[Federal Register Volume 63, Number 183 (Tuesday, September 22, 1998)]
[Notices]
[Pages 50611-50616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25290]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40441; File No. SR-NASD-98-49]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the National Association 
of Securities Dealers, Inc. Relating to NASD Code of Arbitration 
Procedure Rule 10335 (Injunctive Relief Rule)

September 15, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on July 
16, 1998, the National Association of Securities Dealers, Inc. 
(``NASD''), through its wholly-owned subsidiary, NASD Regulation, Inc. 
(``NASD Regulation'') 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.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NASD Regulation filed two amendments to the proposed rule 
change. See Letters from Joan C. Conley, Secretary, NASD Regulation 
to Katherine A. England, Assistant Director, Division of Market 
Regulation, Commission, dated September 9, 1998 (``Amendment No. 
1'') and September 10, 1998 (``Amendment No. 2''). These amendments 
made several clarifications which are incorporated into this Notice.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation is proposing to amend Rule 10335 of the NASD's Code 
of Arbitration Procedure (``Code'') to clarify and improve the rule and 
to make it a permanent part of the Code. Below is the text of the 
proposed rule change. The proposed language (which is italicized) would 
replace the existing rule (which is in brackets) in its entirety.
* * * * *
RULES OF THE ASSOCIATION
10000. CODE OF ARBITRATION PROCEDURE
10300. UNIFORM CODE OF ARBITRATION
10335. [Injunctions

    In industry or clearing disputes required to be submitted to 
arbitration pursuant to Rule 10201, parties to the arbitration may seek 
injunctive relief either within the arbitration process or from a court 
of competent jurisdiction. Within the arbitration process, parties may 
seek either an ``interim jurisdiction'' from a single arbitrator or a 
permanent injunction from a full arbitration panel. From a court of 
competent jurisdiction, parties may seek a temporary injunction. A 
party seeking temporary injunctive relief from a court with respect to 
an industry or clearing dispute required to be submitted to arbitration 
pursuant to Rule 10201 shall simultaneously file a claim for permanent 
relief with respect to the same dispute with the Director in the manner 
specified under this Code. This Rule contains procedures for obtaining 
an interim injunction. Paragraph (g) of this Rule relates to the effect 
of court-imposed injunctions on arbitration proceedings. If any 
injunction is sought as part of the final award, such request should be 
made in the remedies portion of the Statement of Claim, pursuant to 
Rule 10314(a).
    (a) Single Arbitrator

[[Page 50612]]

