[Federal Register Volume 64, Number 212 (Wednesday, November 3, 1999)]
[Notices]
[Pages 59815-59819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28754]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42061; File No. SR-NASD-99-08]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to the Arbitration Process for Claims of Employment Discrimination

October 27, 1999.
    On February 1, 1999, the National Association of Securities 
Dealers, Inc. (``NASD'') or ``Association''), through its wholly-owned 
subsidiary, NASD Regulation, Inc. (``NASD Regulation''), filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission''), a 
proposed rule change pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ Under 
its proposal, NASD Regulation has created rules for the resolution of 
statutory employment discrimination claims. The proposed rule change 
and Amendment No. 1 \3\ to the proposed were published for comment in 
the Federal Register on June 4, 1999.\4\ The Commission received four 
comment letters on the proposal.\5\ This order approves the proposed 
rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Alden S. Adkins, Senior Vice President and 
General Counsel, NASD Regulation, to Katherine A. England, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated May 10, 1999 (``Amendment No. 1''). Amendment No. 1 made 
substantive changes to the proposed rule language, including the 
provisions for arbitrator qualifications and coordination of claims 
filed in court and arbitration.
    \4\ Securities Exchange Act Release No. 41461 (May 27, 1999), 64 
FR 30081 (File No. SR-NASD-99-08.
    \5\ See Letters to Jonathan G. Katz, Secretary, Commission, 
from: Jeffery A. Norris, President, Equal Employment Advisory 
Council (``EEAC Letter''), date June 24, 1999; Stephen G. 
Sneeringer, Chairman of the Arbitration Committee, Securities 
Industry Association (``SIA Letter''), dated June 30, 1999; and 
Cliff Palefsky, National Employment Lawyers Association (``NELA 
Letter''), dated July 7, 1999, and letter from George A. Schieren, 
Senior Vice President and General Counsel, Merrill Lynch, Pierce, 
Fenner & Smith Inc. (``Merrill Lynch Letter''), to Margaret H. 
McFarland, Deputy Secretary, Commission, dated June 30, 1999.
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I. Description of the Proposed

    NASD Regulation proposes to amend NASD Rules 10201 and 10202, and 
to add new Rule 3080 and new Rule 10210 Series. The proposed rule 
change is intended to enhance the dispute resolution process for the 
handling of employment discrimination claims, and to expand disclosure 
to employees concerning the arbitration of all disputes.

A. Background

    In August 1997, the Board of NASD Regulation and the Board of the 
NASD (``NASD Boards'') submitted a proposal that removed from the NASD 
Code of Arbitration Procedure provisions requiring registered persons 
to arbitrate claims of statutory employment discrimination. That rule 
change was approved by the Commission, and became effective January 1, 
1999.\6\ In conjunction with this rule change, the NASD Boards 
recommended certain enhancements to the voluntary arbitration process 
for employment discrimination claims. To carry out the Boards' mandate, 
NASD Regulation staff assembled a working group, including attorneys 
representing employees, general counsels of member firms, and 
arbitrators with expertise in employment matters to advise on issues 
relating to the arbitration of employment discrimination claims.
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    \6\ See Securities Exchange Act Release No. 40109 (June 22, 
1998), 63 FR 35299 (June 29, 1998).
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    In addition to several issues that were presented to them by NASD 
Regulation staff, the working group considered recommendations 
contained in a document known as ``A Due Process Protocol for Mediation 
and Arbitration of Statutory Disputes Arising Out of the Employment 
Relationship'' (``the Protocol''). The Protocol has been adopted by 
several dispute resolution forums, and the NASD Boards recommended that 
due process procedures similar to those in the Protocol be considered 
by the working group for use in the dispute resolution process at the 
NASD for claims of employment discrimination.

