[Federal Register Volume 63, Number 174 (Wednesday, September 9, 1998)]
[Notices]
[Pages 48289-48290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24094]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40385; File No. SR-NYSE-98-20]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to an 
Interpretation of Article IV, Section 14 of the Exchange Constitution

August 31, 1998.

I. Introduction

    On July 10, 1998, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to interpret Article IV, Section 14 of the 
Exchange Constitution to provide that decisions of the Director of 
Arbitration regarding jurisdiction and hearing situs are not subject to 
review by the Exchange's Board of Directors (``Board'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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. 40229 (July 17, 1998), 63 FR 40150 (July 27, 1998). No 
comments were received on the proposal. This order approves the 
proposed rule change.

Description

    The Exchange proposes to interpret Article IV, Section 14 of the 
Exchange Constitution so that decisions of the Director of Arbitration 
on issues of jurisdiction and hearings situs are not subject to review 
by the Exchange's Board at the request of a member, member 
organization, allied member or approved person. Article IV, Section 14 
of the Exchange Constitution provides that where the Board has 
delegated its powers to an officer or employee, ``a member, member 
organization, allied member or approved person affected by a decision 
of any officer or employee .*.*. may require a review by the Board of 
such decision.'' \3\ No explicit exception is made for actions taken by 
the Director of Arbitration. Article IV, Section 13 also provides the 
Board with authority to interpret the Constitution.
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    \3\ The NYSE notes that in the past, members have requested, and 
the Board has granted, review of the Director of Arbitration's 
decisions on jurisdiction and hearing situs.
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    Article XI, Section 1 of the Exchange Constitution and Exchange 
Rule 600 establish the jurisdiction of the Exchange's arbitration 
forum.\4\ The Director of Arbitration is ``charged with the duty of 
performing all ministerial duties in connection with matters submitted 
for arbitration.'' \5\ These duties include making the initial 
decisions regarding jurisdiction and hearing situs.\6\ When a claim is 
submitted for arbitration at the Exchange, the Director of Arbitration 
determines whether the claim submitted falls within the parameters of 
the Exchange's jurisdiction. Exchange Rule 613 deals with the situs of 
a hearing and provides that ``[t]he time and place for the initial 
hearing shall be determined by the Director of Arbitration and each 
hearing thereafter by the arbitrators.''
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    \4\ ``Any controversy between parties who are members, allied 
members or member organizations and any controversy between a 
member, allied member or member organization and any other person 
arising out of the business of such member, allied member or member 
organization, or the dissolution of a member organization, shall at 
the instance of any such party, be submitted for arbitration in 
accordance with the provisions of this Constitution and such rules 
as the Board may from time to time adopt.'' (Article XI, Sec. 1).
    ``All dispute, claim or controversy between a customer or non-
member and a member, allied member, member organization and/or 
associated person arising in connection with the business of such 
member, allied member, member organization and/or associated person 
in connection with his activities as an associated person shall be 
arbitrated under the Constitution and Rules of the New York Stock 
Exchange, Inc. as provided by any duly executed and enforceable 
written agreement or upon the demand of the customer or non-
member.'' Exchange Rule 600.
    \5\ Exchange Rule 635.
    \6\ Exchange Rules 600 and 613.
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    The Exchange believes that Exchange Rule 621 and applicable law 
provide for the review of the Director's decisions by arbitrators or 
the courts. Under Exchange Rule 621, arbitrators are empowered to 
interpret and determine the applicability of all provisions of the 
Arbitration Rules; thereby the Exchange believes arbitrators can 
overturn decisions of the Director of Arbitration regarding situs of 
the first hearing. In

[[Page 48290]]

addition, the NYSE states that decisions of the Director of Arbitration 
regarding jurisdiction are subject to review by the courts.\7\ The 
Exchange also notes that interlocutory procedural decisions are rarely 
appealable in judicial and arbitral processes, but instead are reserved 
for consideration as part of any overall review of the lowest court's 
or arbitrator's decision.\8\ The Exchange notes that any review by the 
Board of staff action is in the nature of an interlocutory appeal, 
which the arbitrators and the courts may subsequently review. All this 
may result in an unnecessary delay in the final resolution of an 
arbitration claim.
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    \7\ See Spear, Leeds & Kellogg v. Central Life Assurance Co., 85 
F.3d 21 (2d Cir. 1996).
    \8\ This reservation occurs in part because interlocutory 
appeals are frequently employed by parties simply to gain tactical 
advantage in the dispute. In addition, a substantive resolution of 
the conflict will often moot the procedural issues.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Section 6(b).\9\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
of the Act \10\ in that it promotes just and equitable principles of 
trade by providing members, member organizations and the public with a 
fair and impartial forum for the resolution of their disputes.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 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 believes that the proposed rule change provides for 
adequate review by arbitrators or by the courts of the Director's 
decision as to whether a claim submitted to arbitration falls within 
the Exchange's jurisdiction, or as to the hearing situs of the 
arbitration; therefore, review by the Board is not necessary. The 
Commission believes it is reasonable for arbitrators to review the 
Director's decision as to the hearing situs, under their authority to 
interpret and determine the applicability of the arbitration rules.\12\ 
In addition, the Commission notes that decisions as to jurisdiction are 
subject to review by the courts. The Commission also notes that the 
proposed rule change allows for a more efficient arbitration 
process.\13\
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    \12\ See Exchange Rule 621.
    \13\ The Commission also notes that the Board has the authority 
to interpret the Constitution.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-98-20) is approved.

    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-24094 Filed 9-8-98; 8:45 am]
BILLING CODE 8010-01-M