[Federal Register Volume 65, Number 223 (Friday, November 17, 2000)]
[Notices]
[Pages 69596-69598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29467]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43538; File No. SR-NYSE-00-39]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. To Amend Arbitration Rules 
Regarding Pilot Program for Mediation and Administration Conferences

November 9, 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 September 29, 2000, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the NYSE. 
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 Organizations's Statement of the Terms and 
Substance of the Proposed Rule Change

    The purpose of extending and amending the pilot program for 
mediation is to continue to offer mediation as a way for parties to 
settle cases earlier with fewer costs. The administrative conference 
pilot, as extended and amended, will allow the arbitrators(s) to 
intervene early in the case to set deadlines and resolve preliminary 
issues. Below is the text of the proposed rule change. Additions are 
italicized; deletions are in brackets.
* * * * *

Rule 638  Mediation

(a) Mediation Pending Arbitration

    (1) [(a)] A single mediation session of up to four hours will be 
conducted in all cases [not involving public customers] submitted for 
arbitration where the amount of the claim is [$500,000] $250,000 or 
more.
    (2) [(b)] The New York Stock Exchange will provide the parties with 
a mediator. The mediator's fee for the single mediation session shall 
be $500 and shall be paid by the New York Stock Exchange. If the 
parties select a mediator of their own choosing, from outside the list 
of proposed mediators, they shall be responsible for any difference in 
the mediator's fee. If the parties desire they can extend the mediation 
beyond the first session at their own expense.
    (3) [(c)] Unless the parties agree on a mediator, the Director of 
Arbitration will send the parties a list of five proposed mediators 
together with the mediators's biographical information described in 
Rule 608. The parties shall have ten days to agree on a mediator from 
the list or chose their own mediator. If no agreement is reached, the 
Director of Arbitration will select a mediator from the list unless all 
the names on the list are objected to by the parties. In that instance, 
the Director of Arbitration will appoint a mediator from outside the 
list.
    (4) [(d)] Unless otherwise agreed to by the parties, mediation 
shall not delay the arbitration.
    (5) [(e)] The mediation shall be confidential and no record kept of 
the proceeding. The mediator will not be permitted to act as an 
arbitrator in the same case and the mediator shall not be called to 
testify in any proceeding regarding the mediation.
    [(f) Mediation under this rule shall be available in all matters 
submitted to arbitration involving public customers where the amount of 
the claim is $500,000 or more, upon the consent of the parties. The 
mediator will be compensated under paragraph (b) of this rule.]
    (6) [g] In all other matters submitted to arbitration, mediation 
shall be available upon the consent of the parties, at their own 
expense.
    (b) Mediation Prior to Arbitration
    (1) If the parties agree, any matter eligible for arbitration under 
the Constitution and Rules of the New York Stock Exchange may be 
mediated at the Exchange. To begin mediation under

[[Page 69597]]

this paragraph, the parties must file with the Exchange an agreement to 
mediate.
    (2) At the time of filing an agreement to mediate, a party shall 
pay a non-refundable filing fee to the Exchange as required for the 
filing of an arbitration for the same amount in dispute under Rule 629 
(Schedule of Fees) unless the fee is waived by the Director of 
Arbitration. The parties are directly responsible for the payment of 
the mediator's fee.
    (3) If the case does not settle after mediation, the non-refundable 
filing fee will be applied to the non-refundable filing fee if a party 
elects a commence arbitration.

Rule 639  Administrative Conferences

    In all cases where the amount of the claim is [$500,000] $250,000 
or more, the parties shall attend an administrative conference with the 
arbitrators. [The arbitrators will decide whether the conference is 
conducted by telephone or in person.] The Director of Arbitration will 
schedule the conference within [30] 90 days after the [answer is filed] 
Director serves the Statement of Claim, unless all parties request that 
it be scheduled later. The administrative conference will be conducted 
by telephone with the chairperson presiding. In any claim involving a 
public customer, a public arbitrator will conduct the administrative 
conference, unless the public customer demands, in writing, a 
securities arbitrator. The chairperson shall have discretion to conduct 
the conference in-person and may request that all of the arbitrators 
attend the conference.
    At the conference, the Arbitrator(s) may establish a schedule for 
discovery and the hearing, issue subpoenas and direct the appearance of 
witnesses, and resolve or narrow any other issue which may expedite the 
arbitration.
* * * * *

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 NYSE 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 NYSE 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 amending the extending the pilot programs (Rules 638 
and 639) is to continue to offer mediation as a way of parties to 
settle cases earlier with lower costs.\3\ The administrative conference 
allows the arbitrators to intervene early in the case to set deadlines 
and resolve preliminary procedural issues. The Exchange is also 
proposing to amend both pilot programs to include a greater number of 
cases by lowering the threshold amount to $250,000 from $500,000.
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    \3\ The Commission approved the Exchange's mediation program and 
administrative conference rule on a two-year pilot basis through 
November 20, 2000. See Securities Exchange Act Release No. 40695 
(November 19, 1998), 63 FR 65834 (November 30, 1998). On October 31, 
2000, the Exchange's current pilot programs for mediation and 
administrative conferences were extended for six months. See 
Securities Exchange Act Release No. 43496, (October 31, 2000).
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Mediation

