the obligations of the writer and endorser of the option and informs the buyer of the precise life of the option he holds and the effect on the price he must pay or the shares he will receive of dividends, warrants, or splits during the option's life. Use of a standardized form contributes greatly to the stability of the option market by eliminating confusion and adding to the protection of the buyer. The Constitution of the Association states that members are to use only the official form of option obtainable from the Association, and only members may obtain such forms. Each contract contains the legend that it has been issued by a member of the Association and the equally important legend that the option contract is guaranteed by a member of the New York Stock Exchange. The endorsement of options by the stock brokerage firm of the option writer serves to insure the purchaser that the contract will be fulfilled if he chooses to exercise his contract right. The availability of this guarantee is felt to strengthen public confidence in option dealings by divorcing the fulfillment of any given contract, if necessary, from the financial ability of the option writer to meet his commitment. Options sold by Association members are required to have the endorsement of New York Stock Exchange member firms. The Board of Directors may designate other exchanges as acceptable endorsers but it has never done so, although it has received inquiries from both the American Stock Exchange and the Toronto Stock Exchange in this regard. In addition to these basic rules setting the parameters for the writing and selling of options, the Association has adopted a number of rules regulating the business conduct of its members and attempting to establish a set of uniform practices for firms dealing in options. Some of these rules concern record keeping and creation of usable data on the scope, volume and performance of the option market; members are required to report their transactions to the Association, a measure recommended by the SEC, and are also required to maintain their own records as to the details of each transaction they handle. A second set of rules concerns regulation of the terms on which members deal. Thus, no advertisement of any option at a price of less than $137.50 is permitted (it may be sold for less but not advertised for less), and no option may be offered by mail for less than 21 days or less than $100 premium. No option may be written or traded under any circumstances with a life of less than 21 days. As noted earlier, options must be traded in 100 share units, and to the extent that there is still commerce in options based on a “points away from the market” calculation, that option must be sold at the fixed premium of $137.50 per 100 shares. The “discount” rule, which is discussed below, also falls into this category. A third set of important rules governs the relationship of Association members with other securities firms. Members of the Association may not share commissions or profits with any non-members except those who are registered with the SEC, and the amount of the commission which may be paid is limited to a maximum of $6.25 for each 30-day option of a hundred shares. This rule was another of the recommendations made by the SEC in 1935. When an Association member cashes in a profitable option for a client, he must charge his customer the same commission and tax as would be charged by member firms of the New York Stock Exchange for the sale, transfer or exercise of options. The Association regulates the methods by which its members seek to bring their operations or specific options to the attention of the public. Members must file any pamphlet, circular, advertisement or other literature with the Association’s Committee on Publications, and approval before publication is required in many instances. All such materials must contain the legend that the advertising firm is a member of the Association, and the Constitution states that no matter in any such material “shall contravene the standards of business practices and ethics fostered by the Association.” Constitution, Art. V, § 6. The Association’s Committee on Business Conduct is empowered to consider matters relating to the practices of members or their firms and the observance of the Association’s rules and regulations for the “fair and equitable transaction of business by members. . . . ” Constitution, Art. V, § 4. The Board of Directors is authorized to try charges against members for violation of the Constitution or rules, failure to comply with any order or decision of the Board or a standing committee, or acts “inconsistent with equitable, fair and honorable commercial dealings.” Constitution, Art. IV, § 2(f). Penalties include fine, suspension or expulsion. Under Section 9(b) of the Securities Exchange Act, 15 U.S.C. § 78i(b), the SEC was granted jurisdiction to enact and enforce rules and regulations governing the put and call business and those engaged in the business as brokers and dealers. Although recommended in 1935 by its staff, the SEC has never enacted any such rules, but it has followed the business closely and has conducted investigations and written reports relating to the commerce in puts and calls in 1934, 1939, 1944, 1945 and 1961. The SEC Special Study commented that “[o]ver the years the Commission and the PCBDA have had an informal working arrangement . . . and specific recommendations made by the Commission’s staff have, on occasion, been adopted by the Association, including provisions bearing on members’ conduct and business practices.” SEC Special Study, Part 4 at 690. Copies of the Association’s Constitution and By-Laws and all amendments thereto, and all written rules of the Association have been regularly furnished to the Commission, and the Association regularly supplies the Commission with statistics on the volume of options traded. In addition, brokers and dealers in options must register with the Commission pursuant to § 15 of the Exchange Act, 15 U.S.C. § 78o. Thus, the Association has historically been the medium through which persons engaged in the buying and selling of options regulate their industry. Due