[Federal Register Volume 59, Number 108 (Tuesday, June 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13734]
[[Page Unknown]]
[Federal Register: June 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34141; File No. SR-MSE-93-9]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Inc. Relating to Proposed
Amendments to Its Arbitration Rules
June 1, 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 April
26, 1993, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'')
(on the date that the proposal was filed, the CHX was named the
``Midwest Stock Exchange'' or ``MSE'') filed with the Securities and
Exchange Commission (``Commission'' or ``SEC'') the proposed rule
change as described in Items, I, II and III below, which Items have
been prepared by the self-regulatory organization. On March 31, 1994,
the Exchange submitted to the Commission Amendment No. 1 to the
proposed rule change.\1\ On June 1, 1994, the Exchange submitted to the
Commission Amendment No. 2 to the proposed rule change.\2\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\See letter from David T. Rusoff, Attorney, Foley & Lardner,
to Sandra Sciole, Special Counsel, SEC, dated March 30, 1994.
\2\See letter from David T. Rusoff, Attorney, Foley & Lardner,
to Sandra Sciole, Special Counsel, SEC, dated May 31, 1994.
Amendment No. 2 made certain changes to Interpretation and Policy
.01 and .02 to Rule 24.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CHX proposes to amend its arbitration rules as set out in Rule
24 of Article VIII in order to have them conform more closely with the
Uniform Code of Arbitration developed by the Securities Industry
Conference on Arbitration (``SICA'').\3\
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\3\SICA is comprised of a representative from each self-
regulatory organization (``SRO'') that administers an arbitration
program, a representative of the securities industry, and four
representatives of the public. The SROs that administer an
arbitration program are the New York Stock Exchange, American Stock
Exchange, Boston Stock Exchange, Cincinnati Stock Exchange, CHX,
Pacific Stock Exchange, Philadelphia Stock Exchange, the Chicago
Board Options Exchange, the National Association of Securities
Dealers, and the Municipal Securities Rulemaking Board.
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In addition to the conforming changes to Rule 24, the Exchange also
proposes to make other changes to Rule 24 as well as changes to Rule
23, Article VIII (Arbitration of Member Disputes), as set forth in the
purpose section of this rule filing.\4\
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\4\The text of the proposed rule change was attached to the
filing as Exhibit A. Copies of the proposal are available at the
Commission as well as at the CHX.
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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 self-regulatory organization
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 self-regulatory organization
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
(1) Purpose
The purpose of the proposed rule change is to bring the Exchange's
arbitration rules more closely in line with SICA's Uniform Code of
Arbitration (the ``Uniform Code'' or ``Code''). To that end, the
Exchange is proposing several conforming changes to its arbitration
rules and is also proposing other changes which will facilitate the
administration of the CHX arbitration forum in general.
The Exchange is also redesignating most of the section references
to Rule 24 in order to conform its rule reference to SICA's Uniform
Code.
The CHX is proposing to add a provision (CHX Rule 24, Section 1(c))
to its arbitration rules providing that class actions will not be
eligible for submission to arbitration. However, an individual may
pursue a claim in arbitration if class certification is denied; the
case is decertified; the customer is excluded from the class; or the
customer elects not to participate in the putative or certified class
action or has complied with other court prescribed conditions for
withdrawal. The Exchange is amending Section 33 of Rule 24
(redesignated as Section 31) requiring the addition of a provision to
pre-dispute arbitration agreements regarding the ineligibility of class
actions for arbitration.\5\
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\5\Rule 24, Section 31, Paragraph 5 is proposed to state that
all agreements shall include a statement that ``no person shall
bring a punitive or certified class action to arbitration, nor seek
to enforce any pre-dispute arbitration agreement against any person
who has initiated in court a putative class action; who is a member
of a putative class who has not opted out of the class with respect
to any claims encompassed by the putative class action until (i) the
class certification is denied; or (ii) the class is decertified; or
(iii) the customer is excluded from the class by the court. Such
forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this agreement except to the
extent stated herein.''
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Rule 24, Section 1 adds Interpretation and Policy .01 which
addresses an existing Exchange policy regarding the determination
whether to accept a claim for arbitration at the Exchange. The
Exchange's policy is to accept a claim for arbitration if the Exchange
is the Designated Examining Authority (``DEA'') of the Respondent
member or if the enforcement of the applicable rules has not been ceded
to another self-regulatory organization (``SRO'') pursuant to its Rule
17d-2 Agreement.\6\ In other cases, the Exchange may decline the use of
its arbitration facilities if the nexus between the dispute and the
Exchange is minimal.
