[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30920-30922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14618]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38692; File No. SR-NASD-97-34]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to Miscellaneous Amendments to Arbitration Procedures and
Clarifications of the Code of Arbitration Procedure
May 29, 1997.
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 May 5,
1997,\1\ the National Association of Securities Dealers, Inc. (``NASD''
or ``Association'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ The NASD filed Amendment Nos. 1 and 2 with the Commission on
May 13, 1997, and May 22, 1997, respectively, the substance of which
are incorporated into the notice. See letters from Elliot R. Curzon,
Assistant General Counsel, NASDR, to Katherine A. England, Assistant
Director, Market Regulation, Commission, dated May 8, 1997
(``Amendment No. 1'') and May 20, 1997 (``Amendment No. 2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD Regulation, Inc. (``NASDR'') is proposing to amend the Code of
Arbitration Procedure (``Code'') to make certain minor procedural
changes designed to enhance the arbitration process. Specifically,
NASDR is proposing to amend: (1) Rule 10305 (formerly Section 16), to
permit arbitrators to dismiss claims with and without prejudice; (2)
10310 (formerly Section 21), to extend the time periods for notice of
selection of arbitrators and further inquiries concerning an
arbitrator; (3) Rule 10311 (formerly Section 22), to permit the
Director of Arbitration to grant additional peremptory challenges of
arbitrators; (4) Rule 10313 (formerly Section 24), to extend the time
in which a party can exercise its right to challenge a replacement
arbitrator; and (5) rule 10330 (formerly Section 41), to permit awards
to be served by facsimile.
[[Page 30921]]
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
As part of its continuing efforts to enhance the arbitration
process, NASDR has been engaged in a comprehensive review of proposals
to improve the procedures for arbitration specified in the Code. The
amendments to the Code proposed herein are a result of that effort, and
are intended to clarify existing provisions, eliminate ambiguities, and
adjust certain procedures to accommodate changing practices in
arbitration. The amendments were considered and approved by the
Securities Industry Conference on Arbitration (``SICA''). In addition,
while NASDR does not believe that the rule changes proposed herein will
conflict with amendments to the Code to be proposed in response to the
recommendations of the NASD's Arbitration Policy Task Force, some of
the rule changes proposed herein will ultimately be replaced or
superseded by those amendments and are, therefore, temporary in nature.
For example, the proposed changes to the peremptory challenge provision
discussed below will be superseded when the Association's list
selection rule is filed with and approved by the Commission.
Nevertheless, NASDR believes that the rule changes proposed herein are
important enough to be made now even if some of them will eventually be
superseded.
NASDR is proposing to amend Rule 10305 of the Code (formerly
Section 16), which relates to dismissal of arbitration proceedings, to
clarify that the arbitrators may dismiss a proceeding without prejudice
to the claims or defenses of the parties and refer the parties to their
judicial remedies and, in addition, to any other dispute resolution
forum agreed to by the parties. The Code does not specify the grounds
for dismissals without prejudice; however, such dismissals would
generally occur only where appropriate and in the interest of justice,
such as where the parties have agreed to the dismissal (especially if
they have agreed to proceed in another forum), or where an
indispensable party cannot be joined in the arbitration.
NASDR is also proposing to amend Rule 10305 by adding a new
subsection (b) granting arbitrators the express authority to dismiss a
claim, defense, or proceeding with prejudice as a sanction for willful
and intentional material failure to comply with an order of the
arbitrator(s), but only if lesser sanctions have proven ineffective.\2\
This provision is intended to establish clearly that arbitrators have
the power to issue orders in aid of the arbitration process and to
enforce those orders by use of the ultimate sanction of dismissal with
prejudice. Such a sanction would be used, for example, where a party
refused to produce documents necessary for another party's claim or
defense. In such instances, after the arbitrators have imposed lesser
sanctions that have not induced compliance with the order, the
arbitrators may dismiss a claim, defense, or the entire arbitration
proceeding, with prejudice.
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\2\ While it is believed that arbitrators currently have plenary
power to issue such dismissal orders, this power is rarely exercised
because it is not expressly provided for in the Code and arbitrators
appear to be reluctant to wield such sanctioning power without
express authority.
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NASDR is proposing to amend Rules 10310, 10311, and 10313 of the
Code (formerly Sections 21, 22, and 23), which relate to arbitrator
selection, peremptory challenges and arbitrator disclosures, to extend
the time limitations on a party to (1) seek additional information
under Rules 10310 and 10313 about replacement arbitrators, and (2)
exercise a peremptory challenge under Rule 10311, from 5 days to 10
days prior to the hearing. In addition, Rule 10310 is proposed to be
amended to extend the Arbitration Department's obligation to provide
the parties with the names and histories of the arbitrators from 8 to
15 days prior to the date of the first hearing. The proposed rule
change further amends Rule 10310 to replace ``the Director of
Arbitration'' with ``the Director'' whenever it occurs.
NASDR is also proposing to amend Rule 10311 to permit the Director
to grant additional peremptory challenges under certain circumstances.
Currently, the rule permits the Director to grant additional peremptory
challenges in multi-party cases when the Director, ``in the interests
of justice,'' determines that additional peremptory challenges are
warranted by the circumstances of the case. For example, on occasion a
party will discover grounds for a cause challenge to one arbitrator
after the party has used its peremptory challenge against that
arbitrator. In such an instance, the party may argue that it would have
used its peremptory challenge differently had it known of the
information. Under the current rule if that circumstance arose in a
multi-party case, the Director may, ``in the interests of justice,''
grant additional challenges. NASDR believes that similar circumstances
may arise in single-party cases and, therefore, is seeking to amend the
rule to permit the Director to grant such additional challenges.
NASDR is also proposing to amend Rule 10330 of the Code (formerly
Section 41) to permit the Office of Dispute Resolution to serve
arbitration awards by facsimile or other electronic means if the
recipient agrees. The Office frequently is asked to provide arbitration
awards to parties by facsimile. Because the Code does not provide for
this method of service, the Office serves the award by facsimile and
also duplicate service by one of the other methods specified in the
Code. By amending the Code to permit facsimile service, the Office will
not be required to serve duplicates by another approved method.
Nevertheless, the Office will not use the facsimile method of service
unless both parties have agreed to this form of service in order to
prevent disagreements over when an award was served for purposes of
time limitations on appeals.
The proposed rule change also amends references to numbers, such as
``eight (8)'' or ``fifteen (15)'', throughout the proposed rule change
to delete the word from and retain the Arabic numeral.
2. Statutory Basis
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act \3\ in that clarifying
procedures, eliminating ambiguities, and adjusting procedures to
accommodate changing practices are consistent with the NASD's
longstanding goal of providing the investing public with a fair,
efficient, and cost-effective forum for the resolution of disputes.
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\3\ 15 U.S.C. 78o-3.
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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 impose
any inappropriate burden on competition.
[[Page 30922]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 the 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 at 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-97-34 and should
be submitted by June 26, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-14618 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M