to a combination of historical circumstances, the SEC’s failure to enact a regulatory pattern of its own, the highly specialized nature of option trading, and the participation of all but a handful of persons in the option industry, the Association has effectively controlled the terms on which options are traded and option firms act. It has, in effect, created and regulated a specialized over-the-counter market for purchase and sale of options. During the period of Vandervelde’s membership, there was only one option dealer who did not belong to the Association. That firm was Starr & Gelber, a West Coast house whose principal felt that membership would confer no additional benefit upon his operation. The Suspension of Vandervelde Article VIII, § 23 of the Association Constitution provides that: Members accepting public print offers shall be entitled to a reasonable commission, discount or allowance. It was this provision which brought about Vandervelde’s difficulties with the Association. Vandervelde engaged in advertising options and spent considerable sums on such advertising in each of the years of his business. He balked at being required to sell his advertised options to members of the Association at a discount according to the rule. He informed individual members of the Association that he would sell advertised options only as advertised (without discount), and followed this up on January 15, 1963, with a letter to the Association stating that Vandervelde would make it a practice to sell available special options to dealers at advertised prices (meaning, not at discounts therefrom). The newspaper advertising of options for sale to the public was an important part of Vandervelde’s business in puts and calls. Vandervelde often advertised options which had been purchased for inventory rather than for immediate resale and were attractive in price because of changed market conditions. Such advertising of options is used to attract customers and their brokerage firms and to induce them to begin a regular course of business with dealers engaged in such advertising. Vandervelde, in order to be able to compete in price for customers, refused to sell his advertised options to other members of the Association at a discount. He believed, with some reason, that buyers interested in his advertised options would do initial and repeat business with him rather than through their accustomed dealers if the latter were not given any financial incentive to act as the middleman to acquire the advertised options for their customers. More importantly he hoped that brokerage houses which purchased attractive special options from him would develop or maintain a regular course of dealing with him in seeking bids for the purchase or sale of unadvertised options, the largest segment of an option dealer’s business. Vandervelde’s resistance to affording a discount to other members of the Association on advertised options came to a head in the summer of 1963. To chill the interest of Filer, Schmidt & Co., a member of the Association, in an option which Vandervelde had advertised, Cohen falsely stated upon inquiry by Filer for the option that it was no longer available; that it had been disposed of. The truth was discovered when Filer had a stock brokerage firm seek to buy the option for Filer’s account and found it to be available for sale. Filer then made a formal complaint against Vandervelde for this business conduct. Vandervelde admitted the facts but responded that he had previously informed the Business Conduct Committee that his companies intended to sell to members at advertised prices with no discount, that the Association dealers were not interested in buying from Vandervelde on this basis and that the false statement had been made to avoid another long telephone dispute about the no-discount policy. In the light of past disputes, Vandervelde stated that he did not intend to reveal his position to dealers who wished to find out if an advertised option were “available”, and he intended, on advice of counsel, to maintain his right to do business without granting special favors to his competitors. During the summer two similar complaints were made by other firms. The Committee submitted a written report to the Board of Directors concerning the Filer complaint in the course of which it reported It must be obvious that it is contrary to any reasonable standards of proper business conduct for a broker or dealer to misrepresent or misstate facts to another broker or dealer. The statement here that the option was sold when in fact it was not is a clear violation of the rules of proper business conduct. Speaking of Vandervelde’s justification of the deliberate misstatement by referring to the fact that he had announced that he would not sell options to dealers at a discount and that he did not intend to reveal his position to dealers who wanted to know whether an advertised option was “available”, the Business Conduct Committee reported further that: The asserted refusal by Mr. Vandervelde to allow any commission, discount or allowance to a member of the Association is a clear and unequivocal violation of this provision. Moreover, Mr. Vandervelde’s firm grants a discount to stock exchange firms and accepts discounts from other members of the Association. To the extent that he refuses to allow a member a discount at least equal to that allowed by him to a stock exchange firm, his conduct is discriminatory against a member. To the extent that though unwilling to grant a discount to other members he accepts a discount from a member granting it under the requirements of the above-quoted provision, his conduct, to say the least, is in disregard of the aims and objects of the Association, which are stated to be, in part, “ . . .to prevent any trade practices which are not conducive to harmonious relations among its members. ...” The Committee concluded that the misstatement as to the availability of the option was deliberate and in pursuance of a policy of refusing discounts to members of the Association and that We believe that the misstatement and the policy violate the Constitution and By-Laws and the rules of business