Securities Industry Commentator by Bill Singer Esq

Grubhub, Doordash, Postmates, and Uber Named in Restaurant Monopoly Class Action Mariam Davitashvili, Adam Bensimon, and Mis Sapienza, individually and on behalf of all others similarly situated, Plaintiffs, v. Grubhub (a/d/b/a Seamless), Doordash Inc., Postmates Inc., and Uber Technologies, Inc., (in its own right and as parent of wholly owned subsidiary Uber Eats), Defendants (Class Action Complaint)

Texas Court of Appeals Reverses $3 Million TD Ameritrade Customer Victory (BrokeAndBroker.com Blog)

Statement of Chairman Heath P. Tarbert in Support of Long-Awaited Updates to the CFTC's Bankruptcy Regime

Statement of Support by Commissioner Quintenz Regarding Part 190 Bankruptcy Regulations - Notice of Proposed Rulemaking

Statement of Commissioner Dawn D. Stump Regarding CFTC Open Meeting on April 14, 2020

Statement of Commissioner Dan M. Berkovitz on Proposed Amendments to CFTC Bankruptcy Regulations

Ayn Rand's dystopia is here right now and 'Atlas' is shrugging / Congress has just approved an economically bloated $2.2 trillion spending relief bill, an amount more substantial than the GDP of all but a handful of countries (FoxBusiness by Stephen Moore)

BofA Poll Shows 'Extreme' Investor Pessimism With Cash at 9/11 High (Bloomberg by Ksenia Galouchko)

1. Defendants Grubhub, Uber and/or Uber Eats, Postmates, and DoorDash own and operate software platforms (the "Delivery Apps") that digitally connect restaurants to consumers who want meal takeout or meal delivery. By providing consumers with a list of restaurants in their apps, Defendants promote themselves to restaurants as more than just an electronic transaction platform, but also a marketing service. 

2. Defendants obtained their monopoly power over both meal delivery consumers and restaurants in the relevant Geographic Submarkets by being first to market Online Meal Ordering Platforms in the various submarkets. Because of the Delivery Apps' market control in the respective markets, consumers and restaurants have little choice but to do business with them. For example, in New York City Geographic Submarket, Grubhub has a whopping 66% marketshare of the Meal Delivery Market. 

3. Defendants' monopoly power in a Meal Delivery Market is reflected by their fees, which range from 13.5%-40% of revenues, even though the average restaurant's profits range from 3%-9% of revenues. Defendants' fees are shocking when one considers how little value Defendants provide to restaurants and consumers. In contrast to platforms like American Express-which earns its 3.5% fees by offering consumers special products, experiences, benefits, exclusive membership services, and loyalty programs-Defendants merely offer a list of local restaurants that can easily be found on Google or Yelp for free. As TechCrunch put it in a March 16, 2020 article, "the primary differentiation between delivery apps today is not based on innovations that meaningfully impact user experience, but instead comes down to a handful of restaurant brands with which the various apps are in a land grab to create exclusive delivery relationships." 

4. Unable to compete on anything that "meaningfully impact[s] user experience," each Defendant instead uses its monopoly power in the meal delivery market to prevent competition and limit consumer choice. Specifically, Defendants use their market power to impose unlawful price restraints in their merchant contracts, which have the design and effect of restricting price competition from competitors in order to maintain the Delivery Apps' market share. 

5. In their form contracts with restaurants, Defendants include clauses requiring uniform prices for restaurants' menu items throughout all purchase platforms (the "No Price Competition Clause" or "NPCC"). The NPCCs prevent restaurants from charging different prices to meal delivery customers than they charge to dine-in customers for the same menu items. The purpose and effect of the No Price Competition Clause is to act as an unlawful price restraint that prevents restaurants from gaining marketshare and increased profitability per consumer by offering lower prices to consumers. The NPCCs target and harm not only restaurants, but also two distinct classes of consumers: (1) consumers who purchase directly from restaurants in the Meal Delivery Market; and (2) consumers who buy their meals in the separate and distinct restaurant Dine-In Market. Both restaurants and consumers would benefit absent Defendants' unlawful restraints, 

6. The rise of the four Defendants has come at great cost to American society. Defendants offer restaurants a devil's choice: in exchange for permission to participate in Defendants' Meal Delivery monopolies, restaurants must charge supra-competitive prices to consumers who do not buy their meals through the Delivery Apps, ultimately driving those consumers to Defendants' platforms. Unable to offer consumers the increased choice of paying better prices to dine-in, restaurants have seen precious dine-in customers slip away year after year. 

7. Defendants' NPCCs work by forcing Direct and Dine-In consumers to shoulder Defendants' exorbitant economic rents. While both meals sold through Defendants' platforms and directly from the restaurant share the same costs and overhead, meals sold through the Delivery Apps are more expensive, because of Defendants' high fees. Restaurants must calibrate their prices to the more costly meals served through the Delivery Apps in order to not lose money on those sales. Defendants' unlawful NPCCs then force restaurants to also charge those higher prices to Dine-In and Direct Consumers, even though the cost of those consumers' meals are lower as they do not include Defendants' exorbitant fees. 

8. Absent Defendants' unlawful restraints, restaurants could offer consumers lower prices for direct sales, because direct consumers are more profitable. This is particularly true of Dine-In consumers, who purchase drinks and additional items, tip staff, and generate good will. Restaurants cannot offer Plaintiffs and the class this lower cost option, because the Delivery Apps' No Price Competition Clauses prevent them from doing so. 

