[Federal Register Volume 59, Number 20 (Monday, January 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2016]


[[Page Unknown]]

[Federal Register: January 31, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33506; File No. SR-NASD-93-65

 

Self-Regulatory Organizations; Filing of Proposed Rule Change by 
National Association of Securities Dealers, Inc. Relating to Exclusion 
of Class Action Claims From Arbitration

January 24, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November 
4, 1993, the National Association of Securities Dealers, Inc. (``NASD'' 
or ``Association'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
NASD. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to amend Section 12(d)(3) of the Code of 
Arbitration Procedure (``Code'') relating to the exclusion of class 
action claims from arbitration. Below is the text of the proposed rule 
change. Proposed new language is italicized.
Code of Arbitration Procedure
Required Submission
Sec. 12.
* * * * *
    (d) Class Action Claims
* * * * *
    (3) No member or associated person shall seek to enforce any 
agreement to arbitrate against a customer, other member or person 
associated with a member who has initiated in court a putative class 
action or is a member of a putative or certified class with respect to 
any claims encompassed by the class action unless and until: (A) The 
class certification is denied: (B) the class is decertified: (C) the 
customer, other member or person associated with a member is excluded 
from the class by the court: or (D) the customer, other member or 
person associated with a member elects not to participate in the 
putative or certified class action or, if applicable, has complied with 
any conditions for withdrawing from the class prescribed by the court.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD has prepared summaries, set forth in Sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Section 12(d)(3) of the Code bars members or associated persons 
from seeking to enforce an agreement to arbitrate against a customer 
where the customer has initiated in court a putative class action or is 
a member of a putative or certified class with respect to any claims 
encompassed by the class action. The section, however, omits reference 
to claimants who are associated persons and member-to-member disputes. 
As a result, some respondents have argued that class actions 
encompassing such claimants can be submitted to arbitration under the 
Code. The NASD has determined that the original intent of the section 
was to exclude class action claims by associated persons, including 
employment-related claims, and other industry class actions from 
arbitration, as well as customer-related class actions. Accordingly, 
the NASD is proposing to amend Section 12(d)(3) of the Code to clarify 
that the prohibition in the provision is total and encompasses class 
actions in which a member or an associated person may be the subject of 
a class action.
    The proposed amendment to Section 12(d)(3) of the Code adds 
references to ``other member and person associated with a member'' to 
clarify that the prohibition against seeking to enforce an agreement to 
arbitrate applies not only to class actions in which a claimant is a 
customer, but to class actions in which an associated person or a 
member is a party.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act\1\ in that the proposed 
rule change will facilitate the arbitration process for all 
participants by preventing certain categories of actions from being 
brought in the NASD's arbitration forum and for which forum does not 
have the procedures or resources to handle. The proposed rule change, 
by preventing such claims from being brought in arbitration, will also 
facilitate the disposition of such actions in court by preventing the 
diversion of resources to efforts to enforce agreements to arbitrate 
such claims.
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    \1\15 U.S.C. 78o3 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received from Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above and should be submitted by February 21, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
[FR Doc. 94-2016 Filed 1-28-94; 8:45 am]
BILLING CODE 8010-01-M