conduct established by the Association, and that Mr. Vandervelde and Mr. Cohen should be penalized for such violations in the sum of $125 each. The Board of Directors of the Association unanimously approved the recommendation of the Business Conduct Committee and levied the fines recommended. The Board held a hearing in connection with Vandervelde’s response that it had not done so or heard his side of the matter before levying the sanction. After hearing Mr. Cohen, Vandervelde’s representative, the Board reaffirmed its prior determination. The Association advised Vandervelde and Cohen that their memberships in the Association would be suspended unless the fines were paid by August 12, 1963. Vandervelde complained of this action both to the Association and to the Securities and Exchange Commission. The Commission responded on August 14, 1963, stating that the Association is not registered with the Commission in any capacity, that it has no official standing with the Commission and that the Commission was not authorized to review dieiplinary actions by the Association against members. On August 16, 1963, the Association advised Vandervelde that it had received a copy of the Commission’s letter of August 14, 1963, and unless the fines were paid by August 26, 1963, suspension would result. Vandervelde did not pay the $125 fine imposed by the Association and his membei’ship was suspended for the reasons set forth in the report of the Business Conduct Committee. On August 27,1963, Vandervelde was informed that until the suspension was lifted he was not entitled to exercise any of the rights and privileges of membership in the Association, including the use of the Association’s contract forms. Each member of the Association was notified of the suspension and that Vandervelde was not pei'mitted to use the form until the suspension was lifted. The Questioned Rules — Injury Requirement Plaintiffs dispute the legality of a number of the Association rules. They challenge as violations of § 1 of the Sherman Act the rules that members may deal only in options written on the Association contract form, that only New York Stock Exchange member firms may endorse options, that commissions on cash-ins be the same as those charged by New York Stock Exchange member firms, that options advertised must have a minimum premium of $137.50, and that a discount be granted Association members purchasing an advertised option from another member. A challenge to a rule in a suit such as this falls to the ground unless injury has followed therefrom. Plaintiffs may recover damages only for violations of the antitrust laws by which they were injured, Molinas v. National Basketball Association, 190 F.Supp. 241, 243 (S.D.N.Y.1961), cf. Salerno v. American League of Professional Baseball Clubs, 429 F.2d 1003,1004 (2d Cir. 1970), cert. denied, 400 U.S. 1001, 91 S.Ct. 462, 27 L.Ed.2d 452 (1971). The application of that standard to the proof received at trial limits the Vandervelde claims to the discount rule and the suspension which resulted from his refusal to observe it. With regard to his ancillary claims, Vandervelde’s stance is similar to that of the plaintiff in Molinas, supra. There, a professional basketball player who had been suspended for life by the National Basketball Association for wagering on games in which he played, brought suit challenging not only his suspension but the legality of the league’s reserve clause. This portion of the complaint was dismissed after trial on the ground that “no causal connection . . . [had] been established between the reserve clause and any damage which [plaintiff] may have sustained.” 190 F.Supp. at 243. Cf. Industrial Building Materials, Inc. v. Interchemical Corp., 278 F.Supp. 938, 968 (C.D.Cal.1967), rev’d on other grounds, 437 F.2d 1336 (9th Cir. 1970) (summary judgment granted for defendant as alternative to dismissal of action for failure to comply with Court’s pretrial rulings; held, inter alia, that, assuming truth of facts alleged, fact that plaintiff’s former supplier’s prescription of dealers’ territories may have been per se illegal under the holding of United States v. Arnold Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), did not entitle plaintiff to recovery, since his claim was based entirely upon business lost when former customers turned to other distributors as a result of alleged conspiracy by supplier to monopolize trade in his product); Interphoto Corp. v. Minolta Corp., 295 F.Supp. 711, 721 (S.D.N.Y.), aff’d, 417 F.2d 621 (2d Cir. 1969) (motion for preliminary injunction) ; Lyons v. Westinghouse Electric Corp., 235 F.Supp. 526, 538-39 (S.D.N.Y. 1964) (McLean, J.). The Discount Rule — A Violation The dispute between Vandervelde and the Association as to which injury may be said to have been demonstrated herein concerned the discount rule, the means by which Vandervelde claims he sought to avoid compliance with that rule, and the action taken by the Association in response. The issues of antitrust liability in this action rest upon that dispute. The record does not indicate when the discount rule was adopted in its present form, but the sharing of commissions and the trading of options among Association members on terms more favorable than-those at which options were available to non-members was apparently contemplated from the earliest days of the organization. The rule applies to public print or “special options”, those which are advertised by put and call broker-dealers rather than purchased by a broker-dealer in response to a specific request from a potential buyer or buyer’s brokerage house. The advertising of options held for speculation in this way by the dealers seems to have begun on a regular basis in the early 1950’s. The amount of the discount or member’s allowance was apparently subject to some negotiation in the course of each trade, but a range of standard discounts did develop. Dependent on the price of the option, the standard discount varied from $12.50 to $25. The issue here is whether a rule among brokers that a commodity offered for sale by any one of them be sold to another member at a discount from the advertised sales price represents an unlawful price regulation or an attempt to restrict each broker’s ability to deal freely with customers. The claimed competitive detriment of the rule is that the advertising dealer is denied an opportunity to attract other buyers directly because any other member may match his price by obtaining the same commodity at a discount. The claimed benefit of the rule is that it recognizes the right of a broker who has found a customer for a commodity advertised by a second broker to be compensated for his service. The alteration, pegging or stabilizing of the price of a commodity by agreement among competitors is per se illegal regardless of the ends the price arrangement is designed to serve. