[Federal Register Volume 62, Number 246 (Tuesday, December 23, 1997)]
[Notices]
[Pages 67104-67106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33405]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39451; File No. SR-NASD-97-88]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Incorporated Relating to Process Fees on Members
That Are Parties to Arbitration Proceedings
December 15, 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 December
11, 1997, the National Association of Securities Dealers, Incorporated
``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.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
NASD Regulation is proposing to amend Rule 10333 of the NASD's Code
of Arbitration Procedure (``Code'') to add a process fee on members
that are parties to arbitration proceedings. Below is the text of the
proposed rule change. Proposed new language is in italics; proposed
deletions are in brackets.
10333. Member Surcharge and Process Fees
(a) Each member [who is named as] that is a party to an arbitration
proceeding, whether in a Claim, Counterclaim, Cross-claim or Third-
Party Claim, shall be assessed a non-refundable surcharge pursuant to
the schedule below when the Director of Arbitration perfects service of
the claim naming the member on any party to the proceeding. For each
associated person who is named, the surcharge shall be assessed against
the member or members that employed the associated person at the time
of the events which gave rise to the dispute, claim or controversy. No
member shall be assessed more than a single surcharge in any
arbitration proceeding. The surcharge shall not be [subject to
reimbursement] chargeable to any other party under Rules 10332(c) and
10205(c) of the Code.
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Amount in Dispute Surcharge
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$.01-$2,500.................................................. $150
$2,500.01-$5,000............................................. 200
$5,000.01-$10,000............................................ 300
$10,000.01-$25,000........................................... 400
$25,000.01-$30,000........................................... 600
$30,000.01-$50,000........................................... 800
$50,000.01-$100,000.......................................... 1,000
$100,000.01-$500,000......................................... 1,500
$500,000.01-$1,000,000....................................... 2,000
$1,000,000.01-$5,000,000..................................... 2,500
$5,000,000.01-$10,000,000.................................... 3,000
Over $10,000,000............................................. 3,600
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(b) For purposes of this Rule, service is perfected when the
Director of Arbitration properly serves the Respondents to such
proceeding under Rule 10314 of the Code.
(c) If the dispute, claim, or controversy does not involve,
disclose, or specify a money claim, the non-refundable surcharge shall
be $1,200 or such greater or lesser amount as the Director of
Arbitration or the panel of arbitrators may require, but shall not
exceed the maximum amount specified in the schedule.
(d) Each member that is a party to an arbitration proceeding will
pay a non-refundable process fee as set forth in the schedule below for
each stage of a proceeding. The process fee shall not be chargeable to
any other party under Rules 10332(c) and 10205(c) of the Code. If an
associated person of a member is a party, the member that employed the
associated person at the time of the events which gave rise to the
dispute, claim or controversy will be charged the process fees. The
prehearing process fee will accrue according to the schedule set forth
below, but will be due and payable when the prehearing conference is
held, or, if no prehearing conference is held, when the parties are
notified of the date and location of the first hearing session. The
hearing fee will accrue and be due and payable when the parties are
notified of the date and location of the first hearing session. All
accrued but unpaid fees will be due and payable at the conclusion of
the member's or associated person's involvement in the proceeding. No
member will pay more than one prehearing and hearing process fee for
any case. The process fees will stop accruing when either the member
enters into a settlement of the dispute or the member is dismissed from
the proceeding or, if the member is paying a process fee as a result of
an associated person being named as a party, when the associated person
enters into a settlement or is dismissed from the proceeding, whichever
is later.
Prehearing Process Fee Schedule (proceedings where more than $25,000 is
in dispute)
Service of Claim (accrues when the claim has been submitted
and is ready to be served on the respondents)............... $50
Case Preparation (accrues when the first answer to the claim
is received or due and discovery and motions proceedings
commence.................................................... 150
Prehearing Activities (accrues when the parties are first
notified of the names of any of the arbitrators selected to
hear the matter or are given the names of arbitrators to
select)..................................................... 400
Total.................................................... $600
Hearing Process Fee Schedule (accrues and becomes due and payable when
the parties are notified of the date and location of the first hearing
session)
Hearing
Damages requested process
fee
$1-$30,000................................................... $0
$30,000.01-$50,000........................................... 1,000
$50,000.01-$100,000.......................................... 1,500
$100,000.01-$500,000......................................... 2,500
$500,000.01-$1,000,000....................................... 3,500
$1,000,000.01-$5,000,000..................................... 4,500
More than $5,000,000......................................... 5,000
Unspecified.................................................. 2,000
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
NASD Regulation is proposing to amend Rule 10333 of the Code to add
a process fee to be charged to members at several stages of arbitration
proceedings. The proposed rule change is the last stage of a three
stage effort to make the NASD's dispute resolution program self-funding
by charging fees to participants in arbitration proceedings.\1\
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\1\ The first two stages involved increasing the surcharge on
members named in arbitration proceedings and increasing filing fees
and hearing session deposits. The increase in the member surcharge
was submitted to the SEC for approval in rule filing SR-NASD-97-40
and was approved by the SEC. It was implemented on July 1, 1997. The
proposed increases in filing fees and hearing session deposits were
originally submitted to the SEC for approval in rule filing SR-NASD-
97-39, resubmitted in rule filing SR-NASD-97-79, and are currently
pending SEC approval.