    Applications for interim injunctive relief shall be heard by a 
single arbitrator.
    (b) Showing Required
    In order to obtain an interim injunction, the party seeking the 
injunction must make a clear showing that it is likely to succeed on 
the merits, that it will suffer irreparable injury unless the relief is 
granted, and that the balancing of the equities lies in its favor.
    (c) Application for Relief
    Interim injunctions include both Immediate Injunctive Orders and 
Regular Injunctive Orders, as described in paragraph (d) below. In 
either case, the applicant shall make application for relief by serving 
a Statement of Claim, a statement of facts demonstrating the necessity 
for injunctive relief, and a properly-executed Submission Agreement on 
the party or parties against whom injunctive relief is sought. The 
above documents shall simultaneously and in the same manner be filed 
with the Director of Arbitration, together with an extra copy of each 
document for the arbitrator, proof of service on all parties, and all 
fees required under Rule 10205. Filings and service required under this 
Rule may be made by United States mail, overnight delivery service or 
messenger.
    (d) The procedures and timetable for handling applications for 
interim injunctive relief are as follows:
    (1) Immediate Injunctive Orders.
    (A) Upon receipt of an application for an Immediate Injunctive 
Order, the Director shall endeavor to schedule a hearing no sooner than 
one and no later than three business days after receipt of the 
application by the respondent and the Director.
    (B) The filing of a response to an application for an Immediate 
Injunctive Order is optional to the party against whom the immediate 
order is sought. Any response shall be served on the applicant. If a 
response is submitted, the responding party shall, prior to the hearing 
or at the hearing, file with the Director two copies of the response 
and proof of service on all parties.
    (C) Notice of the date, time and place of the hearing; the name and 
employment history of the single arbitrator required by Rule 10310; and 
any information required to be disclosed by the arbitrator pursuant to 
Rule 10312 shall be provided to all parties via telephone, facsimile 
transmission or messenger delivery prior to the hearing.
    (D) The hearing on the application for an Immediate Injunctive 
Order may be held, at the discretion of the arbitrator or the Director, 
by telephone or in person in a city designated by the Director of 
Arbitration.
    (E) The arbitrator shall endeavor to grant or deny the application 
within one business day after the hearing and record are closed.
    (F) If the application is granted, the arbitrator shall determine 
the duration of the Immediate Injunctive Order. Unless the parties 
agree otherwise, however, the order will expire no later than the 
earlier of the issuance or denial of a Regular Injunctive Order under 
subparagraph (2) or a decision on the merits of the entire controversy 
by an arbitration panel appointed under this Code.
    (2) Regular Injunctive Orders.
    (A) Upon receipt of an application for a Regular Injunctive Order, 
the Director shall endeavor to schedule a hearing no sooner than three 
and no later than five business days after the response is filed or due 
to be filed, whichever comes first.
    (B) The party against which a Regular Injunctive Order is sought 
shall serve a response on the applicant within three business days of 
receipt of the application. The responding party shall simultaneously 
and in the same manner file with the Director two copies of the 
response and proof of service on all parties. Failure to file a 
response within the specified time period shall not be grounds for 
delaying the hearing, nor shall it bar the respondent from presenting 
evidence at the hearing.
    (C) Notice of the date, time and place of the hearing; the name and 
employment history of the single arbitrator required by Rule 10310; and 
any information required to be disclosed by the arbitrator pursuant to 
Rule 10312 shall be provided to all parties via telephone, facsimile 
transmission or messenger delivery prior to the hearing.
    (D) The hearing on the application for a Regular Injunctive Order 
may be held, at the discretion of the arbitrator or the Director, by 
telephone or in person in a city designated by the Director of 
Arbitration.
    (E) The arbitrator shall endeavor to grant or deny the application 
within one business day after the hearing and record are closed.
    (F) If the application is granted, the arbitrator shall determine 
the duration of the Regular Injunctive Order. Unless the parties agree 
otherwise, however, a Regular Injunctive Order shall expire no later 
than a decision on the merits of the entire controversy by an 
arbitration panel appointed under this Code.
    (e) Challenges to Arbitrators
    There shall be unlimited challenges for cause to the single 
arbitrator appointed to hear the application for injunctive relief, but 
there shall be no peremptory challenges. Parties wishing to object to 
the arbitrator shall do so by telephone to the Director, and shall 
confirm such objection immediately in writing or by facsimile 
transmission, with a copy to all parties. A peremptory challenge may 
not be made to an arbitrator who heard an application for an injunctive 
order and who subsequently participates or is to participate on the 
arbitration panel hearing the same arbitration case on the merits.
    (f) Hearing on the Merits
    Immediately following the issuance of an Immediate or Regular 
Injunctive Order, the Director shall appoint arbitrators according to 
the procedures specified in the Code to hear the matter on the merits. 
The arbitration shall proceed in an expedited manner pursuant to a 
schedule and procedures specified by the arbitrators. The arbitrators 
may specify procedures and time limitations for actions by the parties 
different from those specified in the Code.
    (g) Effect of Court Injunction
    If a court has issued an injunction against one of the parties to 
an arbitration agreement, unless otherwise specified by the court, any 
requested arbitration concerning the matter of the injunction shall 
proceed in an expedited manner according to a time schedule and 
procedures specified by the arbitration panel appointed under this 
Code.
    (h) Security
    The arbitrator issuing the Immediate or Regular Injunctive Order 
may require the applicant, as a condition to effectiveness of the 
order, to deposit security in an amount that the arbitrator deems 
proper, in a separate bank trust or escrow account for the benefit of 
the party against whom injunctive relief is sought, for the payment of 
any costs and damages that may be incurred or suffered by the party 
against whom injunctive relief is sought if it is found to have been 
wrongfully enjoined.
    (i) Effective Date
    This Rule shall apply to arbitration claims filed on or after 
January 3, 1996. Except as otherwise provided in this Rule, the 
remaining provisions of the Code shall apply to proceedings instituted 
under this Rule. This Rule shall expire on July 3, 1998, unless 
extended by the Association's Board of Governors.]

