[Federal Register Volume 63, Number 91 (Tuesday, May 12, 1998)]
[Notices]
[Pages 26238-26240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12456]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39957; File No. SR-NASD-98-34]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc.; Relating to 
Cancellations and Suspensions for Failure To Comply with Arbitration 
Award

May 5, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 1, 1998, 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 NASD Regulation, Inc. (``NASD 
Regulation''). The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Association proposes to amend that portion of Rule 9514 of the 
Rules of the Association relating to review of non-compliance with 
arbitration awards and settlements. The Association proposes to change 
the composition of the hearing panels used in such proceedings. Below 
is the text of the proposed rule change. Proposed new language is 
italicized; proposed deletions are in brackets.
9514. Hearing and Decision.
* * * * *
    (b) Designation of Party for the Association and Appointment of 
Hearing Panel
    If a member, association person, or other person subject to a 
notice under Rule 9512 or 9513 files a written request for a hearing, 
an appropriate department or office of the Association shall be

[[Page 26239]]

designated as a Party in the proceeding, and a Hearing Panel shall be 
appointed.
    (1) If the President of NASD Regulation or NASD Regulation staff 
issued the notice initiating the proceeding under Rule 9512(a) or 
9513(a), the President of NASD Regulation shall designate an 
appropriate NASD Regulation department or office as a Party[, and the 
NASD Regulation Board shall appoint a Hearing Panel. The Hearing Panel 
shall be composed of two or more members]. For proceedings initiated 
under Rule 9513(a) concerning failure to comply with an arbitration 
award or a settlement agreement related to an NASD arbitration or 
mediation, the Chief Hearing Officer shall appoint a Hearing Panel 
composed of a Hearing Officer. For any other proceedings initiated 
under Rule 9512(a) or 9513(a) by the President of NASD Regulation or 
NASD Regulation staff, the NASD Regulation Board shall appoint a 
Hearing Panel composed of two or more members: [One] one member shall 
be a Director of NASD Regulation, and the remaining member or members 
shall be current or former Directors of NASD Regulation or Governors. 
The President of NASD Regulation may not serve on [the] a Hearing 
Panel.
 * * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD Regulation 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. NASD Regulation 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 change the 
composition of the Hearing Panel used for proceedings under the Rule 
9510 Series in which NASD Regulation seeks to suspend or cancel the 
membership of a member or the registration of a person for failure to 
comply with an arbitration award or a settlement agreement related to 
an NASD arbitration or mediation. Currently, Rule 9514(b) requires that 
the Hearing Panel for such proceedings be composed of two or more 
members, one of whom must be a Director of NASD Regulation, and the 
remaining member or members must be a current or former Director of 
NASD Regulation or Governor of the NASD. NASD Regulation has determined 
that board-level panelists are not necessary for such hearings because 
the issues to be resolved are narrow and largely administrative. 
Generally, the only issues to be addressed are whether: (1) the member 
or person paid the award in full or fully complied with the settlement 
agreement; (2) the claimant agreed to installment payments or has 
otherwise settled the matter; (3) the member or person has filed a 
timely motion to vacate or modify the arbitration award and such motion 
has not been denied; (4) the member or person has filed a petition in 
bankruptcy and the bankruptcy proceeding is pending, or the award or 
payment owed under the settlement agreement has been discharged by the 
bankruptcy court; and (5) the member or person is unable to pay the 
award. The Commission has stated that a bona fide inability to pay an 
arbitration award is an important consideration determining whether any 
sanction for failure to pay an arbitration award is excessive or 
oppressive.\2\ NASD Regulation has determined that it would be more 
efficient to have one Hearing Officer conduct the hearing on these 
issues and render a decision. Hearing Officers are well-suited to 
resolve the issues presented in these types of hearings due to their 
training and experience in the NASD's disciplinary proceedings under 
the Rule 9200 Series.
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    \2\ See In the Matter of the Application of Bruce M. Zipper, 
Securities Exchange Act Release 33376, Admin. Proc. File No. 3-7908. 
(Dec. 23, 1993).
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2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act, which 
requires, among other things, that the Association's rules must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The NASD believes that the 
proposed rule change will result in a fair and efficient procedure for 
suspending or canceling the membership of a member or the registration 
of a person for failure to comply with an arbitration award or a 
settlement agreement related to an NASD arbitration or mediation so 
that where appropriate, such members or persons are not permitted to 
continue to do business with investors.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation does not believe the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety 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, including whether the proposal is 
consistent with the Act. 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 in the Commission's 
Public Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of NASD Regulation. Al 
submissions should refer to the file number in the caption above and 
should be submitted by May 27, 1998.


[[Page 26240]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-12456 Filed 5-11-98; 8:45 am]
BILLING CODE 8010-01-M