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223, 210-28, 60 S.Ct. 811, 84 L.Ed. 1129 (1940). This restriction applies to the setting of maximum as well as minimum prices, Kiefer-Stewart v. Seagram & Sons, 340 U.S. 211, 213, 71 S.Ct. 259, 95 L.Ed. 219 (1951) (maximum resale prices). The key element in the prohibition is the desire to prevent “agreements . . . [which] cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.” 340 U.S. at 213, 71 S.Ct. at 260. In Socony-Vacuum, the Supreme Court made it clear that the price-agreements proscribed by the Sherman Act extended beyond agreement and enforcement of a set of uniform prices: “[Prices] are fixed ... if the range within which purchases or sales will be made is agreed upon, if the prices paid or charged are to be at a certain level or on ascending or descending scales, if they are to be uniform, or if by various formulae they are related to the market prices. They are fixed because they are agreed upon.” 310 U.S. at 222, 60 S.Ct. at 844. A second category of arrangements which have been classified as illegal per se is the allocation of markets or of certain customers among a group of competitors. Timken Roller Bearing Co. v. United States, 341 U.S. 593, 597-598, 71 S.Ct. 971, 95 L.Ed. 1199 (1951); White Motor Co. v. United States, 372 U.S. 253, 263, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963) ; United States v. Consolidated Laundries Co., 291 F.2d 563, 574-575 (2d Cir. 1961). Defendants argue that Article VIII, § 23 of the Constitution does not constitute price fixing for two reasons: first, sale to other members is not required when a member advertises, second, price is not fixed by the rule, whose only requirement, if it is a requirement, is that the second Association member-firm be granted a commission. In December, 1962, six months before the transaction which led to the suspension, Godnick & Son complained to the Business Conduct Committee that Vandervelde had sold an option to a brokerage firm after informing Godnick that the option had been “sold away”. Ten days after the Committee found itself unable to resolve the factual dispute, the Board of Directors adopted a rule of business conduct for members which stated that upon an option’s becoming available it must be reoffered in the order in which bids were received during the period of unavailability. While this is not the same as a rule requiring that the option be sold to the first bidder, it does require that an option firm must be accorded equal preference with an outside firm when options are “reoffered” at least apparently to the extent of being accorded a right of first refusal. This rule is difficult to understand if the offering firm has no duty to deal with any potential buyer. The rule is explicable on the assumption that an option dealer should normally sell to any purchaser who will meet his price; and that in the event that purchaser is a fellow Association member, that price will be reduced pursuant to § 23. Promulgation of this rule so soon after the Vandervelde-Godnick dispute lends credence to the inference that it was considered an improper practice to refuse to sell to a member firm merely because the advertiser preferred to do business directly with buyers or their brokerage firms. It is necessary to appraise the effects of a rule such as § 23 in light of the realities of market activity in the area to which the rule applies. From this standpoint, the absence of a formal rule requiring one member to sell to another may be explained by the fact that normal trading practice makes such a rule unnecessary. The option business is even more fast-moving than trading in securities generally, since a small change in the price of the subject stock can affect the premium at which an option is sold and even the marketability of that option. The argument that the advertising dealer has complete freedom to choose his customers is contradicted by the realities of trading a commodity of rapidly fluctuating value and restricted appeal in a small market. An option dealer who refuses to sell in response to a bid by a competing dealer runs the risk that in the interim until another bid the value of his option will fall. The report of the Business Conduct Committee in Vandervelde’s own case further supports the indication that a member’s unequal treatment of other members was frowned upon as contrary to Association principles. If a member is completely free to structure his transactions as he wishes, it is difficult to understand why his desire to grant discounts to a certain class of customers but not to another class was considered a practice contrary to harmonious trade relations between members. The fact that refusal to sell to other members was not consistently punished by imposition of formal sanctions or that there was no requirement that the dealer sell to any one bidder would not remove the rule from antitrust scrutiny. The courts have emphasized in past decisions dealing with trade association rules that “subtle influences may be just as effective as the threat or use of formal sanctions to hold people in line”, United States v. National Association of Real Estate Boards, 339 U.S. 485, 489, 70 S.Ct. 711, 714, 94 L.Ed. 1007 (1950). See, American Column and Lumber Co. v. United States, 257 U.S. 377, 411, 42 S.Ct. 114, 66 L.Ed. 284 (1921). One such motive or inducement is the knowledge that a favor given a competitor will be returned. Cf. United States v. Container Corporation of America, 