Temporary Restraining Orders

    In industry or clearing disputes required to be submitted to 
arbitration pursuant to Rule 10201, parties to the arbitration may seek 
a temporary restraining order within the arbitration process or from a 
court of competent

[[Page 50613]]

jurisdiction. This Rule contains procedures for obtaining this interim 
relief in arbitration or in court pending completion of an arbitration 
proceeding. Requests for permanent injunctive relief should be made in 
the remedies portion of the Statement of Claim, pursuant to Rule 
10314(a).
    (A) Temporary Restraining Orders in Arbitration
    (1) Single Arbitrator; Consolidation
    A single arbitrator shall hear applications for a temporary 
restraining order. At the arbitrator's discretion, multiple requests 
for relief involving the same applicant or respondent may be 
consolidated.
    (2) Showing Required
    In order to obtain a temporary restraining order, the party seeking 
the relief (``applicant'') must meet the standards for obtaining a 
temporary restraining order of the state in which the events leading to 
the application occurred.
    (3) Application for Relief
    An applicant seeking a temporary restraining order shall make 
application for relief by serving a Statement of Claim, a statement of 
facts demonstrating the necessity for a temporary restraining order, 
and a properly executed Submission Agreement on the party or parties 
against whom the applicant seeks relief. The applicant shall file the 
above documents simultaneously and in the same manner with all parties 
and the Director of Arbitration. The papers filed with the Director of 
Arbitration should also include three extra copies of each document, 
proof of service on all parties, and all fees required under Rule 
10205. Filings and service required under this Rule may be made by 
United States mail, overnight delivery service or messenger, or 
facsimile transmission.
    (4) Appointment of Arbitrator
    Upon receipt of an application for a temporary restraining order, 
the Director of Arbitration shall appoint an arbitrator to hear the 
application. Upon appointment, the arbitrator shall set the initial 
hearing date.
    (5) Challenges to Arbitrator
    (a) There shall be unlimited challenges for cause, but no 
peremptory challenges, to the single arbitrator appointed to hear the 
application for a temporary restraining order. Parties challenging the 
arbitrator for cause shall do so by telephone to the Director of 
Arbitration, and shall confirm such objection immediately in writing, 
with a copy to all parties.
    (b) Parties may not make a peremptory challenge to the arbitrator 
who has heard an application for a temporary restraining order and 
subsequently will participate on the arbitrator panel hearing the same 
case on the merits.
    (6) Scheduling of Hearing; Notice to Parties
    (a) The arbitrator shall endeavor to schedule a hearing no sooner 
than one and no later than three business days after the response is 
filed or due to be filed, whichever comes first.
    (b) The Director of Arbitration shall provide to all parties notice 
of the date, time, and place of the hearing, the name and employment 
history of the single arbitrator required by Rule 10310, and any 
information required to be disclosed by the arbitrator pursuant to Rule 
10312 via telephone, facsimile transmission, or messenger delivery 
prior to the hearing.
    (c) At the discretion of the arbitrator or the Director of 
Arbitration, the hearing may be held by telephone or in person in a 
city designated by the Director of Arbitration.
    (7) Filing of Responses
    (a) The party against which an applicant seeks a temporary 
restraining order (``responding party'') may respond to the 
application. A responding party shall serve any response on the 