B. Description of Proposed Amendments.

    The Proposed Rule 10210 Series contains special rules applicable to 
statutory employment discrimination claims. These rules supplement and, 
in some instances, supersede the provisions of the NASD Code that 
currently apply to the arbitration of employment disputes.
(1) Qualifications for Arbitrators Who Hear Employment Discrimination 
Cases
    In accordance with the Protocol provisions, NASD Regulation 
proposes

[[Page 59816]]

the use of a specialized roster of available arbitrators for intra-
industry cases in which statutory discrimination is alleged. Proposed 
Rule 10211(a) provides that public (non-industry) arbitrators will be 
selected to consider disputes involving a claim of employment 
discrimination, including a sexual harassment claim, in violation of a 
statute. Proposed Rule 10211(a) incorporates by reference the 
definition of ``public arbitrator'' in the list selection rule, Rule 
10308. The definition of ``public arbitrator'' in Rule 10308 excludes 
not only securities industry employees and their immediate family 
members, but also attorneys, accountants, and other professionals who 
have devoted 20% or more of their professional work in the preceding 
two years to clients who are engaged in the securities business. NASD 
Regulation believes that the use of the same definition of public 
arbitrators throughout the NASD Code provides for more efficient 
administration of the list selection system.
    For chairpersons and single arbitrators, NASD Regulation proposes 
additional qualifications in Rule 10211(b)(1) that should assist NASD 
Regulation to identify specially qualified and impartial arbitrators to 
resolve these disputes. In addition, under Rule 10211(b)(2), a 
chairperson or single arbitrator may not have represented primarily the 
views of employees or employers within the past five years. For this 
purpose, NASD Regulation has defined ``primarily'' to mean 50% or more 
of the arbitrator's business or professional activities within the 
preceding five years. NASD Regulation states that it is important to 
the credibility to the forum for the single arbitrator or chairperson 
not only to be neutral, but to avoid even the appearance of bias toward 
either employees or employers.
    Rule 10211(c) provides that parties may agree, after a dispute 
arises, to waive any of the special qualifications contained in either 
paragraphs (a) or (b) of proposed Rule 10211. Such a waiver is not 
valid if it is contained in a predispute arbitration agreement.
(2) Composition of Panels
    NASD Regulation proposes that for each involving claims of 
employment discrimination, regardless of whether other issues are also 
involved, all arbitrators must be qualified as public arbitrators under 
Rule 10211.\7\ In addition, proposed Rule 10212(b) provides a higher 
dollar threshold for single arbitrator cases than is found elsewhere in 
the Code: a single arbitrator will hear claims of $100,000 or less. 
NASD Regulation states that this higher threshold reduces the hearing 
costs for the parties and results in more efficient allocation of 
qualified employment arbitrators. Proposed Rule 10212(c) provides that 
claims for more than $100,000 will be assigned to a three-person panel, 
unless the parties agree to have their case determined by a single 
arbitrator.
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    \7\ Arbitrators must qualify under the relevant portion of Rule 
10211: paragraph (a) for the second and third arbitrators on a 
three-arbitrator panel, and paragraph (b) for the chairperson or 
single arbitrator. See Letter from Jean I. Feeney, Assistant General 
Counsel, NASD Regulation, to Richard C. Strasser, Assistant 
Director, Division, Commission, dated August 20, 1999 (``NASD 
Regulation Letter'').
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(3) Discovery
    NASD Regulation proposes that the provision on depositions in the 
Protocol should be the standard under its own rules. NASD Regulation 
proposes that, in considering the need for depositions, arbitrator(s) 