393 U.S. 333, 335, 89 S.Ct. 510 (1969). The evidence is not conclusive on the question of whether a sale to another Association member was itself compelled. There is evidence that such sale was the expected practice and that related sorts of discrimination were fostered by the Association. Moreover, even if the discount rule is viewed as defendants would have the Court view it, merely as a commission-splitting device when a dealer chooses to sell to a fellow member, it has the effect of facilitating the choice to deal through a firm other than the advertising firm, in an atmosphere where the advertising firm’s acceptance of such a choice was expected. More importantly, in Vandervelde’s case, coercive action was taken in the form of assessment of a fine and suspension. The Association asks the Court to find that the fine was imposed because a falsehood had been told by one member to another. However, the Business Conduct Committee’s recommendation was that “the misstatement and the policy (of refusing to grant discounts to members of the Association)” violated the Constitution and By-Laws. The Committee not only refused to accept the policy as a justification for the misstatement, but condemned the no discount policy as “a clear and unequivocal violation” of § 23 and Vandervelde’s granting of discounts to stock brokerage firms (and acceptance of discounts from other Association members) while refusing to grant discounts to members as “to say the least, ... in disregard of the aims and objects of the Association”, [specifically the objective] “to prevent any trade practices which are not conducive to harmonious relations among its members.” Whatever the validity of a suspension solely for a misstatement, the Court finds that, as the report of the Business Conduct Committee indicates, the statement of Cohen to the representative of Filer, Schmidt, was part of a larger controversy between Vandervelde and the Association on the subject of the discount rule and that Filer’s complaint related superficially to the misstatement but more importantly to the fact of Vandervelde’s having cut him off from bidding on an advertised option. Cohen testified that he had made the misstatement to avoid a dispute about discounts, a fact as to which no contrary proof was offered, and despite some of the other shortcomings of Cohen’s testimony, his statement in this regard is supported by the facts of the dispute and is worthy of belief. Thus, there is evidence that Vandervelde was disciplined for refusing to grant discounts and that both sides understood that or had reasons to believe that the suspension was not one for a misstatement alone. The misstatement’s wrongfulness was viewed in this case not as related to a completed transaction but as related to unwillingness to initiate a transaction with another member, and, at bottom, it was this unwillingness for which sanctions were imposed by the Association. Even if the rule were classified as merely a commission sharing device, it is difficult to escape the conclusion that the requirement that the commission be paid if the sale is made would void the rule. Plymouth Dealers’ Association of Northern California v. United States, 279 F.2d 128, 132 (9th Cir. 1960). The key element of the rule in § 23 is that discounts are required for all trades between members on advertised options. An Association’s acting to forbid such discounts altogether would run afoul of the Act, Sugar Institute v. United States, 297 U.S. 553, 56 S.Ct. 629, 80 L.Ed. 859 (1936), cf. Thill Securities Corp. v. New York Stock Exchange, 433 F.2d 264, 270 (7th Cir. 1970), cert. denied, 401 U.S. 994, 91 S.Ct. 1232, 28 L.Ed.2d 532 (1971). A horizontal agreement fixing uniform discounts would meet the same fate, since such an arrangement would in effect constitute a decision to fix maximum resale prices, illegal per se. Albrecht v. Herald Co., 390 U.S. 145, 151, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968); Kiefer-Stewart v. Seagram & Sons, supra. See, United States v. White Motor Co., 194 F.Supp. 562, 576 (N.D.Ohio 1961), rev’d on other grounds, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963). Cf. Callaghan & Co. v. Federal Trade Commission, 163 F.2d 359, 373 (2d Cir. 1947). What the rule here requires is that a maximum resale price be charged a certain class of buyers. Price fixing initiated by a group of powerful buyers, no less than price fixing by sellers, is per se illegal. Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 236, 68 S.Ct. 996, 92 L.Ed. 1328 (1948). See also, Live Poultry Dealers Protective Association v. United States, 4 F.2d 840 (2d Cir. 1924), Blue Cross v. Commonwealth of Virginia, 211 Va. 180, 176 S.E.2d 439 (1970) (alternate holding). In United States v. Olympia Provision & Baking Co., 282 F.Supp. 819, 828 (S.D.N.Y.1968), aff’d mem. sub. nom. Provision Salesmen & Distributors Union v. United States, 393 U.S. 480, 89 S.Ct. 708, 21 L.Ed.2d 688 (1969), the granting of uniform minimum discounts to distributors of hot dogs was found to violate the Sherman Act. It is difficult, however, to classify the discount rule as merely a commission-splitting device. The members of the Association act with respect to advertised options as intermediaries between sellers and buyers of options. But when a dealer holds options for inventory, the advertiser is in the position of a seller and § 23 operates on his freedom of action. If the advertiser sells his option away to another dealer, he does more than merely split his profit, he loses the potential contact with the ultimate purchaser of the option although he hopes by use of his advertisements to open a contact for future dealings. This loss may come through the mere habit of a broker born of familiarity or the impulse to give reciprocal business. Brokerage houses develop a regular course of soliciting bids on potential buy or sell orders from a group of firms, and the 1961 SEC study confirms that such patterns exist. SEC 1961 Report, at 80, 81. More importantly, however, the fact that the dealer purchasing an option would receive a discount on his own purchase may enable him to undersell the advertising dealer; to charge less