applicant and shall file with the Director of Arbitration four copies 
of the response and proof of service on all parties.
    (b) Within time frames set by the arbitrator, the parties shall be 
permitted to file briefs, affidavits and documentary evidence in 
connection with the request for a temporary restraining order.
    (8) Arbitrator's Decision
    The arbitrator shall endeavor to grant or deny the application for 
a temporary restraining order within one business day after the hearing 
and record are closed.
    (9) Expiration of Temporary Restraining Orders in Arbitration
    A temporary restraining order shall expire 10 days from the date of 
issuance. The arbitrator may extend the temporary restraining order for 
ten-day periods until a hearing on the merits is held. Notwithstanding 
the expiration date, a temporary restraining order shall expire upon a 
decision on the merits of the entire controversy, unless the parties 
agree otherwise.
    (B) Court-Ordered Temporary Restraining Orders
    (1) Parties to an arbitration may seek a temporary restraining 
order from a court of competent jurisdiction even if another party has 
already filed a claim arising from the same dispute in arbitration 
pursuant to paragraph (A). However, a party making such a request must 
do so within five days of when the party knew or should have known or 
the event or occurrence upon which the request is based. In any event, 
a party may not seek a temporary restraining order in court after a 
hearing on the merits in arbitration has convened.
    (2) An arbitrator may not issue an order enjoining a party from 
seeking a temporary restraining order in court. The availability of the 
temporary restraining order remedy in arbitration is not grounds for a 
party to seek denial of a temporary restraining order in court. 
However, a party which has been denied a temporary restraining order in 
arbitration or in court may not seek the same relief in the other 
forum.
    (3) Parties may not seek discovery in court in connection with a 
request for a court-ordered temporary restraining order.
    (4) A party seeking a temporary restraining order from a court with 
respect to an industry or clearing dispute required to be submitted to 
arbitration pursuant to Rule 10201 shall simultaneously file a claim 
for permanent relief with respect to the same dispute with the Director 
in the manner specified under this Code. A party obtaining a court-
ordered temporary restraining order shall notify the Director of 
Arbitration of the issuance of the order within one business day.
    (5) A party obtaining a temporary restraining order in court may 
not request that the court extend the order's effectiveness beyond an 
initial ten-day period, unless no arbitrator or panel of arbitrators 
has been appointed to review the court's order in accordance with 
paragraph (B)(6) of this Rule.
    (6) Review of Court-Ordered Temporary Restraining Order
    (a) Upon request by one or more of the parties, the Director of 
Arbitration shall appoint a three-member panel of arbitrators to review 
the court-issued temporary restraining order before expiration of the 
order. If a three-member panel of arbitrators cannot be appointed 
before the temporary restraining order expires, the Director of 
Arbitration may appoint a single arbitrator to review the court-issued 
temporary restraining order.
    (b) There shall be unlimited challenges for cause, but no 
peremptory challenges, to the arbitrator(s) appointed to review a 
court-ordered temporary restraining order. Parties challenging the 
arbitrator(s) for cause shall do so by telephone to the Director of 
Arbitration, and shall confirm such objection immediately in writing, 
with a copy of all parties.
    (c) the panel or single arbitrator appointed to review the court-
ordered temporary restraining order may (i)

[[Page 50614]]