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\6\Pursuant to Rule 17d-2 under the Act, any two or more SROs
may file with the Commission a plan for allocating among the SROs
the responsibility to receive regulatory reports from persons who
are members or participants of more than one of such SROs to examine
such persons for compliance, or to enforce compliance by such
persons, with specified provisions of the Act, the rules and
regulations thereunder, and the rules of such SROs, or to carry out
other specified regulatory functions with respect to such persons.
See 17 CFR 240.17d-2 (1994).
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The Exchange considers claims submitted to the arbitration
department on a case-by-case basis and examines the policy described
above in determining whether a claim will be accepted. Under the
Exchange's policy, the only discretion on whether the Exchange will
accept a claim for arbitration occurs when the Exchange is not the DEA
for the Respondent member and the enforcement of a particular rule has
not been ceded to another SRO pursuant to Rule 17d-2. In this event, as
stated above, the Exchange may reject the claim for arbitration if the
nexus between the dispute and the Exchange is minimal. This can be
demonstrated by the following example. Suppose a Respondent member firm
was a member of the New York Stock Exchange, Inc. (``NYSE``), National
Association of Securities Dealers, Inc. (``NASD''), and the CHX, and
the NYSE was the firm's DEA. Suppose that the dispute involved alleged
NASD sales practice violations covering 150 transactions. Suppose
further that out of those 150 transactions, only two were executed on
the CHX. In that event, the Exchange would most likely decline the use
of its arbitration facilities based on minimal contacts that the
dispute had with the Exchange.
The Exchange believes that the policy places fair limitations upon
the responsibility of the Exchange to make its arbitration facilities
available by requiring that the underlying dispute have some minimal
nexus (or contacts) to the Exchange.
Rule 24, Section 1 also adds interpretation and policy .02 which
extends jurisdiction over former members and member organizations for
controversies which had their genesis during the period in which the
former member was an Exchange member.\7\
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\7\Proposed Interpretation and Policy .02 to Rule 24, Section 1
states that for purposes of this Rule and Rule 23 under Article
VIII, the terms ``member,'' ``member organization,'' ``associated
person'' and an ``employee of a member,'' shall be deemed to
encompass those persons and entities who were Exchange members or
persons associated with a member at the time the circumstances
occurred which gave rise to the controversy.
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Rule 24, Section 2(c) (Simplified Arbitration) amends the fee
requirements for simplified arbitrations (cases not exceeding a dollar
amount of $10,000).\8\ The proposed fee schedule for simplified
arbitrations and regular arbitrations is set out in Section 32
(redesignated as Section 30).
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\8\Rule 24, Section 2(c) is proposed to state that the Claimant
shall pay a filing fee and remit a hearing deposit as specified in
Section 30 of this Rule upon filing the Submission Agreement. The
final disposition of the sum shall be determined by the arbitrator.
The proposal would also amend Section 2(d) to state that the costs
to the Claimant under either proceeding shall in no event exceed the
total amount specified in Section 30 of this Rule.
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Rule 24, Section 2(h) provides a mechanism, for resolving pre-
hearing matters in a simplified proceeding. This change codifies the
applicability of the discovery procedures set forth in Section 14
(redesignated as Section 20) to simplified arbitrations.
Rule 24, Section 8(a)(2)(v) will classify individuals who are
registered under the Commodities Exchange Act or are members of a
registered futures association or any commodities exchange as being
from these securities industry for purposes of classification of
arbitrators.
Rule 24, Section 10 is amended to clarify the time limitations
applicable to a party wishing to utilize a peremptory challenge.
Rule 24, Section 13(c)(5) is proposed to be amended to state that
the Director of Arbitration may extend any time period in this section
(whether such be denominated as a Claim, Answer, Counterclaim, Cross-
Claim, Reply, or Third-Party pleading).
Rule 24, Section 13(d) is proposed to be amended to clarify the
rule with respect to joinder and consolidation. It also authorizes the
Director of Arbitration to make preliminary determinations in cases
where issues concerning joinder and consolidation are in dispute.