should consider the relevancy of the information sought from the 
persons to be deposed, and the issues of time and expenses. These 
considerations are already provided for in Rule 10321, paragraphs (d) 
and (e), which set forth procedures for deciding unresolved issues 
either at the pre-hearing conference or by appointment of a selected 
arbitrator. The proposed discovery provision relating to depositions is 
in proposed Rule 10213.
(4) Attorneys' Fees
    Proposed Rule 10215 provides that the arbitrator(s) shall have the 
authority to award reasonable attorneys' fee reimbursement, in whole or 
in part, as part of the remedy in accordance with applicable law. NASD 
Regulation notes that this accords with Title VII of the Civil Rights 
Act of 1964, which authorizes a court, in its discretion, to allow the 
prevailing party ``a reasonable attorney's fee'' as part of the 
costs.\8\ NASD Regulation states that the intent of proposed Rule 1021 
is to allow the award of attorneys' fees if applicable law permits such 
an award.
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    \8\ 42 U.S.C. 2000e-5(k) (1998).
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(5) Awards
    Proposed Rule 10214 provides that arbitrator(s) will be empowered 
to award any relief that would be available in court under applicable 
law, and sets forth the information that must be contained in the 
arbitrators' award. This information includes a summary of the issues, 
the damages or other relief requested and awarded, a statement of any 
other issues resolved, and a statement regarding the disposition of any 
statutory claims.
    NASD Regulation has not used the Protocol's phrase ``opinion and 
award'' in Proposed Rule 10214, but instead has used the term 
``award,'' which is also used elsewhere in the NASD Code. This avoids 
confusion that might result from use of the term ``opinion,'' which 
could mislead parties into expecting a judicial type of decision, 
including a detailed explanation, rather than the customary type of 
arbitration award that contains the specific elements listed in the 
proposed rule. Consistent with current NASD Regulations practice, 
however, parties may request that the arbitrator(s) provide reasons for 
their decision, and the arbitrator(s) have discretion to grant or deny 
the request.
(6) Coordination of Claims Filed in Court and in Arbitration
    Several commenters on the rule change to allow statutory 
discrimination claims to be filed in court predicted that the change 
could lead to splitting or bifurcation of cases: the discrimination 
claims would proceed in court, while other arbitrable employment claims 
would proceed in arbitration.\9\ Some commenters believed bifurcation 
of statutory and common law claims could impose a financial burden on 
employees and members, delay the resolution of claims, and cause 
scheduling and discovery disputes.\10\
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    \9\ See Securities Exchange Act Rel. No. 40109 (June 22, 1998), 
63 FR 35299 (June 29, 1998).
    \10\ Id.
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    NASD Regulation proposes a new rule to address coordination of 
claims. Proposed Rule 10216 provides that, if the parties agree to 
resolve all related matters in court, then the matter need not be 
submitted to arbitration. Moreover, if a discrimination claim is filed 
in court and related claims subject to mandatory arbitration are filed 
in arbitration, a respondent in the arbitration would have the option 
to move to combine all claims in court. As described more fully below, 
the rule provides several other opportunities for a party to move to 
compel that a claim be consolidated with other claims in court. Any 
claims not accepted by the court under any of these methods, however, 
would continue to be arbitrable.
    If the respondent does not agree to consolidate all claims in 
court, and an arbitration claims is then filed, proposed Rule 10216 
provides several methods for coordinating claims filed in court and in 
arbitration. Paragraph (a)(1)(A) of proposed Rule 10216 addresses the 
situation in which an