issue an order extending the court's order, (ii) issue a temporary 
restraining order with different terms and conditions than the court's 
order, or (iii) decline to issue a temporary restraining order. A 
temporary restraining order issued by the reviewing arbitrator(s) may 
not become effective until the expiration of the court's order. A 
temporary restraining order issued by the reviewing arbitrator(s) may 
be extended for ten-day periods until a hearing on the merits is held.
    (d) Within time frames set by the arbitrator(s), the parties shall 
be permitted to file briefs, affidavits and documentary evidence in 
connection with the review of a court-ordered temporary restraining 
order.
    (7) Showing Required
    In order to obtain an extension of a court-ordered temporary 
restraining order, the party seeking relief must make the same showing 
specified in paragraph (A)(2) of this Rule.
    (C) Hearing on the Merits
    (1) Immediately following the issuance of a temporary restraining 
order in arbitration, or upon notification to the Director of 
Arbitration of the issuance of a court-ordered temporary restraining 
order, the Director of Arbitration shall appoint arbitrators to hear 
the matter on the merits. The Director of Arbitration shall appoint the 
arbitrators in the manner specified in the Code, provided, however, 
that the Director of Arbitration shall have the discretion to expiedite 
the appointment of the arbitrators to facilitate the expedition of the 
hering on the merits in accordance with paragraph (C)(3) of this Rule.
    (2) If the temporary restraining order was issued by an arbitrator, 
one of the arbitrators appointed to hear the matter on the merits may 
be the arbitrator who heard the request for the temporary restraining 
order. If the temporary restraining order was issued by a court and 
reviewed by a single arbitrator or a panel of arbitrators, one of the 
arbitrators appointed to hear the matter on the merits may be an 
arbitrator who reviewed the court-ordered temporary restraining order; 
by agreement of the parties, the entire panel of arbitrators may be 
appointed to hear the matter on the merits.
    (3) The arbitration shall proceed in an expedited manner pursuant 
to a schedule and procedures specified by the arbitrators, but in no 
event shall proceedings commence more than 28 days from the original 
filing, unless the parties agree otherwise. The arbitrators may specify 
procedures and time limitations for actions by the parties different 
from those specified in the Code.
    (D) Security
    The arbitrator issuing an injunctive relief order may require the 
applicant, as a condition to effectiveness of the order, to deposit 
security in an amount that the arbitrator deems proper, in a separate 
bank trust or escrow account for the benefit of the party against whom 
the temporary restraining order is sought, for the payment of any costs 
and damages that may be incurred or suffered by that party.
    (E) Effective Date
    This rule shall apply to arbitration claims filed on or after 
January 4, 1999. Except as otherwise provided in this Rule, the 
remaining provisions of the Code shall apply to proceedings instituted 
under this Rule.
* * * * *

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 the 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
    Rule 10335, the NASD's pilot injunctive relief rule, allows interm 
injunctive relief to be obtained in controversies involving member 
firms and associated persons in arbitration. The proposed rule change 
would amend the rule and make it a permanent part of the Code.
    The rule took effect on January 3, 1996 for a one-year pilot 
period. The Commission extended the initial pilot period twice in order 
to permit NASD Regulation's Office of Dispute Resolution to gain 
additional experience with the rule before determining whether, and in 
what form, the rule should be made a permanent addition to the Code. 
The rule is currently due to expire on January 3, 1999.\4\
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    \4\ The Commission recently approved a related rule filing (File 
No. SR-NASD-98-42) to extend the pilot rule through January 3, 1999. 
See Securities Exchange Act Release No. 40124 (June 24, 1998), 63 FR 
37282 (July 2, 1998).
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    a. Summary of the Current Rule. Rule 10335 currently provides, 
among other things, that: (i) Parties may seek temporary injunctive 
relief either in court or in arbitration; (ii) Parties who seek 
temporary injunctive relief in court must simultaneously submit the 
claim to arbitration for permanent relief; (iii) Parties may obtain 
interim injunctive relief in arbitration rather than in court in the 
form of either an Immediate Injunctive Order or a Regular Injunctive 
Order; (iv) Permanent injunctive relief may be obtained in arbitration 
as part of the final relief sought by a party in connection with a 
claim; (v) Applications for interim injunctive relief are expedited; 
and (vi) Where a court grants interim injunctive relief to one of the 
parties, arbitration proceedings on the dispute must be expendited.
    b. Notice to Members 97-59. The proposed rule change is based in 
part on responses to Notice to Members (97-59), published in November 
1997, and on NASD Regulation's Office of Dispute Resolution staff's 
experience with the pilot rule. At the time the Notice to Members was 
published, approximately 433 cases had been filed in which injunctive 
relief was sought pursuant to the pilot rule. The average number of 
days between filing and the arbitrator's initial injunctive relief 
order was approximately 7.5 days. The majority of cases in which 
injunctive relief was sought involved the transfer of associated 
persons from one firm to another. In most but not all cases, the 
associated person's former firm was the petitioner.
    The Notice to Members sought comment on how the pilot injunctive 
relief rule and expedited proceedings work and how they could be 
improved, and identified more than twenty specific questions based on 
previous comments received from users of the pilot rule. The comment 
letters received in response, which are attached to the proposed rule 
change as Exhibit 3, reflected a wide range of opinions about the 
rule.\5\ While a few commenters advocated eliminating the rule 
entirely, most expressed support for the availability of injunctive 
relief in arbitration proceedings. One general concern regarding the 
functioning of the rule was the length of time needed to obtain 
injunctive relief under the rule. Most commenters also indicated that 
the temporary relief available under the rule