for the option after purchasing it at a discount under the rule. The subsequent transaction is virtually risk-free as far as the intermediary option firm is concerned. The defendants argue that any buyer who wanted to buy through Vandervelde could do so. Indeed the record indicates a practice of an interested brokerage firm of calling both the advertising dealer and the second option firm, with the thought, perhaps, of obtaining the lowest possible price for its client. However, such freedom on the part of brokerage houses is detrimental to defendants’ case. There are two variables which determine the salability of an option, its price and its terms. An advertised option may or may not be easily duplicable, but it does not seem “specious” to accept the fact that a buyer would bid a dealer other than the advertised dealer for an option only if the buyer could obtain the option at an equally satisfactory price from the second dealer. What the defendants’ argument reduces to is the proposition that when a prospective buyer chooses a firm other than the advertising firm to make the trade, the dealer has found a buyer for the advertising firm and should be compensated. However, it is the existence of the discount rule itself which provides the impetus for such selection or at least makes such selection economically feasible, for only if the intermediary dealer can purchase from the advertising dealer at a discount does the selection become an economically rational one. Cf. United States v. Container Corporation of America, 393 U.S. 333, 89 S.Ct. 510, 21 L.Ed.2d 526 (1969). The agreement embodied in § 23 of the Association’s Constitution involves not merely the exchange of price information for a fungible item, but the imposition of a maximum resale price for a relatively unique and speculative item, for the benefit of a uniquely situated class of buyers, in an atmosphere in which bidding through those buyers by ultimate buyers may be expected and in which refusal to deal with such class of buyers, if not prohibited by a combination of trade practice and market reality, is subject to substantial disapproval. The pooling of profits among competitors “at least reduces incentives to compete”, Citizen Publishing Co. v. United States, 394 U.S. 131, 135, 89 S.Ct. 927, 929, 22 L.Ed.2d 148 (1969). In United States v. American Smelting and Refining Co., 182 F.Supp. 834, 860 (S.D.N.Y.1960) an arrangement was found unlawful whereby one producer of lead acted as the exclusive seller of a portion of the production of a second producer in a designated area of the country. The Court noted that the benefit of such an arrangement to the producer whose sales through its agent were assured was “hardly mysterious”: “It gets a share of the . . . market without the necessity of competing with St. Joe and without the risk to prices that such competition would entail.” The Court refused to accept justification of the price averaging provision between the two producers on the ground that the producer who acted as agent provided the benefit of its sales organization for its “principal”, in terms which are relevant to the justification for the commission-sharing offered by defendants here: “The availability of St. Joe’s experience and expert sales organization in the East, eliminating for Bunker Hill the trouble and expense of having one of its own can only be regarded as incidental (nor would such an economic consideration be relevant to the issue of whether there has been an antitrust violation). [The fact that the agent can obtain those grades [of lead from the second producer] without having to produce them itself, when it is a potential competitor, helps to establish the unreasonableness of the agreement. The Sherman Act proscribes restraints of potential competition as well as restraints of actual competition.” 182 F.Supp. at 860. The compulsory granting of discounts on sales to Association members tends to the same ultimate result as that proscribed in the American Smelting and Refining decision. The ability of a competitor to meet the advertised price of a special option potentially reduces the incentive to market a similar option and makes available the output of another dealer at an insured competitive price. It is true that “the Sherman Act was not designed to compel businessmen in any industry to compete in any particular way”, United States v. Morgan, 118 F.Supp. 621, 738 (S.D.N.Y.1953), but it proscribes a variety of means by which competitors may agree not to compete. Section 23, whether viewed as setting a maximum resale price or making mandatory the granting of a commission to fellow Association members, is a direct regulation of price and of the advertising dealer’s ability to attract customers. Whatever the propriety of such a commission allowance as a matter of business ethics — an argument which is dubious justification in this context — such considerations do not rescue an arrangement among competitors with these effects on competition from prohibition. When the competing inferences which the parties ask the Court to draw are sifted through and the competing characterizations offered for the rule are analyzed and discounted where necessary, the fact remains that § 23 involves the imposition of a restriction upon the freedom of the individual members of the Association to set and abide by their own price in the limited marketplace in which they operate. Such restrictions are at the heart of the Sherman Act’s prohibitions. Kiefer-Stewart v. Seagram & Sons, supra; Plymouth Dealers’ Association of Northern California v. United States, 279 F.2d at 132. A recent decision in the Central District of California has concisely restated the rationale underlying the identification of certain trade practices as illegal per se under the antitrust laws: The primary disadvantages of the ‘rule of reason’ are that it requires difficult and lengthy factual inquiries and very subjective policy decisions which are in many ways essentially legislative and ill-suited to the judicial process. . . . The Supreme Court has on numerous occasions recognized these difficulties and has declared that with regard to certain practices the problems