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In December 2020, the private stock exchange Nasdaq proposed a new Board Diversity Rule. The rule requires Nasdaq-listed companies to disclose aggregated information about the diversity of their corporate boards and, if the company has no corporate board, an explanation of why not. Nasdaq submitted the rule for review by the Securities Exchange Commission, as required by federal law. In August 2021, the SEC issued an approval order, concluding that the disclosures the rule imposed would reduce market inefficiencies by providing investors equal access to information about listed companies’ governance.

The Alliance for Fair Board Recruitment and the National Center for Public Policy Research petitioned the U.S. Court of Appeals for the Fifth Circuit to invalidate Nasdaq’s rule on a number of grounds, including claims that the SEC’s approval of the rule violates their First Amendment right against compelled speech and their Fifth Amendment right against discrimination, and that the rule’s adoption was arbitrary and capricious in violation of the Administrative Procedure Act.

The ACLU challenged some of these arguments in an amicus brief in the case. The brief focused on two points. First, it argued that Nasdaq’s rule does not amount to state action, and therefore does not implicate the petitioners’ constitutional rights, because Nasdaq is a private securities exchange. The fact that the SEC approved Nasdaq’s rule, without itself soliciting or crafting the rule, does not suffice to attribute the rule to the agency. The brief urged the court to exercise caution before attributing Nasdaq’s speech rule to the government, arguing that a finding of state action would raise the prospect of judicial interference in Nasdaq’s editorial autonomy over its own joint activity.

Second, the brief argued that the SEC did not violate the Administrative Procedure Act in approving Nasdaq’s rule. To the contrary, the SEC rightly found that Nasdaq’s disclosure rule promotes the goals, enshrined in federal law, of reducing market inefficiency and promoting market fairness. Moreover, the SEC’s approval order is buttressed by the public’s strong interest in access to information, as well as Nasdaq’s own interest in speaking to the public through its disclosure rules.

In October 2023, a panel of the Fifth Circuit unanimously rejected the petitioners’ claims, holding that the SEC’s approval of Nasdaq’s Board Diversity Rule complies with both the Securities Exchange Act and the Administrative Procedure Act. The court agreed also with our arguments that Nasdaq’s rule does not constitute state action and that the SEC’s approval of the rule was consistent with the Administrative Procedure Act.