[[Page 50615]]

should be subject to time limits, as are temporary restraining orders 
and preliminary injunctions available in court. Most also agreed that 
the current terminology used in the rule, which refers to Immediate and 
Regular Injunctive Orders, should be changed to be consistent with the 
terminology used in courts. With some dissenters, most also agreed that 
arbitrators should have some authority to modify injunctive relief 
granted by a court, at least once an expedited arbitration hearing on 
the merits has commenced. The comments reflected less uniformity on 
issues such as hearing procedures and forum-shopping.
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    \5\ The comments contained in Exhibit 3 pertain to the pilot 
injunctive relief rule and not to the proposed rule change.
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    c. The Proposed Amendments. The principal objectives of the 
proposed amendments are: (1) to simplify and expedite the injunctive 
relief process in arbitration; (2) to set time limits on injunctive 
relief issued pursuant to the rule; and (3) to clarify the rules 
relating to obtaining a court-ordered temporary restraining order, and 
the effect of such an order on the subsequent arbitration process.
    i. Availability of Injunctive Relief in Arbitration.
    Under the current rule, parties may seek either an Immediate 
Injunctive Order or a Regular Injunctive Order in arbitration, which 
are roughly parallel to temporary restraining orders and preliminary 
injunctions available in court. The rule does not currently impose any 
time limits on the orders issued, and does not specify what standard 
should be applied in deciding applications for injunctive relief. 
Commenters responding to Notice to Members 97-59 complained that the 
terminology is confusing, that the lack of standards has created 
uncertainty, and that the lack of time limits permits parties who 
obtain relief to pressure the enjoined party to settle by delaying the 
hearing on the merits.
    Under the proposed amendments, the Regular Injunctive Order would 
be abolished, and the Immediate Injunctive Order would be replaced by a 
temporary restraining order, to track the terminology used in court. 
Applications for temporary restraining orders would be heard by a 
single arbitrator, who would be appointed within three days of the 
filing of an application for relief. The rule would permit unlimited 
challenges for cause to the arbitrator appointed to hear the request 
for the temporary restraining order, but would prohibit peremptory 
challenges.
    Temporary restraining orders issued in arbitration would expire 
after ten days, but could be extended by the single arbitrator for 
additional ten-day periods until the commencement of a hearing on the 
merits, which would be required to occur within 28 days of the original 
filing of the Statement of Claim. A party who sought and was denied a 
temporary restraining order in court would also be able to request an 
expedited hearing under the rule.
    Under the proposed amendments, the legal standards for obtaining a 
temporary restraining order in arbitration would be changed to the 
standards of the law of the state in which the events giving rise to 
the application occurred. The pilot rule specified a legal standard in 
part because the kind of injunctive relief available under the rule 
differed from the kind of injunctive relief available in court. 
Therefore, reference to state law standards in the pilot rule would not 
have been practical. The proposed rule change would replace the kinds 
of injunctive relief available under the pilot rule with temporary 
restraining orders, which are available in court. Since state law 
standards for granting temporary restraining orders are well-developed, 
the rule can now reference state law standards and eliminate its own 
forum standard.
    The proposed rule would make clear that, within the time frames set 
by the arbitrator, parties could file briefs, affidavits and other 
evidence in connection with a request for a temporary restraining 
order.
    ii. Availability of Injunctive Relief in Court
    One of the most controversial issues regarding the pilot rule has 
been whether or not parties should be able to continue to seek a 
temporary restraining order in court if the same relief is available in 
arbitration. Some parties and commenters concerned about the ability to 
obtain immediate relief have opposed the elimination of the court 
