[Federal Register Volume 61, Number 154 (Thursday, August 8, 1996)]
[Notices]
[Pages 41438-41439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20250]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37513; File No. SR-NASD-96-24]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval 
to Proposed Rule Change Relating to the Extension of the Effectiveness 
for One Year of the Arbitration Procedures for Large and Complex Cases

August 1, 1996.
    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 July 
10,\1\ 1996 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 and 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 
and to grant accelerated approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ The NASD filed Amendment No. 1 to the proposed rule change 
on July 26, 1996. Amendment No. 1 amended the proposed rule change 
to: state that the NASD Board of Governors approved the filing of 
the proposed rule change; supplement and clarify information 
contained in Item II. A.; request that the Commission find good 
cause to grant accelerated approval to the proposed rule change; and 
undertake to provide the Commission with information concerning the 
operation of Rule 10334. See Letter from John Ramsay, Deputy General 
Counsel, NASD Regulation, Inc. (``NASDR'') to Ivette Lopez, 
Assistant Director, Division of Market Regulation, Commission (July 
26, 1996).
---------------------------------------------------------------------------

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

    The NASD is proposing to extend the effectiveness of the 
arbitration Procedures for Large and Complex Cases, Rule 10334 of the 
Code of Arbitration Procedure (``Code''),\2\ to August 1, 1997. Below 
is the text of the proposed rule change. Proposed new language is 
italicized; proposed deletion are in brackets.
---------------------------------------------------------------------------

    \2\ Formerly Section 46 of the Code of Arbitration Procedure.
---------------------------------------------------------------------------

CODE OF ARBITRATION PROCEDURE

Procedure for Large and Complex Cases
Rule 10334
* * * * *
Temporary Effectiveness
    (h) This Section shall remain in effect until August 1, 199[6]7 
unless modified or extended prior thereto by the Board of Governors.
* * * * *

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

(1) Purpose
    The Procedures for Large and Complex Cases (``Procedures''), 
adopted effective May 2, 1995, for a one-year pilot period and codified 
at Rule 10334 of the Code, will expire on August 1, 1996.\3\ Since Rule 
10334 became effective until July 25, 1996, there have been 578 cases 
filed that were eligible for disposition as large and complex cases. Of 
those cases, there have been 178 Administrative Conference held under 
Rule 10334(b), and in 25 of those cases the parties agreed to proceed 
under the Procedures.
---------------------------------------------------------------------------

    \3\ The rule was to have expired on May 2, 1996; however, the 
SEC agreed to extend the effectiveness of the rule until August 1, 
1996. See Securities Exchange Act Release No. 34154 (April 30, 
1996), 61 FR 20301 (May 6, 1996).
---------------------------------------------------------------------------

    In general the NASD's experience with the Procedures since they 
became effective has been positive. The anecdotal information that has 
been gathered indicates that the administrative conference provided for 
under the Procedures is an effective and productive case management 
tool that most parties appreciate. Parties like the opportunity to 
develop a hearing plan, including developing a discovery plan, even if 
they ultimately decline to proceed under the Procedures. In addition, 
the administrative conference affords the staff an opportunity to 
explore mediation with the parties.
    In addition, many parties regard the mandatory preliminary hearing 
with the chairperson of the panel as a valuable case management too.\4\ 
It affords them an opportunity to seek resolution of discovery disputes 
and to resolve other issues prior to the hearing. Parties also 
appreciate the opportunity to select arbitrators through preference 
rankings.
---------------------------------------------------------------------------

    \4\ Subsection (d) of Rule 10334 provides that the Director of 
Arbitration shall appoint one member of the panel to preside over 
the preliminary hearing, but does not require that the arbitrator be 
the panel chair. The chair is elected by the NASDR Office of Dispute 
Resolution staff. NASDR routinely selects the chair of the panel to 
preside over preliminary hearings under subsection (d), although the 
rule permits the NASDR staff to select any member of the panel.
---------------------------------------------------------------------------

    The NASD has also noted that relatively few cases are arbitrated 
under the Procedures because eligible disputes are often not 
sufficiently complicated to justify utilizing the rules, especially 
because of the additional costs imposed on the parties for arbitrator 
compensation. In addition, parties perceive that many of the provisions 
available under the Procedures are also available elsewhere in the 
Code.
    On the basis of the foregoing, the NASD believes that the 
Procedures have been successful in affording additional benefits in the 
form of useful procedures to parties to large and complex cases, but 
that additional experience is necessary to evaluate fully the efficacy 
of the Procedures. In addition, the NASD Arbitration Policy Task Force 
has recommended that the one-year pilot test of Rule 10334 be extended 
in order to permit the Arbitration Department to gather additional 
data. This additional data will permit the NASD to develop a meaningful 
comparison with the experience of the American Arbitration Association 
with its large and complex case procedures. Accordingly, rather than 
seek permanent effectiveness of Rule 10334, the NASD is proposing to 
extend the effectiveness of the rule until August 1, 1997. During that 
time the

[[Page 41439]]

NASD will continue to monitor the usefulness of the rule to arbitration 
parties.
(2) Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) \5\ of the Act in that extending 
the effectiveness of the procedures in the Code for large and complex 
cases will serve the public interest by enhancing the satisfaction and 
perceived fairness of such proceedings by the parties to such 
proceedings as demonstrated by the positive comments of the parties 
noted by the NASD.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. Sec. 79o-3.
---------------------------------------------------------------------------

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.

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

    The NASD has requested that the Commission find good cause pursuant 
to Section 19(b)(2) for approving the proposed rule change prior to the 
30th day after publication in the Federal Register. 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). The 
Commission finds good cause for approving the proposed rule change 
prior to the 30th day after the date of publication of notice of filing 
thereof in that accelerated approval will benefit users of the 
arbitration process in that providing a temporary extension of the 
Procedures will permit arbitration participants to continue to use the 
Procedures. In addition, except with respect to the administrative 
conference required under the Rule, the application of the Rule to any 
case submitted to arbitration is voluntary. Thus, accelerating the 
approval of the proposed rule change to maintain the continuity of the 
process will not have any adverse impact on the investing public.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, N.W., Washington, D.C. 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 File No. SR-NASD-96-24 and should be 
submitted by August 29, 1996.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-96-24 be, and thereby is, 
approved through August 1, 1997.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. 96-20250 Filed 8-7-96; 8:45 am]
BILLING CODE 8010-01-M