9. If consumers were offered discounts for Direct sales, they would buy most of their Delivery Meals directly. Since consumers have a limited number of restaurants available to them that are within their delivery range, cuisine preference, and price preference, consumers rarely discover new restaurants when they order food delivery. Instead, once a consumer discovers that they like, for example, the famous khachapuri at Cheeseboat restaurant, they are likely to reorder that item again and again. Even a small discount reflecting the decreased cost of Direct sales would drive direct purchases because of the substantial savings to those consumers over time, creating benefits to both the restaurant and the consumer. 

10. Unable to compete on the basis of price due to Defendants' unlawful restraints, restaurants have seen their precious Dine-In market cannibalized by Defendants' Delivery Apps. Plaintiffs bring this claim for relief on behalf of all Americans who would still to enjoy a nice dinner out with their family before Defendants make that impossible.

Thus, for example, the proposed rule would expressly permit the trustee, following consultation with CFTC staff, to determine whether to treat open positions of public customers in a designated hedging account as specifically identifiable property (requiring the trustee to solicit and comply with individual customer instructions), or instead transfer or "port" all such positions to a solvent commodity broker where possible. This provision recognizes that requiring the trustee to identify hedging accounts and provide account holders the opportunity to give individual instructions is often a resource-intensive endeavor, which could interfere with the trustee's ability to act in a timely and effective manner to protect all the broker's customers.

The proposal also includes explicit rules governing the bankruptcy of a clearinghouse, otherwise known as a derivatives clearing organization or DCO.  Since its inception, Part 190 has contemplated only a "case-by-case" approach with no corresponding rules to spell out what would happen.  While a DCO bankruptcy is extremely unlikely, it is important to provide ex ante clarity to DCO members and customers as to how a resolution would be handled. The proposed rule would favor following the DCO's existing default management and recovery and wind-down rules and procedures. This would allow the bankruptcy trustee to take advantage of an established "playbook," rather than being forced to form a resolution plan in a matter of hours during the onset of a crisis. The proposed rule would also give legal certainty to DCO actions taken in accordance with a recovery and wind-down plan filed with the CFTC by precluding the trustee from voiding any such action.   

[T]he Commission is proposing new rules for an insolvent DCO, which are similar to the rules applicable to an FCM.  These rules take into account Title II of the Dodd-Frank Act, and I am pleased that the FDIC was consulted.  Next, taking advantage of the Commission's experience with a few insolvent FCMs over the past decades, the proposal would provide increased deference to the trustee that a U.S. Bankruptcy Court appoints to oversee the proceedings of an insolvent commodity broker.  This increased deference is intended to expedite the transfer of customer funds.  In light of the Commission's experience from the bankruptcy of MF Global in 2011, proposed amendments would treat letters of credit equivalently to other collateral posted by customers, so that the pro rata distribution of customer property in the event of a shortfall in the customer account would apply equally to all collateral.  The proposal also reflects experience from MF Global by dividing the delivery account into "physical delivery" and "cash delivery" account classes.  Property other than cash is generally easier to trace, so it should have the benefit of a separate account class.  Finally, the proposal's revised treatment of the "delivery account," applicable in the context of physically-settled futures and cleared swaps, would apply not only to tangible commodities, as is currently the case, but also to digital assets.  This amendment will provide important legal certainty to the growing exchange-traded market for cleared, physically-settled, digital asset derivatives.

We are considering the first comprehensive revision to the CFTC's bankruptcy regime in 37 years.  As recent market events have demonstrated, futures commission merchants ("FCMs") and derivatives clearing organizations ("DCOs") are integral to well-functioning derivatives markets.  Throughout the recent market volatility to date, the market infrastructure that supports clearing has functioned as intended while facilitating massive amounts of risk transfer and extraordinary risk management efforts.  The revisions to our bankruptcy rules proposed today are the culmination of an extensive undertaking that has been in the works for years.  The timing of this proposal should in no way be considered an expression of doubt regarding the integrity, stability, or resiliency of FCMs or DCOs in today's market environment.

Speaking of comments, in light of the coronavirus emergency this country and the world are currently dealing with, 90 days is not sufficient time to review and comment on this nearly 400-page document.  The Proposal amends almost every section in the existing bankruptcy regulations and adds several new provisions.  A 90-day comment period would barely be long enough in normal times.  Many stakeholders with an interest in these regulations are struggling day-by-day, hour-by-hour, just to maintain operations, generate cash flow, and pay employees.  It is incongruous to ask the public to digest in 90 days a lengthy and complex rulemaking that took the Commission three years to develop.  There is no statutory deadline or commercial imperative that compels a comment period of 90 days.  There is no need to rush commenters or the rulemaking process in the midst of a pandemic in an area as complex and as important as bankruptcy.

Here we go again. A decade ago, during the height of the folly of the bank bailouts and trillions of dollars of spending for "shovel-ready projects" (that didn't create jobs but plunged our nation into greater indebtedness), I noted in a Wall Street Journal article that with each successive bailout and multibillion-dollar economic stimulus scheme from Washington, the politicians were reenacting the very acts of economic stupidity that Ayn Rand parodied in her 1,000-page-plus 1957 novel "Atlas Shrugged." In many surveys, "Atlas" rates as the second most influential book of all time behind the Bible.

President Trump says the Small Business Administration has processed $70 billion thus far in guaranteed loans and that he will request $250 billion for the Paycheck Protection Program.Video

For those of you who have not read it (first, shame on you!), the moral of the story is that politicians invariably respond to crises -- that, in most cases, they created -- by spewing out new, mindless government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to spawn even more programs. At which point, the downward spiral repeats itself until there is a thorough societal collapse.

Fund managers have shunned risk, with equity allocations the lowest since the 2009 financial crisis, the poll conducted between April 1 and April 7 shows. Cash levels surged to 5.9% from 5.1% in March, signaling peak pessimism to BofA strategists.

• Securities Industry Commentator
• Bill Singer