of making adequate economic determinations and setting appropriate guidelines are so complex that they simply outweigh the very limited benefits deriving from those practices and have declared them to be illegal per se. Denver Rockets v. All-Pro Management, Inc., 325 F.Supp. 1049, 1063 (D.C.Cal.1971) (Ferguson, J.) Since the Socony-Vacuum decision, the Courts have restated the unlawfulness of price arrangements in terms which leave little room for justification and which are more than sufficient to include within the area of prohibited activity the mandatory granting of a discount on sales by one competitor to another. Accordingly, the discount rule must be held to violate § 1 of the Sherman Act. Liability for Resulting Effects Defendants contend that there was no concerted refusal to deal with Vandervelde after the suspension and that the Association cannot be held liable for the acts of individual stock exchange houses in reaction to the suspension. Neither contention is correct. “[I]t is unreasonable, per se, to foreclose competitors from any substantial market,” International Salt Co. v. United States, 332 U.S. 392, 396, 68 S.Ct. 12, 15, 92 L.Ed. 20 (1947), and, “Group boycotts, or concerted refusals by traders to deal with other traders, have long been held to be in the forbidden category.” Klor’s, Inc. v. Broadway-Hale Stores, 359 U.S. 207, 212, 79 S.Ct. 705, 709, 3 L.Ed. 2d 741 (1959); Radiant Burners, Inc. v. Peoples Gas Co., 364 U.S. 656, 659-660, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961) (per curiam); Silver v. New York Stock Exchange, 373 U.S. 341, 347-349, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). Upon suspension, Vandervelde was denied use of the standard form of option contract, and brokerage firms which inquired as to Vandervelde’s status were informed of this fact. As indicated above, members of the Association agreed to deal only in options written on the standard form, and use of such form was recognized as one of the major achievements of the Association bringing stability and safety to organized option trading. Thus, at the very least, Vandervelde was denied the opportunity to engage in business upon the same terms and conditions as all but one of his competitors in the over-the-counter option market. He lost “a means of doing business which was of substantial value to . the conduct of [his] business. The very nature of the business in which [he was] engaged makes this abundantly plain.” Silver v. New York Stock Exchange, 196 F.Supp. 209, 223 (S.D.N.Y. 1961), rev'd on other grounds, 302 F.2d 714 (2d Cir. 1962), rev’d on other grounds, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963). The fact that the West Coast firm, Starr & Gelber, chose to do business and was able to do so successfully, without the benefits of Association membership, does not alter the effect of a suspension on a dealer who wished to avail himself of the Association’s imprimatur and the ability to trade through the marketing mechanisms which Association regulation had created. Associated Press v. United States, 326 U.S. 1, 17, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945), Silver v. New York Stock Exchange, supra, 196 F.Supp. at 223. Nor does the fact that Vandervelde may have been able to deal with individual Association members, as Starr & Gelber did, immunize the effect of denial of the use of the Association’s form, Silver v. New York Stock Exchange, 373 U.S. at 348-349 n. 5, 83 S.Ct. 1246, especially since most of Vandervelde’s business was conducted as intermediary between the customers of brokerage houses. In the Silver case, member firms of the New York Stock Exchange terminated their private wire connections with plaintiff, an over-the-counter securities dealer, after the refusal of the Exchange to approve the connection. The Supreme Court had no doubt that absent the possible justification for the Exchange’s action provided by the powers of self-regulation granted to it by the Securities Exchange Act, 15 U.S.C. § 78a et seq., especially 15 U.S.C. §§ 78f(b) and (d), the termination of the wire connection was in violation of the Sherman Act. 373 U.S. at 348-49, see 302 F.2d at 716. The Court noted that by denial of the wire connection Silver was “hampered substantially in his crucial endeavor” through loss of “important business advantages.” 373 U.S. at 348-349 and n. 5, 348-349, 83 S.Ct. 1246. The key to defendants’ argument is the contention that any “hampering” of Vandervelde’s business arose out of the reaction of the stock exchange firms to the suspension, for which the Association cannot be held responsible because of Vandervelde’s failure to show the element of proximate causation between the suspension and the termination of their business. They interpret the Court’s dismissal of the action as to the stock exchange firms as holding that the put and call defendants did not induce any refusals to deal or other acts by the stock exchange firms which chose not to deal with a suspended put and call dealer. The Court dismissed the action against the stock exchange defendants on the ground that none of those defendants “acted in concert with any other defendant, person, firm or association in electing not to deal with or endorse options for plaintiffs. . . .” Vandervelde v. Put and Call Brokers and Dealers Association, 1971 Trade Cas. (CCH) ¶ 73,728 at 91,042 (S.D.N.Y.1971). The Court found that “None of the said Stock Exchange defendants were informed or requested or given the suggestion by anyone that it should not do business with Mr. Vandervelde. . . .” However, the record shows and the Court held that “the mere fact of suspension of a put and call dealer from the said Association is a factor on which business with such dealer is declined without further inquiry concerning a suspension, its causes or its merits, or the legality thereof.” 