Second Circuit Expands SRO's Absolute Immunity from Private Damages Suits

The Second Circuit, in Standard Investment Chartered, Inc. v. NASD (No. 10-945-cv, 02/22/11)(Download StandardInvCharter), held that NASD and its officers had absolute immunity from a private damages suit alleging misstatements in its proxy solicitation of its members to amend its bylaws in connection with the consolidation of NASD and NYSE to form FINRA.  In so doing, the court, in its short per curiam opinion, reiterated that "there is no question" that an SRO and its officers are entitled to absolute immunity from private damages suits in connection with the discharge of their regulatory responsibilities.  While cautioning that the doctrine "is of a rare and exceptional character," the appellate court expanded the list of instances where an SRO has absolute liability to include amendment of its bylaws where the amendments are inextricable from the SRO's role as a regulator.  The court thought that it was significant that, under federal securities law, NASD could not alter its bylaws without SEC approval and that the SEC retained discretion to amend any SRO rule, thus demonstrating the extent to which an SRO's bylaws are interwined with the regulatory powers delegated to the SROs by the SEC.