However, all further determinations with respect to joinder and
consolidation will remain with the arbitration panel.\9\
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\9\In addition, the Exchange proposes to amend Section 13(d) to
state that in arbitrations where there are multiple Claimants,
Respondents or Third party Respondents, the Director of Arbitrations
shall be authorized to determine preliminarily whether such parties
should proceed in the same or separate arbitrations. Such
determinations will be considered subsequent to the filing of all
responsive pleadings. The Director of Arbitration shall be
authorized to determine preliminarily whether claims filed
separately are related and shall be authorized to consolidate such
claims for hearing and award purposes.
Section 13(d)(1) is proposed to state that all persons may join
in one action as Claimants if they assert any right to relief
jointly, severally, or arising out of the same transaction,
occurrence, or series or transactions or occurrences and if any
questions of law or fact common to all these Claimants will arise in
the action. All persons may be joined in one action as respondents
if there is asserted against them jointly or severally any right to
relief arising out of the same transaction, occurrence, or series of
transactions or occurrences and if any questions of law or fact
common to all respondents will arise in the action. A Claimant or
respondent need not assert rights to or defend against all the
relief demanded. Judgment may be given for one or more of the
claimants according to their respective rights to relief, and
against one or more respondents according to their respective
liabilities.
Rule 24, Section 14 is proposed to be amended to state that the
time and place for the initial hearing shall be determined by the
Director of Arbitration and each hearing thereafter by the
arbitrators. Notice of the time and place for the initial hearing
shall be given at least eight business days prior to the date fixed
for the hearing by personal service, registered, or certified mail
to each of the parties unless the parties shall, by their mutual
consent, waive the notice provisions under this section. Notice for
each hearing, thereafter, shall be given as the arbitrators may
determine. Attendance at a hearing waives notice thereof.
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Rule 24, Section 19 (redesignated as Section 18) requires a party
requesting an adjournment to deposit a fee, not to exceed $1,000, upon
making the request. If granted, the arbitrators may waive the deposit
or, in their award, return the deposit.\10\
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\10\Section 18(b) is proposed to be amended to state that a
party requesting an adjournment after arbitrators have been
appointed shall, if an adjournment is granted, deposit a fee, equal
to the initial deposit of forum fees for the first adjournment and
twice the initial deposit of forum fees, not to exceed $1,000, for a
second or subsequent adjournment requested by that party. The
arbitrators may waive the deposit of this fee or in their awards may
direct the return of the adjournment fee.
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Rule 24, Section 24 (redesignated as Section 22) clarifies that
arbitrators are empowered to take appropriate action, which can include
the assessment of fees or costs, preclusion of documents or witnesses,
and making disciplinary referrals in order to obtain compliance with
all rulings by the arbitrators.\11\
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\11\Proposed Section 22 to Rule 24 provides: ``The arbitrator(s)
shall be empowered to interpret and determine the applicability of
all provisions under this Rule and to take appropriate action to
obtain compliance with any ruling by the arbitrator(s). Such
interpretations and actions to obtain compliance shall be final and
binding upon the parties.''
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Rule 24, Section 28 (redesignated as Section 26) requires parties
filing amended pleadings to serve such different pleading on all other
parties. This change relieves the Director of Arbitration from the
requirement to serve such pleading.\12\
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\12\Amended Rule 24, Section 26 is proposed to state, in part,
that the party filing a new or different pleading shall serve on all
other parties, a copy of the new or different pleading in accordance
with the provisions set forth in Section 13(b). The other parties
may, within ten business days from the receipt of service, file a
response with all other parties and the Director of Arbitration in
accordance with Section 13(b).
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Rule 24, Section 30 (redesignated as Section 28) sets forth the
requirement that all monetary awards be paid within 30 days of receipt
unless a motion to vacate has been filed with the court. Additionally,
the section mandates that interest accrue from the date of the award,
until paid, if the award is not paid within 30 days, or the motion to
vacate is unsuccessful, or as specified by the arbitrators. Interest
shall be assessed at the prevailing legal rate in the state where the
award is rendered or at a rate set by the arbitrator(s). This change
will encourage the prompt payment of awards.\13\
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\13\Rule 24, Section 28 is proposed to be amended to include
Paragraphs (f) and (g). Rule 24, Section 28(f) is proposed to state
that the awards shall be made publicly available, provided however,
that the name of the customer party to the arbitration will not be
publicly available if he or she so requests in writing.
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Rule 24, Section 32 (redesignated as Section 30) amends the current
fee schedule in place at the CHX and conforms its fee schedule to those
at the other SROs. The CHX proposes to adopt the following Schedule of
Fees:\14\
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\14\With respect to the following schedule, italicizing
indicates new material.
