[Federal Register Volume 62, Number 176 (Thursday, September 11, 1997)]
[Notices]
[Pages 47856-47857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39024; File No. SR-NASD-97-52]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval to Proposed Rule Change Relating 
to Extension of the Large and Complex Case Rule and Making Application 
of the Rule Voluntary

September 5, 1997.

I. Introduction

    On July 22, 1997.\1\ the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association'') submitted to the Securities 
and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to amend Rule 10334 of the NADS's 
Code of Arbitration Procedure (``Code'') to extend the effectiveness of 
Rule 10334 to August 1, 2002, and to make application of Rule 10334 
voluntary.
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    \1\ The NASD filed Amendment No. 1 to the proposed rule change 
on July 25, 1997, the substance of which was incorporated into the 
notice. See letter from Elliott R. Curzon, Assistant General 
Counsel, NASDR, to Katherine A. England, Assistant Director, Market 
Regulation, Commission, dated July 25, 1997 (``Amendment No. 1'').
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
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    Notice of the proposed rule change, together with the substance of 
the proposal, was published for comment in Securities Exchange Act 
Release No. 38879 (July 28, 1997), 62 FR 41454 (August 1, 1997). No 
comments were received on the proposal. This order approve the proposed 
rule change.

II. Description

    Rule 10334 provides special procedures for large and complex 
cases.\4\ Any claim where the amount in controversy is $1 million or 
more, or where all parties agree, is eligible for disposition under the 
procedures.
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    \4\ The rule, in pilot form, became effective for one year on 
May 2, 1995, was extended to August 1, 1996, extended again until 
August 1, 1997, and temporarily extended until approval of this rule 
proposals. See Securities Exchange Act Release Nos. 35314 (February 
1, 1995), 60 FR 7241 (February 7, 1995) (original approval of pilot 
program); 37154 (April 30, 1996), 61 FR 20301 (May 6, 1996) 
(temporary extension until August 1, 1996); 37513 (August 1, 1996), 
61 FR 41438 (August 8, 1996) (exentsion until August 1, 1997); and 
38879 (July 28, 1997), 62 FR 41454 (August 1, 1997) (temporary 
extension).
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    Currently, Rule 10334 requires that the parties in any eligible 
case participate in an administrative conference with a member of the 
staff of the Office of Dispute Resolution (``Office''). The purpose of 
the conference is to permit the parties and staff to develop a plan for 
administering the case, including planning for discovery and narrowing 
the issues to be decided at the hearing. Application of all other 
provisions of the Rule to a case is completely voluntary.
    Rule 10334 was developed to meet the special needs of parties in 
large and complex cases, including the need for arbitrators with 
particular experience and the need in some cases for additional 
discovery, including the availability of depositions. NASD Regulation's 
experience in the two years that Rule 10334 has been effective is that 
few parties use the procedures. From May 2, 1995 until January 28, 
1997, 880 cases were eligible for treatment under Rule 10334. Parties 
agreed to proceed under Rule 10334, however, in only 43 cases.

[[Page 47857]]

    NASD Regulation has found that parties are deterred from using 
these procedures by the extra compensation paid to arbitrators and the 
additional administrative fees required under Rule 10334. At the same 
time, NASD Regulation found that one of the most attractive aspects of 
Rule 10334 is the availability of a list selection procedure for the 
appointment of arbitrators, which is not yet generally available for 
other types of arbitration cases.
    In addition, the attractiveness of the procedures may be affected 
by the required administrative conference with the staff. This 
conference may be beneficial in assisting the parties to develop a road 
map for a proceeding, even if the parties to not agree to use other 
procedures under Rule 10334. However, the requirement that the 
administrative conference be conducted in all cases over $1 million, 
regardless of whether the parties plan to proceed under Rule 10334, 
creates a cost burden to the parties and to the Office.
    Accordingly, NASD Regulation is proposing to amend Rule 10334 to 
provide for an administrative conference with the staff only if all 
parties request such a conference in writing. The procedures will be 
available if the parties voluntarily agree to proceed with an 
administrative conference and to develop a written agreement to proceed 
under Rule 10334. An administrative conference will, however, continue 
to be a prerequisite to the use of the special procedures provided by 
Rule 10334. In addition, NASD Regulation is proposing to amend Rule 
10334 to extend the Rule for five more years to August 1, 2002.

III. Discussion

    The Commission believes that the proposed rule change is consistent 
with the provisions of Section 15A(b)(6) of the Act \5\ in that 
extending the effectiveness of the procedures for large and complex 
cases and making their use entirely voluntary will serve the public 
interest, by enhancing the satisfaction and perceived fairness of such 
proceedings by the parties to the proceedings.\6\ The Commission notes 
that providing for a five-year extension of the pilot program will 
permit arbitration participants to continue to utilize the procedures. 
In addition, an extension of the pilot program will allow the NASD to 
gather additional data on the program and to continue to monitor the 
usefulness of the large and complex rule to arbitration parties, in 
order to see if the pilot program should be approved on a permanent 
basis.
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    \5\ 15 U.S.C. 78o-3.
    \6\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission also believes that amending Rule 10334 to provide 
for an administrative conference with the staff only if all parties 
request such a conference in writing \7\ is reasonable under the Act 
because the elimination of the requirement for an administrative 
conference in all cases should result in reduced costs to the parties 
and to NASD Regulation. The Commission also notes that an 
administrative conference will continue to be a prerequisite to the use 
of the special procedures provided by Rule 10334.
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    \7\ The procedures will be available if the parties voluntarily 
agree to proceed with an administrative conference and to develop a 
written agreement to proceed under Rule 10334.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NASD-97-52) is approved, 
through August 1, 2002.

    \8\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24135 Filed 9-10-97; 8:45 am]
BILLING CODE 8010-01-M