option. Others have expressed concern that permitting parties to seek 
relief in court that is also available in arbitration encourages forum-
shopping and undermines the arbitration process.
    The proposed amendments relating to the availability and effect of 
a court-ordered temporary restraining order are intended to balance 
these concerns. The rule would preserve the ability of parties to seek 
temporary restraining orders in court as an alternative to doing so in 
arbitration, and would make clear that the availability of a temporary 
restraining order remedy in arbitration is not grounds for denial of a 
temporary restraining order request in court. However, parties who 
sought and were denied a temporary restraining order in one forum would 
be barred from seeking the same relief in the other forum.
    The rule would also clarify that the filing of a claim by one party 
in arbitration is not a bar to a party seeking a temporary restraining 
order in court, and that an arbitrator would be prohibited from issuing 
an order enjoining a party from seeking a court-ordered temporary 
restraining order. However, when a claim had been filed in arbitration, 
a party seeking a temporary restraining order in court would have to 
file in court within five days of when the party knew or should have 
known of the conduct or event giving rise to the request, and a party 
would not be able to seek a temporary restraining order in court once a 
hearing on the merits in arbitration has commenced.
    Once a temporary restraining order is issued by a court, the rule 
would require the Director of Arbitration, if requested by one or more 
of the parties, to appoint a panel of three arbitrators to review the 
order within ten days. The rule prohibits a party from requesting 
extension of the court order beyond the initial ten-day period. If the 
Director of Arbitration was unable to appoint a panel in that time, the 
rule would permit the Director to appoint a single arbitrator to review 
the order. The rule would prohibit a party from asking a court to 
extend a temporary restraining order unless no panel or arbitrator has 
been appointed to review the order before the temporary restraining 
order expires.
    Upon expiration of the court's order, the panel or arbitrator 
appointed to review a court-ordered temporary restraining order could 
issue or decline to issue a new order. A new order issued by the panel 
or single arbitrator might be identical to the court's order, or might 
vary in some or all respects. Such an order would be effective for ten 
days, and could be extended for additional ten-day periods until a 
hearing on the merits commenced. Although the panel or arbitrator may 
issue a new order upon expiration of the court order, arbitrators do 
not have the authority to extend, vacate or modify a court order.
    As in the case of temporary restraining orders sought in 
arbitration, once a temporary restraining order is issued by a court, a 
hearing on the merits would be required to be held within 28 days of 
the original filing of the Statement of Claim. A party who sought and 
was denied a temporary restraining order in court could still request 
an expedited hearing under the rule.

[[Page 50616]]

(2) Basis
    NASD Regulation believes that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act,\6\ which requires, among 
other things, that the Association's rules 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 will 
serve the public interest by enhancing the satisfaction with the 
arbitration process afforded by expeditious resolution of certain 
disputes.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation does not believe that the proposed rule change will 
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

    NASD Regulation did not solicit comments with respect to the 
proposed rule change. However, the proposed rule change is based in 
part on written comments received in response to Notice to Members 97-
59. A copy of the Notice to Members and copies of the comment letters 
received in response to the Notice were attached as exhibits to the 
rule filing.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 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 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 Association 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 the NASD. All 
submissions should refer to File No. SR-NASD-98-49 and should be 
submitted by October 13, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-25290 Filed 9-21-98; 8:45 am]
BILLING CODE 8010-01-M