[[Page 59817]]

associated person files a statutory discrimination claim in court and 
files related claims in arbitration against some or all of the same 
parties. In that situation, any respondent who is named in both 
proceedings may move to compel the associated person to bring the 
related arbitration claims in the same court proceeding, to the full 
extent to which the court will accept jurisdiction over those claims. 
As noted above, any claims not accepted by the court would remain in 
arbitration.
    Paragraph (a)(1)(B) of proposed Rule 10216 requires a respondent 
that wishes to exercise this option to notify the claimant in writing 
that it is exercising this option. This notice is intended to motivate 
parties to discuss their options and consider consolidating all claims 
in one forum before either party incurs further expenses.
    Paragraph (a)(2)(A) of proposed Rule 10216 provides that if a party 
has a pending claim in arbitration against an associated person who 
thereafter assets a related statutory employment discrimination claim 
in court against the party, that party has the option to assert all 
arbitration claims and counterclaims in court. This is intended to 
cover the situation in which arbitration claims is filed before the 
statutory discrimination claim is filed in court. Paragraph (a)(2)(C) 
of proposed Rule 10216 provides that a party may not exercise this 
option after the first hearing has begun on the arbitration claim. This 
is intended to avoid disruption of the arbitration proceeding when it 
is farther along in the process.
    Paragraph (b) of proposed Rule 10216 provides that the time for 
consolidating claims in court is extended if the claimant files an 
amended statement of claim adding new claims not asserted in the 
original statement of claim. In that situation, a respondent has an 
opportunity to move to compel the claimant to assert all related claims 
in the same court proceeding, even if those related claims were 
asserted in the original statement of claim.
    Paragraph (c) of proposed Rule 10216 provides that if a party 
elects to require a current or former associated person to assert all 
related claims in court, the party also must assert in the same court 
proceeding all related claims the party has against the associated 
person, to the full extent to which the court will accept jurisdiction 
over the related claims.
    Paragraph (d) of proposed Rule 10216 provides that a respondent 
named in both court and arbitration proceedings may choose to remain in 
arbitration, even if another respondent has exercised its option to 
consolidate the proceedings against it in court. Any remaining party 
may seek a stay of the arbitration proceeding, and the proceeding will 
be stayed unless the arbitration panel determines that the stay will 
result in substantial prejudice to one or more of the parties. The 
presumption in favor of a stay of the arbitration proceeding is 
designed to avoid the situation in which parties must proceed in two 
forums at the same time. Nevertheless, a party may object to the stay 
and have the matter considered by an arbitrator.
    If no panel has been appointed yet, a single arbitrator will be 
appointed to consider the application for a stay, using the Neutral 
List Selection System to select the arbitrator. That arbitrator is not 
required to have the special employment arbitrator qualifications 
described in Rule 10211, since there would be no statutory employment 
discrimination claims in arbitration at this point. Instead, the single 
arbitrator would be appointed under the provisions of Rule 10202. Under 
that rule, the single arbitrator is either an industry arbitrator or a 
public arbitrator, depending on the claims involved.A single public 
arbitrator may later appear on a list of arbitrators to be chosen for 
any hearing on the merits in the same arbitration.
    Paragraph (f) of proposed Rule 10216 clarifies that, if an 
associated person files a claim in court that includes matters that are 
subject to arbitration, either by the rules of the NASD or by private 
agreement, the defending party may move to compel arbitration of the 
claims that are subject to mandatory arbitration. This is a statement 
of current practice and is intended to apply where the defending party 
has not exercised an option under other provisions of proposed Rule 
10216 to combine all claims in court.
(7) Disclosure Issues
    NASD Regulation also proposes a model disclosure statement that 
would be given to persons who signing the Form U-4 to apply for 
registration. This disclosure statement would explain the nature and 
effect of the arbitration clause contained in the Form U-4. It would 
not address any private arbitration agreement that an applicant might 
enter into with a member firm. Rather, firms would be responsible for 
either making proper disclosure to their employees about their private 
arbitration agreement, or risk an adverse decision in later litigation 
concerning any inadequacy in the disclosure.
    Proposed Rule 3080, entitled ``Disclosure to Associated Persons 
When Signing a Form U-4,'' was modeled on the disclosure given to 
customers when signing predispute arbitration agreements with member 
firms, as required by Rule 3110(f) and proposed amendments to that rule 
contained in File No. SR-NASD-98-74. The introductory language of the 
proposed rule requires members to provide each associated person, 
whenever the associated person is asked to sign a new or amended Form 
U-4, with specified disclosure language. The specified disclosure 
language explains that the Form U-4 contains a predispute arbitration 
clause, and indicates in which Item of the Form U-4 the clause is 
located.\11\
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    \11\ The member will be responsible for updating the item number 
of new disclosure statements if it changes in later versions of the 
Form U-4.
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    Subparagraph (1) of proposed Rule 3080 paraphrases the arbitration 
clause in the Form U-4 and discloses that an associated person is 
giving up the right to sue in court, except as provided by the rules of 
the arbitration forum in which a claim be filed. Subparagraph (2) 
incorporates the language of Rule 10201 regarding an exception to the 
arbitration requirement for claims of statutory employment 
discrimination, and indicates that the rules of other arbitration 
forums may be different. Subparagraph (3) through (7) track the 
language of the proposed amendments to Rule 3110(f)(1), which sets 
forth similar disclosures to customers. Those subparagraphs inform 
associated persons that arbitration awards are generally final and 
binding, that discovery is generally more limited in arbitration than 
in court, that arbitrator(s) do not have to explain the reasons for 
their awards, that the panel of arbitrators may include either public 
or industry (non-public) arbitrators,\12\ and that rules of some 
arbitration forums may impose time limits for bringing a claim in 
arbitration.
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    \12\ The language of subparagraph (6) differs slightly from that 
of proposed Rule 3110(f)(1)(E) because, following adoption of the 
present proposed rule change, the panel composition for statutory 
employment discrimination claims will differ from the panel 
composition for customer claims.
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II. Summary of Comments

    The Commission received four comment letters on the proposed rule 
change.\13\ Three commenters generally supported the proposed rule 
change, believing that it will help ensure the efficient resolution of 
statutory discrimination claims in a manner fair to all parties.\14\ 
The remaining

