[Federal Register Volume 59, Number 81 (Thursday, April 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10087]
[Federal Register: April 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33939; File No. SR-NASD-93-65]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to
Exclusion of Class Action Claims From Arbitration
April 20, 1994.
On November 4, 1993, the National Association of Securities
Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') a proposed rule
change pursuant to section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'')\1\, and rule 19b-4 thereunder.\2\ The proposal amends
section 12 of the NASD Code of Arbitration Procedure\3\ (``Code'') by
barring any NASD member or its associated persons from seeking to
enforce an agreement to arbitrate against another member or associated
person if that member or associated person has initiated in court a
putative class action or is a member of a putative or certified class.
The prohibition would extend to all claims encompassed by the class
action.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\NASD Manual, Code of Arbitration Procedure, Part III, Sec. 12
(CCH), 3712.
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Notice of the proposed rule change, together with the substance of
the proposal, was provided by issuance of a Commission release
(Securities Exchange Act Release No. 33506, February 9, 1994) and by
publication in the Federal Register (59 FR 7282, February 15, 1994). No
comment letters were received. This order approves the proposed rule
change.
Section 12(d)(3) of the Code currently 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
specific reference to claims filed by associated persons against
members and claims filed by members against other members. As a result,
some respondents have argued that class actions encompassing such
claimants can be submitted to arbitration under the Code. The NASD
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 proposed 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 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.\4\
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\4\The amendment limits those disputes between members or
between a member and an associated person that are required to be
submitted to arbitration under section 8(a) of the Code to the same
extent as existing section 12(d)(3) limits those disputes between
investors and members or associated persons that are required to be
submitted to arbitration under section 12(d)(1) of the Code.
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The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to the NASD and, in particular, the requirements
of section 15A(b)(6) of the Act.\5\ Section 15A(b)(6) requires, inter
alia, that the NASD's rules be designed to prevent fraudulent and
manipulative acts, promote just and equitable principles of trade, and
protect investors and the public interest. Over the years of the
evolution of class action litigation, the courts have developed the
procedures and expertise for managing class actions. Duplication of the
often complex procedural safeguards necessary for these lawsuits is
unnecessary. The Commission also believes that access to the courts for
class action litigation should be preserved for associated persons and
member firms as well as for investors and that the rule change approved
herein provides a sound procedure for the management of class actions.
The proposed rule change also should prevent wasteful litigation over
the possible applicability of agreements to arbitrate between members
or between a member and a person associated with a member
notwithstanding the exclusion of class action claims from NASD
arbitration. Based on the above, the Commission believes that the rule
change herein approved should promote the efficient resolution of these
class action disputes. For these reasons, and for the reasons stated
above, the Commission believes that the proposed rule change satisfies
the requirements of section 15A(b)(6) of the Act.
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\5\15 U.S.C. 78o-3.
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It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the instant rule change be, and hereby is, approved.
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-10087 Filed 4-26-94; 8:45 am]
BILLING CODE 8010-01-M