[Federal Register Volume 65, Number 171 (Friday, September 1, 2000)]
[Notices]
[Pages 53247-53248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22480]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43214; File No. SR-NYSE-00-34]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Supplemental Procedures by the New York Stock 
Exchange, Inc. Relating to Arbitration Rules

August 28, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 1, 2000, 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 and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The purpose of the proposed Supplemental Procedures is to allow the 
parties to agree, on a pilot basis for two years from the date of 
filing, to select arbitrators under a procedure that is an alternative 
to NYSE Rules 601 and 607.

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The purpose of the proposed Supplemental Procedures is to allow the 
parties to agree, on a pilot basis for two years from the date of 
filing, to select arbitrators under a procedure that is an alternative 
to NYSE Rules 601 and 607. The Supplemental Procedures are based on 
Rules approved by the Securities Industry Conference on Arbitration 
(``SICA'') that establish a list selection procedure for appointment of 
arbitrators. The Supplemental Procedures are voluntary and will not be 
used unless all parties agree to them. The Supplemental Procedures 
invite the parties to select their own arbitrators or agree on a 
procedure to select arbitrators. The Supplemental Procedures also 
suggest two ways the parties can select arbitrators instead of having 
the Exchange appoint them.
    NYSE Appoints Arbitrators Under Rules 601 and 607. Under NYSE Rules 
601 and 607, the Director of Arbitration appoints arbitrators to serve 
on each case. The Director generally delegates this task to a staff 
attorney. Each party has one peremptory challenge that allows the party 
to remove an arbitrator without specifying a reason. The parties have 
unlimited challenges for cause.
    In 1998, the NASD amended its rules to require that all arbitrators 
be appointed using a rotational list selection system. Their rule 
differs somewhat from the SICA Uniform Code and the Exchange's proposed 
Supplemental Procedures.
    Voluntary Supplemental Procedures for Selecting Arbitrators (a) 
Party Agreement on Arbitrator Selection. Under Exchange Rules, 
described above, the Director of Arbitration appoints the arbitrators, 
subject to the parties' challenges. The parties, however, may agree on 
an alternative way to select arbitrators. If all parties agree, they 
may select the arbitrators themselves or decide how they will be 
selected. The Exchange will accommodate any reasonable alternative way 
to select arbitrators, provided the parties agree. The Exchange also 
offers two alternative ways to appoint arbitrators. The following is a 
brief description of each method.
    (b) Random List Selection. Under Random List Selection, the 
Exchange provides the parties with a list of names of arbitrators 
randomly generated by computer. Except as described below, the list 
will have fifteen names. Ten of the arbitrators will be public 
arbitrators as defined by NYSE Rule 607(a)(3) and five will be 
securities industry arbitrators as defined by NYSE Rule 607(a)(2), 
unless the public customer or non-member requests a panel consisting of 
at least a majority from the securities industry. If, in the 
determination of the Exchange, the limited size of the arbitrator pool 
in a particular city makes a list of fifteen impractical, the lists may 
be limited to nine arbitrators; six public arbitrators and three 
securities industry arbitrators. Before the Exchange sends the lists of 
the parties, it will review the arbitrators' profiles for obvious 
conflicts or relationships with the parties or their counsel. The 
Exchange will replace those with conflicts by having the computer 
randomly select the name of a replacement arbitrator. The parties are 
also provided with the arbitrators' biographical and disclosure 
information as specified in NYSE Rules 608 (Notice of Selection of 
Arbitrators).
    Within ten business days of receiving the lists, the parties may 
strike any or all of the names on the list. The parties are asked to 
number the remaining names in order of their preference (with ``1'' 
being the highest preference) and return the lists to the Exchange. If 
any arbitrator is removed from the list for cause before the expiration 
of the time within which to return the lists, the Exchange will provide 
a replacement name. The Exchange eliminates the names stricken and 
determines the ranking of the remaining names by adding the parties' 
rankings. The NYSE determines mutual preferences by adding the numbers 
assigned by each party to each arbitrator and selecting arbitrators 
with the lowest numbers first. The Exchange invites arbitrators to 
serve in order of the parties' combined preferences. In cases of a tie 
in the rankings, arbitrators will be invited to serve in alphabetical 
order.
    If the Exchange cannot assemble a panel of arbitrators from the 
parties' lists, the Exchange will provide the parties with a second 
randomly generated list of names. The second list will have three names 
for each open seat on the panel. On the second list, each party has one 
non-renewable peremptory for each vacancy on the panel. Each party is 
to number the remaining names in order of its preference. If any 
arbitrator is removed from the list for cause before the expiration of 
the time within which to return the lists, the Exchange will provide a 
replacement name. If there remains more than one name per vacancy after 
the parties have exercised their strike, the Exchange will invite 
arbitrators to serve in order of the parties' combined preferences. In 
the

