[Federal Register Volume 63, Number 198 (Wednesday, October 14, 1998)]
[Notices]
[Pages 55170-55171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27413]



[[Page 55170]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40524; File No. SR-NYSE-98-27]


Self-Regulatory Organization; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Arbitration 
Rules

October 6, 1998.
    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 
September 8, 1998,\1\ the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') 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.
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    \1\ The Exchange filed Amendment No. 1 to the proposed rule 
change on September 28, 1998, the substance of which is incorporated 
into this notice. See letter from James E. Buck, Senior Vice 
President and Secretary, NYSE, to Katherine A. England, Assistant 
Director, Commission, dated September 24, 1998 (``Amendment No. 
1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed amendment to Rule 600 will exclude shareholder 
derivative actions from arbitration. The proposed amendments to Rules 
604 and 621 will allow arbitrators to dismiss pleadings, with or 
without prejudice, as a sanction for a willful failure to comply with 
their orders. The proposed amendments to Rules 608 and 613 will 
increase the minimum notice of the appointment of arbitrators and the 
initial hearing date from eight to 15 business days. The proposed 
amendments to Rules 609 and 611 will extend the time to exercise a 
peremptory challenge from five to ten business days. The proposed 
amendment to Rule 627 will require the award to be served 
contemporaneously on all parties and will allow the Exchange to serve 
awards via facsimile or other electronic means. New Rule 638 will 
require, on a two year pilot basis, a single mediation session in non-
customer cases, where the amount of the claim is $500,000 or more. Rule 
638 will also provide mediation, with the parties' consent, in cases 
involving public customers where the amount of the claim is $500,000 or 
more. The mediator's fee for this required first session will be borne 
by the Exchange. In addition, the Rule provides for mediation in all 
other cases upon the consent of the parties and at their expense. New 
rule 639 will require, on a two year pilot basis, an administrative 
conference between the parties and arbitrators in all cases where the 
amount of the claims is $500,000 or more.

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 statement 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
    The NYSE states that the proposed rule change, with the exception 
of amendments to Rule 600 and new Rules 638 and 639, is based on 
proposals developed by the Securities Industry Conference on 
Arbitration.
    The Exchange proposes to amend Rule 600 to exclude shareholder 
derivative actions from arbitration. The Exchange's Arbitration rules 
already exclude class actions. The Exchange believes that shareholder 
derivative actions, like class actions, are representative in nature. 
``Shareholder controversies are not appropriately within the mandatory 
arbitration provisions of the Exchange's Constitution.''\2\ The NYSE 
believes that the court system is better equipped to manage shareholder 
derivative actions which involve parties in different jurisdictions and 
issues such as the notification of shareholder, the appointment of 
counsel and the awarding of attorneys' fees. In the past, the Exchange 
has declined the use of its arbitration facilities for shareholder 
derivative actions. Under Article XI, Section 3 of the Exchange 
Constitution, the Exchange has discretion to ``decline in any case to 
permit the use of the arbitration facilities of the Exchange.'' The 
Exchange's arbitration rules were not intended to provide a forum for 
shareholder derivative actions on behalf of member firms that are 
organized as corporations.
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    \2\ In re Salomon Inc. Shareholders' Derivative Litigation, 68 
F.3d 554, 556 (1995) (Judge McLaughlin of the Second Circuit quoting 
from the exchange's decision denying jurisdiction in a shareholder 
derivative action).
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    The Exchange proposes amendments to Rules 604 and 612 to provide 
that arbitrators may dismiss claims or defenses, with or without 
prejudice, as a sanction for a willful failure to comply with their 
orders. This amendment is intended to encourage compliance with the 
arbitrators' orders on discovery issues and other pre-hearing matters. 
The Exchange will keep records on any dismissals under the amended 
rules.
    The proposed rule change amends Rules 608 and 613 to provide that 
the minimum notice of the appointment of arbitrators and the initial 
hearing date be extended from eight to 15 business days. The amendment 
is intended to give the parties greater notice of the hearing date and 
additional time to evaluate the arbitrators.
    The proposed rule change amends Rules 609 and 611 to extend the 
parties' time to exercise a peremptory challenge from five to ten 
business days after notification of the identity of the arbitrators. 
The amendment will give the parties more time to research the 
arbitrators' backgrounds and decide whether to exercise a peremptory 
challenge.
    The proposed rule change amends Rule 627 to provide that the 
Exchange may serve awards via facsimile or other electronic means. The 
award will be served contemporaneously on all parties. The amendment is 
intended to enable the Exchange to deliver the award in the fastest and 
most reliable way. The amendment is intended to adapt Exchange 
arbitration practices to technological changes.
    The proposed rule change adds new Rule 638 which requires, on a 
pilot basis for two years from the date of Commission approval, a 
single mediation session, in non-customer cases where the amount of the 
claim is $500,000 or more. The mediator's fee for this first session 
will be borne by the Exchange. The pilot will also provide for 
mediation, with the parties' consent, in cases involving public 
customers where the amount of the claim is $500,000 or more. The 
mediator's fee for this first session will be borne by the Exchange. 
Moreover, mediation will be available upon the consent of the parties 
and at their expense in all other cases. Where the parties have not 
selected a mediator on their own, the Exchange will provide the names 
and profiles of five mediators. The current ``Arbitrator Profile'' form 
will be used to provide the parties with biographical and disclosure 
data regarding the proposed mediators.

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The profile form includes the employment histories of the mediators for 
the past 10 years and any information disclosed regarding conflicts of 
interest. The profile also includes information about the mediator's 
education, business and professional background, mediation experience 
and training and memberships in professional associations. Mediation is 
a voluntary method of dispute resolution where a mediator attempts to 
facilitate a settlement of the dispute. When mediation is successful, 
cases are settled earlier, often with significant cost savings. The 
parties' rights are protected since any settlement is reached with 
their participation and agreement.
    Finally, the proposed rule change adds new Rule 639 to require, on 
a pilot basis for two years from the date of Commission approval, an 
administrative conference between the parties and arbitrators in all 
cases where the amount of the claim is $500,000 or more. An 
administrative conference early in the process will allow the 
arbitrators to intervene to establish discovery schedules resolve 
discovery disputes and other preliminary matters. The conference is 
intended to expedite the arbitration by narrowing the issues in dispute 
and avoiding costly contests over procedural matters.
2. Statutory Basis
    The Exchange believes that the proposed changes are consistent with 
Section 6(b)(5) of the Act \3\ in that they promote just and equitable 
principles of trade by insuring the members and member organizations 
and the public have a fair and impartial forum for the resolution of 
their disputes.
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    \3\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate 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 either solicited or received.

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

    Within 35 days of the 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 self-regulatory organization consents, the Commission will:
    (A) By order approve the 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 proposed rule 
change in consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 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 
Exchange. All submissions should refer to File No. SR-NYSE-98-27 and 
should be submitted by November 4, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27413 Filed 10-13-98; 8:45 am]
BILLING CODE 8010-01-M