[[Page 59818]]

commenter believed the proposal was an unnecessary departure from an 
arbitration system that has worked well in the past.\15\
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    \13\ See supra note 3.
    \14\ See Letters from EEAC, Merrill Lynch, and NELA. However, 
NELA stated that the Protocol should be adopted without 
modification. See NELA Letter.
    \15\ See SIA Letter.
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A. The Commission's Solicitation of Comments

    The Commission specifically solicited comment on the following 
aspects of proposed Rule 10216: (1) Whether the proposed rule strikes a 
fair balance in permitting respondents to choose when to bifurcate 
claims; (2) whether the provision permitting respondents to choose when 
to bifurcate is necessary to give employers an incentive to allow 
employees to bring statutory claims in court; (3) whether the 
bifurcation provisions unreasonably burden individual claimants; and 
(4) whether the presumptive stay unduly infringes upon the parties' 
bargain to arbitrate.\16\
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    \16\ See notice of the proposed rule change.
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    Two commenters responded to the Commission's questions.\17\ Both 
commenters stated that the proposal strikes a fair balance in 
permitting respondents to chose when to bifurcate claims. One of these 
commenters noted that the provision preserves the effectiveness of the 
NASD's general arbitration rule for employers and employees, while the 
other comment focused on the costs of litigation and on its view that 
claimants already have procedural advantages in bringing their case. 
Both commenters also stated that without the choice of when to 
bifurcate, employers would be more likely to require their employees to 
sign pre-dispute arguments mandating arbitration of all claims.\18\ In 
response to the third question, the commenters stated their views that 
allowing respondents to coordinate related claims in court does not 
place an unreasonable burden on claimants because the proposed rule 
furthers the goals of providing fair and efficient arbitration of 
statutory employment disputes.\19\ Finally, both commenters argued that 
the presumptive stay does not unduly infringe on the parties bargain to 
arbitrate, and that parties should not be burdened with simultaneously 
litigating claims in two different forums.\20\
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    \17\ See Letters from EEAC and Merrill Lynch.
    \18\ Id.
    \19\ Id.
    \20\ Id.
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B. Qualifications of Arbitrators and Composition of Arbitration Panels

    One commenter contends that the proposed requirements for 
qualification of single arbitrators and panel chairs will severely 
limit the pool of available arbitrators.\21\ That commenter recommends 
that section 10211(b)(2) be deleted. Another commenter argues that the 
use of ``public arbitrators,'' only as defined in Rule 10308, 
discriminates against attorneys who primarily represent employers in 
employment discrimination cases.\22\ With respect to the composition of 
the panel, one commenter suggests that only single arbitrators who have 
no affiliation with securities industry employers be used in order to 
improve the fairness, reduce the cost, and increase the efficiency of 
the arbitration process.\23\
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    \21\ See EEAC Letter.
    \22\ See SIA Letter.
    \23\ See NELA Letter.
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C. Discovery

    The Commission received three comments on the discovery provisions 
contained in proposed Rule 10213.\24\ Two commenters believe that the 
proposed rule would be adequate,\25\ although one of those commenters 
suggested that: (1) The rule contains a presumption of one deposition 
per side, with arbitrator(s) retaining the authority to order 
additional depositions of an indispensable witness who is unavailable 
to attend a hearing; and (2) the rule contain a specific procedure 
requiring panel approval of the particular deposition the parties 
intend to take.\26\
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    \24\ See letters from EEAC, Merrill Lynch, and the SIA.
    \25\ See Letters from EEAC and Merrill Lynch.
    \26\ See Merrill Lynch Letter.
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    The remaining commenter argues that the proposed rule should set 
more specific limitations and guidance as to how and when depositions 
should be used.\27\ This commenter recommends the adoption of language 
concerning depositions in SR-NASD-99-07,\28\ which discourages the use 
of depositions and generally advises arbitrator(s) to permit 
depositions under limited circumstances.\29\
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    \27\ See SIA Letter.
    \28\ Securities Exchange Act Release No. 41833 (September 2, 
1999), 64 FR 49256 (September 10, 1999) (order approving proposed 
rule change relating to the creation of a Discovery Guide for use in 
NASD arbitrations).
    \29\ Id.
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D. Attorneys' Fees