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The previously approved surcharge and the other pending fee
increases will add approximately $12 million to the revenue stream of
the Office of Dispute Resolution (``Office''). In addition, they will
shift much of the direct cost of operating the dispute resolution forum
to the users of the forum. The final 1998 Budget for the Office,
however, which includes transfer pricing of services provided by other
NASD departments to the Office, projects total expenses of
approximately $35.2 million versus projected revenue of approximately
$29.1 million, leaving a revenue shortfall of approximately $6.1
million. The proposed fees are designed to recover all of the Office's
costs that are not recovered through filing fees, hearing session
deposits, forum fees,\2\ and member surcharges and to make the Office's
activities self-funding in a manner that generally reflects the extent
of the use of resources in a given case.
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\2\ Forum fees are the charges for hearing sessions assessed at
the end of a proceeding. Forum fees are calculated by multiplying
the number of hearing sessions by the applicable hearing session
deposit.
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The process fees will be assessed in two parts: (1) The Prehearing
Process Fee for the activities in the case from the filing of the claim
up to and including the Prehearing Conference; and (2) the Hearing
Process Fee for the activities relating to the evidentiary hearing,
award and case closing. If the member concludes its involvement in a
case through dismissal or settlement, the process fees accrued to that
point will be assessed. In addition, if an associated person of a
member is named in a proceeding, but the member is not named, the
member employing the associated person at the time of the events that
gave rise to the dispute will be assessed the process fees when the
associated person's involvement in the case is concluded.
The Prehearing Process Fee will accrue in three cumulative stages.
When a claim is filed, a $50 fee will accrue against each member named
in the claim.\3\ When the first answer to the
[[Page 67106]]
claim is received or due, an additional $150 fee will accrue. Finally,
when the arbitrators are selected, a fee of $400 will accrue against
each member in the case, for a maximum assessment against each member
of $600. The Prehearing Process fee will be due and payable when the
prehearing conference is held, or, if no prehearing conference is held,
when the parties are notified of the date and location of the first
hearing. These fees will not be dependent on the amount of the claim.
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\3\ As discussed above, if an associated person of a member is
named, but the member employing the associated person is not named,
the process fee will accrue against the member employing the
associated person at the time of the events which gave rise to the
dispute. References in this rule filing to fees assessed against
members named in the proceeding will also refer to the circumstance
where the member is not named in the proceeding, but is assessed the
fee because a present or, where applicable, former associated person
of the member is named in the proceeding.
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The Hearing Process Fee will accrue and become due and payable when
the parties are notified of the date and location of the first hearing
session. The Hearing Process Fee will be a graduated fee ranging from
$1000 to $5000, based on the amount in dispute.
If an associated person is named, the member firm that employed the
associated person at the time the claim arose will be assessed fees;
however, a member will only be assessed once for each case even if both
the member and an associated person (or more than one associated
person) of the member are named as respondents. \4\
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\4\ As with the member surcharge, the proposed process fees will
be assessed only against members. They will not be assessed against
associated persons. In addition, because the process fee will be
assessed against a member if an associated person of the member is
named in a proceeding, members would be required to pay the process
fee, for example: (1) Where a member brings an arbitration case
against an associated person to recover on an promissory note; (2)
where an associated person brings an arbitration case against a
member for defamation or wrongful discharge; or (3) where a customer
brings an arbitration case against an associated person but does not
name the member that employed the associated person at the time of
the events that are the subject of the claim.
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NASD Regulation believes that, by structuring the process fees in
the manner proposed, the Office's costs will be recovered even if there
are significant variations in the number of cases that proceed all the
way through a hearing. Moreover, NASD Regulation believes that the
proposed process fees may encourage settlements because significantly
greater fees will be incurred by members once the matter proceeds to
hearing.
2. Statutory Basis
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(5) of the Act \5\ in
that the proposed rule change provides for the equitable allocation of
reasonable charges among members and other persons using the
Association's arbitration facility and requires member firm users to
absorb a reasonable share of the costs of operating the arbitration
program.
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\5\ 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 the proposed rule change will impose any
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
No written comments were solicited on received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The proposed rule change has become effective upon filing pursuant
to Section 19(b)(3)(A) of the Act \6\ and subparagraph (e) of Rule 19b-
4 thereunder, \7\ in that the proposal constitutes a fee which the NASD
imposes on its members. At any time within 60 days of the filing of
such proposed rule change, the Commission may summarily abrogate such
rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4(e).
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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, 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 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-97-88 and should
be submitted by January 13, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33405 Filed 12-22-97; 8:45 am]
BILLING CODE 8010-01-M