    Since November of 1998, the Exchange has sponsored a pilot 
mediation program. Under the pilot (Rules 638), a single mediation 
session of up to four hours is conducted in all cases not involving 
public customers submitted for arbitration where the amount of the 
claim is $500,000 or more. The Exchange pays the mediator up to $500.00 
for this single mediation session. There are no costs assessed to the 
parties unless they select a mediator whose rate is higher or if the 
parties agree to go beyond the single session. Of the cases mediated 
under this provision of the pilot, approximately 31 percent (15 of 48) 
have settled before arbitration. Early settlements reduce costs and 
provide a greater measure of party satisfaction.
    Under the pilot, mediation is also available in cases involving 
public customers where the claim is $500,000 or more upon agreement of 
the parties. These cases also qualify for the Exchange's $500 incentive 
payment to the mediator. In all other cases, mediation is available at 
the parties' own expense. The Exchange, however, will provide the 
parties with a list of mediators, will assist in facilitating the 
parties' agreement to mediate and will make its conference room 
facilities available for the mediation.
    To evaluate the pilot, the staff of the Exchange met with mediators 
and lawyers who participated in mediation under the pilot. Based on the 
evaluators' comments and the settlement rate, the Exchange is proposing 
to extend the pilot for two years, as amended.
    To encourage greater use of mediation, the Exchange proposes to 
amend the mediation pilot program to include all cases within a lowered 
threshold of claims of $250,000 or more. Most commentators supported 
the pilot's provision that a single mediation session of up to four 
hours be conducted in all cases with claims of $250,000 or more. This 
process relieves the parties from having to suggest mediation because 
the Exchange rule provides for it. Many parties believe that the other 
side will view their suggestion to mediate as a sign of weakness. it 
also assists counsel in getting their clients to consider mediation by 
making it part of the arbitration process--with little or no cost to 
them.
    As amended, all cases with claims of $250,000 or more will be 
included in the pilot. This includes cases involving public customers. 
The pilot's inclusion of customer cases may lead to more and earlier 
settlements. Under the present pilot, where the parties have elected to 
mediate, 78.9 percent (15 of 19) of the customer cases with claims over 
$500,000 have settled before arbitration.
    Under the present pilot, a single mediation session of up to four 
hours is conducted. Mediation is a voluntary process and neither the 
Exchange nor the mediator can require a party to mediate. The mediation 
may last less than four hours or the parties may refuse to participate 
at all. The pilot's only requirement is that the Director of 
Arbitration arrange for the mediation. The Director will delegate to 
the Exchange's staff the tasks of sending the parties a list of 
mediators and selecting a mediator from the list if the parties do not 
agree to a mediator. If the parties object to all the names on the 
list, the Director will appoint a mediator from outside the list. Once 
the parties or the Director selects a mediator, the Director will 
schedule the mediation and advise the parties. The mediator may contact 
the parties to preliminarily discuss the case. The pilot does not 
require the parties to do anything they do not wish to, including 
exchange information or documents; and there is no required pre-
mediation exchange of exhibits. The goal of scheduling mediation is to 
encourage the parties to try to resolve the dispute as quickly and 
efficiently as possible. Unless the parties otherwise agree, mediation 
will not delay the arbitration.
    The Exchange will continue to pay the mediator's fee for one 
session, up to $500, in cases where the rule provides that a single 
mediation session is to be conducted. Many commentators noted

[[Page 69598]]

that the Exchange's provision for a single mediation session and 
incentive payment of the mediator's fee, up to $500, is helpful in 
encouraging their clients to agree to try mediation. The average 
mediation settles or reaches an impasse after approximately two 
sessions.
    The Exchange is also proposing to allow parties to mediate without 
first filing for arbitration. The current pilot only applies to cases 
already filed with the NYSE for arbitration. Allowing the parties to 
mediate prior to filing an arbitration may save the parties some costs 
of arbitration. The party requesting mediation will be required to pay 
a non-refundable filing fee. This fee will be based upon the filing fee 
required for arbitration under Rule 629 for claims of the same amount. 
If the case does not settle after mediation,the Exchange will apply the 
fee to the non-refundable filing fee for arbitration. The parties are 
also required to pay the mediator's fee and agree on how the fee will 
be shared. The parties' agreement to mediate will not toll the time 
limitation for submission of a claim to arbitration.
    As under the original pilot, cases with claims for less than 
$250,000 may also be mediated when the parties agree. However, in these 
cases the parties are responsible for payment of the entire mediator's 
fee. During the pilot program, where the parties have agreed to mediate 
claims below $500,000, 76 percent (16 of 21) have settled.

Administrative Conferences

    Since November of 1998, the pilot program has provided for an 
administrative conference with the parties and arbitrators in cases 
over $500,000. The conference allows the arbitrators to set deadlines 
early in the case and resolve preliminary issues with the aim of 
expediting the arbitration. To date, 124 administrative conferences 
have been conducted. Most commentators supported the administrative 
conference with certain changes. The Exchange is proposing to amend and 
extend the pilot for two years.
    In order to expedite a greater number of claims, the Exchange is 
proposing to lower the threshold for administrative conferences from 
$500,000 to $250,000. the Exchange is also proposing that, by default, 
the chairperson of the panel conduct the conference by telephone. This 
will allow the staff to schedule the conference earlier because it will 
involve coordinating the schedules of fewer persons. In cases involving 
public customers, a public arbitrator will conduct the administrative 
conference unless the public customer requests, in writing, a 
securities arbitrator. The Chairperson shall have discretion to conduct 
the conference in-person and may request that all of the arbitrators 
attend the conference. Under the amended pilot, the Director of 
Arbitration will schedule the conference 90 days after service of the 
Statement of Claim, rather than 30 days after the answer is filed. The 
additional period of time is intended to permit the parties to frame 
the issues for the administrative conference. The administrative 
conference pilot does not affect the parties' right to request a pre-
hearing conference to resolve discovery disputes and other preliminary 
matters under Rule 619.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \4\ 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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    \4\ 15 U.S.C. 78f(b)(6).
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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

    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 self-regulatory organization 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 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 
NYSE. All submissions should refer to File No. SR-NYSE-00-39 and should 
be submitted by December 8, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29467 Filed 11-16-00; 8:45 am]
BILLING CODE 8010-01-M