    One commenter believes that the proposal correctly limits awards of 
attorneys' fees to cases in which there is a statutory basis for such 
an award.\30\ One commenter, however, thinks that language of proposed 
Rule 10215 wrongly suggests that an award of attorneys' fees is 
required in employment discrimination cases.\31\ That commenter 
recommended modifying the proposal by deleting proposed Rule 10215, and 
adding the phrase ``including reasonable attorneys' fees where 
appropriate'' to proposed Rule 10214 to clarify the arbitrator's 
authority.\32\
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    \30\ See EEAC Letter.
    \31\ See SIA Letter.
    \32\ Id.
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E. Miscellaneous Provisions

    Finally, one commenter suggests the adoption of the Protocol's 
requirement that arbitrator(s) are bound by applicable statutes, and 
that arbitrator(s) should issue a written opinion.\33\
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    \33\ See NELA Letter.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the provisions of Section 15A(b) \34\ of the Act, in general, and 
furthers the objectives of section 15A(b)(6) \35\ in particular, in 
that it is designed to promote just and equitable principles of trade, 
and to protect investors and the public interest.\36\ The Commission 
believes that the proposed rule change will protect the public interest 
by improving the arbitration process for those individuals who 
arbitrate claims of statutory employment discrimination. The public 
interest will be further protected by the expanded disclosure contained 
in the Form U-4 concerning the arbitration of all disputes.
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    \34\ 15 U.S.C. 78o-3(b).
    \35\ 15 U.S.C. 78o-3(b)(6).
    \36\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    In June of 1998, the Commission approved the NASD's proposal to 
remove the requirement to arbitrate statutory claims of employment 
discrimination.\37\ The Commission stated in its order approving the 
NASD's rule change that ``[i]t is reasonable for the NASD to determine 
that in this unique area, it will not, as a self-regulatory 
organization, require arbitration.'' \38\ That rule change does not 
affect the obligations of NASD member firms and associated persons 
under NASD rules to arbitrate other employment-related claims, as well 
as any business-related claims involving investors or other persons.
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    \37\ See supra note 6.
    \38\ Id.
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    Moreover, statutory employment discrimination claims will continue 
to be resolved in the NASD's forum under private employment agreements 
between the parties or through post-dispute submissions. The current 
rule

[[Page 59819]]