Schedule of Fees--Public Customer Claimant
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Hearing deposit
Amount in dispute Filing Paper -------------------
fee 1 Arb.* 3 Arb.
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$1,000 or less.................. $15 $15 *$15 ........
$1,001-$2,500................... 25 25 *25 ........
$2,501-$5,000................... 50 75 *100 ........
$5,001-$10,000.................. 75 75 *200 ........
$10,001-$30,000................. 100 ........ 300 $400
$30,001-$50,000................. 120 ........ 300 400
$50,001-$100,000................ 150 ........ 300 500
$100,001-$500,000............... 200 ........ 300 750
$500,001-$5,000,000............. 250 ........ 300 1,000
Over $5,000,000................. 300 ........ 300 1,500
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*The 1 Arbitrator column also sets forth the forum fees for pre-hearing
conferences with a single arbitrator.
Industry Claimant*
------------------------------------------------------------------------
Hearing deposit
Amount in dispute Filing Paper -------------------
fee 1 Arb. 3 Arb.
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$1,000 or less.................. $500 $75 *$300 ........
$1,001-$2,500................... 500 75 *300 ........
$2,501-$5,000................... 500 75 *300 ........
$5,001-$10,000.................. 500 75 *300 ........
$10,001-$30,000................. 500 ........ 300 $600
$30,001-$50,000................. 500 ........ 300 600
$50,001-$100,000................ 500 ........ 300 600
$100,001-$500,000............... 500 ........ 300 750
$500,001-$5,000,000............. 500 ........ 300 1,000
Over $5,000,000................. 500 ........ 300 1,500
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*This is the fee schedule for claims submitted by members or member
organizations, against public customers, registered representatives or
non-members other than public customers, and for claims submitted by
registered representatives or non-members other than public customers
against members or member organizations or non-members. The one
arbitrator column also sets forth the forum fee for pre-hearing
conferences with a single arbitrator.
Member Controversies
------------------------------------------------------------------------
Pre-
Amount in dispute Filing hearing Hearing
fee conference deposit
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$10,000 or less......................... $100 $150 $200
$10,001 to $100,000..................... 200 300 750
$100,001 or more........................ 300 500 1,000
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Finally, CHX Rule 23 is being amended to clarify that members must
arbitrate controversies unless the parties agree to bring a matter
before the Exchange's Floor Procedure Committee.\15\ The rule also
provides that the Floor Procedure Committee may appoint an arbitrator
if a member party fails to do so after due notice.\16\
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\15\The Committee on Floor Procedure has general supervision of
the conduct and dealings on the Floor of the Exchange and recommends
for adoption by the Exchange Committee such rules and regulations as
may be necessary for the convenient and orderly transaction of
business of the Floor of the Exchange. The Committee has the power
to enforce such rules and regulations by recommending staff
investigations for violations thereof, in accordance with the
procedure provided in Article XII. See CHX Article IV, Rule 3.
\16\CHX Rule 23(a) would be amended to state that any
controversy between parties who are members, member organizations or
their nominees or associated persons which arises out of the
Exchange business of such parties shall be submitted to arbitration,
through the Director of Arbitration, to an Arbitration Panel
composed of members of the Committee on Floor Procedure, unless non-
members are also parties to the controversy. If non-members are also
parties to such controversies, the arbitrator shall be appointed in
accordance with Section 8 of Rule 24 under this Article unless the
non-members consent to arbitration before an arbitration panel
selected by parties as provided in this Rule. However, controversies
shall be resolved by the Committee on Floor Procedure if the parties
to such controversy agree to be bound by the decision of that
Committee or if Exchange rules otherwise require resolution by the
Committee on Floor Procedure. The rules and procedures applicable to
arbitrations which are set forth in Rule 24 do not apply to
controversies which are to be resolved by the Committee on Floor
Procedure.
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(2) Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act in general and furthers the objectives of
Section 6(b)(5), in particular in that it is designed to promote just
and equitable principles of trade and protect investors and the public
interest by improving the administration of an impartial forum for the
resolution of disputes relating to the securities industry.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that no burdens will be placed on competition
as a result of the proposed rule change.
C. Self-Regulatory Organization's Statement of Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No comments were received on the proposed rule change.
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 as (i) 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 submissions, 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 at the
principal office of the CHX. All submissions should refer to the file
number SR-MSE-93-9 and should be submitted by June 28, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13734 Filed 6-6-94; 8:45 am]
BILLING CODE 8010-01-M