[[Page 53248]]

case of a tie, the Exchange will invite arbitrators to serve in 
alphabetical order.
    The Exchange will notify the arbitrators of their selection and 
advise the parties of any disclosures under Rule 610.
    (c) Enhanced List Selection. The second alternative is a hybrid of 
Exchange Rules and Random List Selection. Under Enhanced List 
Selection, the Exchange provides the parties with the names and 
profiles of nine arbitrators; six public arbitrators and three 
securities industry arbitrators, unless the public customer or non-
member requests a panel consisting of at least a majority from the 
securities industry. The staff attorney selects these arbitrators based 
upon their qualifications and experience. The parties may exercise 
three peremptory challenges and number, in order of their preference 
(with ``1'' being the highest preference) the remaining names. If the 
Exchange removes any arbitrator from the list for cause before the end 
of the time to return the lists, the Exchange will provide a 
replacement name. The staff attorney then invites the arbitrators to 
serve based upon the parties' combined rankings. In case of a tie in 
the rankings, the Exchange will invite arbitrators to serve in 
alphabetical order.
    If the Exchange cannot appoint a complete panel from the list, the 
staff attorney will appoint an arbitrator or arbitrators to complete 
the panel. Each party has one non-renewable peremptory challenge for 
each arbitrator the Exchange appoints. A party must use a peremptory 
challenge within ten business days of receiving notice of the 
appointment. The parties have unlimited challenges for cause.
    Voluntary Pilot Program. The Exchange does not believe a rule 
requiring one of the alternative selection methods is appropriate at 
this time. Since July of 1998, the Exchange has offered parties the 
opportunity to select arbitrators on a voluntary basis similar to those 
detailed above. The Exchange has attempted to gauge the parties' 
interest in using alternatives to appoint arbitrators. After 
approximately 24 months of offering these alternatives, less than 15 
percent of the parties in arbitration have chosen the alternatives. The 
modest rate of acceptance leads us to recommend that the alternatives 
be continued on a voluntary basis.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5)\3\ of the Act in that it promotes just and 
equitable principles of trade by ensuring that 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 burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days or such shorter time as the Commission may 
designate,\4\ the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act\5\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\6\
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    \4\ The Exchange provided the Commission with the five business 
day notice required by Rule 19b-4(f)(6) of the Act on July 25, 2000.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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    The Commission also notes that under Rule 19b-4(f)(6)(iii), the 
proposal does not become operative for 30 days after date of its 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
The Exchange requests a waiver of this 30-day period for the following 
reasons. First, the Supplemental Procedures are voluntary. Second, the 
Exchange notes that it based its Supplemental Procedures on the Uniform 
Code of Arbitration developed by SICA. Finally, the Exchange notes that 
the Commission approved a similar rule change by the National 
Association of Securities Dealers, Inc. that provides for a list 
selection of arbitrators.\7\ For the reasons discussed above, the 
Commission finds that the waiver of the 30-day period is consistent 
with the protection of investors and the public interest.\8\
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    \7\ See Exchange Act Release No. 40555 (October 14, 1998), 63 FR 
56670 (October 22, 1998).
    \8\ For purposes only of accelerating the operative date of this 
proposal, 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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    At any time within 60 days of the filing of the proposed rule 
change, as amended, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
is 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 20549-0609. 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 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 NYSE. All 
submissions should refer to File No. SR-NYSE-00-34 and should be 
submitted by September 22, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-22480 Filed 8-31-00; 8:45 am]
BILLING CODE 8010-01-M