proposal strengthens the NASD's procedures for administering statutory 
employment discrimination claims by amending appropriate provisions, 
including those governing the composition of arbitration panels, 
discovery, and awards. The proposal also introduces predictable methods 
for determining how disputes involving both statutory employment 
discrimination claims filed in court and arbitrable claims will be 
resolved. In addition, it also provides for clear disclosure to 
employees about arbitration.
    The rules were drafted by the NASD over a two-year period with the 
contributions of organizations who represent interests of both 
employers and employees within the securities industry, as well as 
arbitrators who practice in this area. The proposal includes many of 
the provisions of the Protocol, and equitably accommodates competing 
concerns.
    The comments on the qualifications for arbitrators in the proposal 
point out the sharp differences of opinion the NASD worked to bridge in 
its proposal. One commenter objected to the exclusion of industry 
arbitrators from the panels, another objected to the additional 
requirements for those who serve as single arbitrators or panel 
chairpersons because of the resulting exclusion of certain employment 
experts from serving in those roles,\39\ while yet another commenter 
objected that the proposal permits the use of arbitrators with too much 
affiliation with the industry.
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    \39\ The Commission notes that the additional requirements for 
chairpersons and single arbitrators do not prevent individuals from 
serving as one of the other two arbitrators on a three person panel, 
provided that they qualify as public arbitrators. The Commission 
further notes that the commenter's concerns about the exclusion of 
industry arbitrators is addressed, in part, by the NASD's 
determination to exclude plaintiffs' attorneys from serving as panel 
chairpersons or single arbitrators (Rule 10211(b)(2)), and the 
Commission will not interfere with that balancing determination. 
Moreover, the proposal also allows the parties, after their dispute 
has arisen, to waive any of the qualifications under the rule and to 
agree on the use of other arbitrators.
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    Further, a commenter stated that the additional qualifications 
required for single arbitrators and panel chairs will severely limit 
the pool of available arbitrators. In response, NASD Regulation stated 
that it will have enough qualified arbitrators on its roster.\40\ The 
Commission believes that the NASD's proposal resolves these differing 
views in a fair manner, and should enable the NASD to identify 
qualified and impartial arbitrators to resolve these disputes.
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    \40\ In 1998, 107 claims of employment discrimination were filed 
with NASD Regulation and, as of August 10, 1999, 40 claims of 
discrimination have been filed. Approximately 58% of the more than 
6,700 arbitrators on the NASD Regulation roster are classified as 
public arbitrators, and at least 40 arbitrators have already been 
identified as meeting the additional standards of proposed Rule 
10211(b). Due to the fact that many cases are settled or withdrawn 
before a hearing commences, the NASD believes that there will be 
enough qualified employment arbitrators. See NASD Regulation Letter, 
supra note 7.
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    Another commenter contends that only single arbitrators, rather 
than a panel, should be used for discrimination cases to reduce the 
cost and increase the efficiency of the process. The Commission notes, 
however, that proposed Rule 10212(b) already provides a higher dollar 
threshold for single arbitrator cases than is found elsewhere the NASD 
Code. The Commission believes that this threshold should help reduce 
the hearing costs for the parties in smaller cases.
    With respect to discovery provisions of the proposed rule, two 
commenters urged a more restrictive use of depositions.\41\ However, 
the Commission supports NASD Regulation's adoption of the Protocol's 
view that ``necessary pre-hearing depositions consistent with the 
expedited nature of arbitration should be available'' in employment 
discrimination cases. The Commission notes that arbitrators are as 
capable of resolving disputes concerning depositions as they are for 
difficult factual and legal issues. Under the proposal, arbitrators 
must consider the relevance of the information sought, the expeditious 
nature of arbitration, and the expense of discovery, prior to 
permitting the use of depositions.
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    \41\ As previously noted, one commenter urged the adoption of 
the language found in the new Discovery Guide for use in NASD 
arbitrations. The Commission notes, however, that the Discovery 
Guide only contains suggested guidance on the use of depositions. 
The policies and procedures set forth in Discovery Guide are 
discretionary and may be changed by the arbitrators so long as they 
are consistent with the rules of the forum. See supra note 28.
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    One commenter argues that arbitrators should issue a written 
opinion detailing their reasoning for the award. However, the 
Commission has previously stated that arbitrators are not required to 
write opinions, although they may voluntarily prepare them.\42\
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    \42\ See Securities Exchange Act Release No. 26805 (May 10, 
1989), 54 FR 21144 (May 16, 1989).
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    Another commenter contends that the provisions for attorneys' fees 
in the proposed rule suggests that an award of attorneys' fees is 
mandatory. NASD Regulation has stated, however, that the intent of 
proposed Rule 10215 is to allow the award of attorney's fees only if 
applicable law permits such an award. There is no difference between 
the NASD's proposed Rule 10215 and the commenter's suggestion, noted 
above, that Rule 10214 be amended to include the attorneys' fees 
reference. As the NASD noted, attorneys' fees may be awarded under 
current practice under the Code of Arbitration Procedure that is used 
for all of its cases. The NASD has proposed, and the Commission is 
today approving, the specific provision governing attorneys fees in 
cognizance of the special attention to them under the civil rights 
laws, and in the discussions of the arbitration of these claims that 
the NASD has sponsored. We also note that awards of attorney's fees by 
arbitrators remain available to all parties in other cases administered 
under the Code of Arbitration Procedure, if applicable law permits such 
an award.
    The Commissions did not receive any negative comments with respect 
to the bifurcation provisions contained in proposed Rule 10216. These 
provisions appear to strike a fair balance in administering statutory 
discrimination and other employment disputes.
    Finally, the Commission observes that the NASD's proposal includes 
opportunities for the parties to talk with one another, when 
determining where to file a claim (including fee savings and 
reimbursements for employees) and in putting together a mutually 
acceptable arbitration panel. Providing opportunities for the parties 
to talk with one another early in the process allows parties to resolve 
their disputes earlier, and with less cost.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (SR-NASD-99-08) is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-28754 Filed 11-2-99; 8:45 am]
BILLING CODE 8010-01-M