1971 Trade Cas. (CCH) J[ 73,728 at 91,041. The stock exchange firms’ acts were triggered by the suspension. Thus, duPont justified its refusal to have further business dealings with Vandervelde on the ground that it chose not to deal with one who had been found by his peers to have violated the rules of an association which he voluntarily joined. Bache first questioned plaintiff’s financial stability after the suspension, and then in connection with trades in process, and Merrill Lynch invoked a long-standing independently arrived-at policy to deal only with members of the Association when seeking to complete buy orders initiated by its clients. All of the firms emphasized that they would not resume dealing with Vandervelde until he was again a member in good standing of the Association. The Association’s own publications and statements indicate that it placed great importance on its success as a self-regulatory body insuring ethical and commercial responsibility within its segment of the financial community. However, the fact that the purposes and acts of a trade body formed to improve standards of conduct and methods are otherwise beneficial does not immunize the imposition by that body of limitations upon the freedom of competitors such as occurred here. United States v. American Medical Association, 110 F.2d 703, 712 (D.C.Cir.), cert. denied, 310 U.S. 644, 60 S.Ct. 1096, 84 L.Ed. 1411 (1940) (upholding indictment). There is a “very real difference” between the use of self-regulation to further such purposes and an effort by the Association to hamper ability to do business of a firm which refuses to abide by a regulation which itself is an unlawful arrangement concerning the prices of the goods which members sold. Cf. American Medical Association v. United States, 130 F.2d 233, 248 (D.C.Cir.1942), aff’d, 317 U.S. 519, 63 S.Ct. 326, 87 L.Ed. 434 (1943) (upholding conviction). Defendants’ contention amounts to an argument that they are not liable for the results of their suspension of Vandervelde unless those who chose not to deal with a suspended member acted pursuant to an agreement so to do. A boycott within the meaning of the Sherman Act includes even the peaceful persuasion of a person to refrain from doing business with another, Cooperativa de Seguros Multiples De Puerto Rico v. San Juan, 294 F.Supp. 627, 629 (D.P.R.1968); Lawlor v. Loewe, 235 U.S. 522, 534, 35 S.Ct. 170, 59 L.Ed. 341 (1915); cf. Professional & Businessmen’s Life Ins. Co. v. Bankers Life Co., 163 F.Supp. 274 (D.Mont.1958). A boycott produced by peaceful persuasion is as much within the Act’s prohibitions as one where coercion of third parties is present. Duplex Printing Press Co. v. Deering, 254 U.S. 443, 467, 41 S.Ct. 172, 65 L.Ed. 349 (1921). There is evidence that the Association realized that the suspension of a dealer was an implied statement that the dealer had violated the standards which the Association fostered. The fact that the Association did not attempt to solicit directly the enforcement of their suspension by the stock exchange firms does not rob the suspension of its potential impact as a sanction. To say that an additional request must be made would be to require a mere formality. Any suspension such as this contains an implied recommendation that business not be done with the suspended member. The Association hoped that its suspension would lead buyers and sellers of options to withdraw their patronage from Vandervelde (or for that matter from any suspended member), and the Association is not free from liability for the natural consequences resulting from its activities. When the stock exchange firms made independent judgments to protect their clients with no intent to further the Association’s rules they did not cast a protective shield over the Association. In Eastern States Retail Lumber Dealers’ Association v. United States, 234 U.S. 600, 34 S.Ct. 951, 58 L.Ed. 1490 (1914), the Supreme Court held unlawful the circulation among the members of various associations of retail dealers of a list of wholesalers which had done business directly with the public. Because the Court’s opinion deals directly with the sort of prejudice inherent in publication of a trade association’s disapproval of a member, the opinion is quoted at some length: [T]he circulation of such information among the hundreds of retailers as to the alleged delinquency of a wholesaler with one of their number had and was intended to have the natural effect of causing such retailers to withhold their patronage from the concern listed. The circulation of these reports . . . directly tends to prevent other retailers who have no personal grievance against him, and with whom he might trade, from so doing . . . not because of any supposed wrong which he had done to them, but because of the grievance of a member of one of the associations, who had reported a wrong to himself, which grievance, when brought to the attention of others, it was hoped would deter them from dealing with the offending party. 234 U.S. at 609, 612, 34 S.Ct. at 953, 954. The fact that the circulation of such reports on the complaint of a retailer by the Association served as implicit evidence of a conspiracy to boycott offending wholesalers, a separate part of the Court’s holding, does not support the argument that liability for the result of the boycott depended on each member who received the report being found a conspirator: True it is that there is no agreement among the retailers to refrain from dealing with listed wholesalers, nor is there any penalty annexed for the failure so to do, but he is blind indeed who does not see the purpose in the . . . circulation of this report. 234 U.S. at 608-609, 34 S.Ct. at 953. The same principles are discussed in Caldwell-Clements Inc. v. Cowan Publishing Co., 130 F.Supp. 326 (S.D.N.Y.1955). There, defendants’ claim, that an allegation that they sought to damage plaintiff by circulation of untrue statements about plaintiff did not state grounds for relief under the antitrust laws, was rejected. What distinguished the acts alleged from a mere competitive tort, the Court stated, was “the concert of action ... by competitors with the specific purpose and result of ‘reducing’ [plaintiff’s] ability to compete. . . . That the means chosen to accomplish this end were the ‘peaceful persuasion’ of plaintiff’s actual and prospective advertiser-customers by the distribution of false writings concerning plaintiff’s business methods does not insulate the defen