[Federal Register Volume 65, Number 223 (Friday, November 17, 2000)]
[Notices]
[Pages 69592-69594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29444]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43535; File No. SR-NASD-00-65]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Rule 10334 of the NASD Code of 
Arbitration Procedure

November 8, 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 November 3, 2000, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned subsidiary, NASD Dispute 
Resolution, Inc. (``NASD Dispute Resolution'') filed with the 
Securities and Exchange Commission

[[Page 69593]]

(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by NASD Dispute 
Resolution. NASD Dispute Resolution has designated the proposed rule 
change as constituting a ``non-controversial'' rule change under 
paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which renders the 
proposal effective upon filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Dispute Resolution is proposing to: (1) Amend Rule 10334 of 
the Association's Code of Arbitration Procedure (``Code'') to 
accelerate the expiration date of the Rule from August 1, 2002 to 
December 31, 2000; (2) to delete paragraph (i) of Rule 10205, Schedule 
of Fees for Industry and Clearing Controversies and paragraph (h) of 
Rule 10332, Schedule of Fees in Customer Disputes, which relate solely 
to Rule 10334; and (3) renumber Rules 10205 and 10332 accordingly. 
Below is the text of the proposed rule change. Proposed new language is 
in italics; proposed deletions are in [brackets].
* * * * *

10334. Procedures for Large and Complex Cases

    (a) through (g) Unchanged.
    (h) Temporary Effectiveness.
    This Rule shall remain in effect until [August 1, 2002] December 
31, 2000, unless modified or extended prior thereto by the Board of 
Governors.
* * * * *

10205. Schedule of Fees for Industry and Clearing Controversies

    (a) through (h) Unchanged.
    [(i) If an eligible matter is submitted for arbitration as a large 
and complex case, under the procedures set forth in Rule 10334, or 
under procedures agreed upon by the parties, following the 
Administrative Conference specified in Rule 10334, the fees and 
deposits for such matter shall be those set forth in the schedule of 
fees for claims over $10,000,000.]
    [(j)] (i) Schedule of Fees.
    (Remainder unchanged).
* * * * *

10332. Schedule of Fees for Customer Disputes

    [(h) If an eligible matter is submitted for arbitration as a large 
and complex case under the procedures set forth in Rule 10334, or under 
procedures agreed upon by the parties, following the Administrative 
Conference specified in Rule 10334, the fees and deposits for such 
matter shall be those set forth in the schedule of fees for claims over 
$10,000,000.]
    [(i)] h Schedule of Fees.
    (Remainder unchanged).
* * * * *

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 Dispute Resolution 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. NASD Dispute Resolution 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 10334 of the Code establishes certain optional procedures for 
handling and managing large and complex (``LAC'') cases, defined as 
those involving claims of $1 million or more. Specifically, the Rule 
provides for an administrative conference at the outset of the case, a 
preliminary hearing before an arbitrator to resolve discovery and other 
disputes, and the opportunity for parties to select arbitrators through 
preferential rankings. Use of the Rule results in higher filing fees 
and deposits for claimants than proceeding under the general provisions 
of the Code.
    The Rule was adopted for a one-year pilot period in 1995. At that 
time, the procedures established by the Rule were not available in 
other arbitration cases. In 1997, the NASD amended the Rule to make 
certain of its provisions voluntary, which had been mandatory. At the 
same time, the NASD extended the Rule for five years to provide enough 
time to determine whether parties would use the Rule more frequently as 
amended. In its rule filing, the NASD noted that few parties were 
electing to proceed under the Rule. Parties elected to proceed under 
the Rule in only 43 of the 880 cases from May 2, 1995 until January 28, 
1997 that were eligible for treatment under the Rule. The few parties 
who did elect to proceed under the Rule apparently did so to take 
advantage of the availability of a list selection procedure for the 
appointment of arbitrators. The NASD found that parties were deterred 
from using the Rule by the higher fees it required.
    Since then, changes to the Code and to NASD Dispute Resolution 
practices have extended the most important of the procedures 
established by Rule 10334 to all cases, including the selection of 
arbitrators through preferential rankings. The benefits of the 
administrative conference and the preliminary hearing are available 
through the Initial Pre-hearing Conference that is now held in almost 
all cases. Moreover, the discovery process has been significantly 
enhanced with the recent adoption of the Discovery Guide.
    As a result of these changes, use of the Rule has decreased 
significantly from its already low 1997 level. Through July 31st of 
this year, parties have elected to proceed to the administrative 
conference phase of the LAC process in only 4 out of 366 eligible 
cases; in 1999, parties did so in only 6 out of 679 cases. More 
significantly, in none of these cases did the parties elect to proceed 
under Rule 10334 past the administrative conference stage to discovery, 
arbitrator selection, and the hearing on the merits. While some of 
these cases may have settled, it is also probable that once the parties 
understood that the benefits of the Rule are available under the Code 
without the higher fees required under the Rule, they elected not to 
continue to proceed under the Rule. Whatever the reason, no case has 
gone past the administrative conference stage of Rule 10334 procedures 
since 1997.
    Even though it is rarely used, the Rule requires staff training and 
resource allocation. It can also be a source of confusion for parties, 
who may not realize that they can now obtain the principal benefits of 
the LAC case program without paying the higher fees required under the 
Rule.
    Therefore, given the lack of use of Rule 10334, and the fact that 
the primary benefits of the Rule are available under general Code 
procedures at less cost to parties, NASD Dispute Resolution believes 
that additional time is not needed to determine that the Rule should be 
sunset. Therefore, the proposed rule change would amend the Rule to 
accelerate its expiration date to December 31, 2000.
    The proposed rule change would also delete paragraph (i) of Rule 
10205, Schedule of Fees for Industry and Clearing Controversies and 
paragraph

[[Page 69594]]

(h) of Rule 10332, Schedule of Fees in Customer Disputes, which relate 
solely to Rule 10334, and renumber Rules 10205 and 10332 accordingly.
2. Statutory Basis
    NASD Dispute Resolution believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act,\4\ 
which requires, among other things, that the Association's rules must 
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. NASD Dispute Resolution 
believes that accelerating the expiration date of Rule 10334 will serve 
the public interest by eliminating an unnecessary, redundant Code 
provision that confuses parties and results in needless expenditure of 
NASD Dispute Resolution resources.
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    \4\ 15 U.S.C. 78o(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Dispute Resolution 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

    Written comments were neither solicited nor received.

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

    The proposed rule change has been filed by the Association as a 
``non-controversial'' rule change under Rule 19b-4(f)(6) under the 
Act.\5\ Consequently, because the foregoing proposed rule change: (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 until December 31, 2000, more than 30 
days from November 3, 2000, the date on which it was filed, and the 
NASD provided the Commission with written notice of its intent to file 
the proposed rule change at least five days prior to the filing date, 
it has become effective pursuant to Section 19(b)(3)(A) of the Act and 
Rule 19b-4(f)(6) thereunder. At any time within 60 days of this filing, 
the Commission may summarily abrogate this proposal 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.
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    \5\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 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-00-65 and should 
be submitted December 8, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29444 Filed 11-16-00; 8:45 am]
BILLING CODE 8010-01-M