[Federal Register Volume 66, Number 6 (Tuesday, January 9, 2001)]
[Notices]
[Pages 1710-1712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-541]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-43785; File No. SR-NYSE-00-39)


Self-Regulatory Organizations; New York Stock Exchange, 
Incorporated; Order Approving Proposed Rule Change To Amend Arbitration 
Rules Regarding Pilot Programs for Mediation and Administrative 
Conferences

December 29, 2000.

I. Introduction

    On September 29, 2000, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change amending and extending the pilot 
programs for mediation and administrative conferences. Notice of the 
proposal appeared in the Federal Register on November 17, 2000.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change.
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    \1\ 17 CFR 240.19b-4.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ Securities Exchange Act Release No. 43538 (November 9, 
2000), 65 FR 69596.
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II. Description

    The Exchange proposes to amend and extend the pilot programs under 
NYSE Rules 638 and 639 for mediation and administrative conferences. 
The Exchange is amending and extending the pilot programs to continue 
to offer mediation as a way for parties to settle cases earlier with 
lower costs.\4\ The Exchange believes that the administrative 
conference allows the

[[Page 1711]]

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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    \4\ 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 an additional six 
months. See Securities Exchange Act Release No. 43496, (October 31, 
2000).
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    Since November of 1998, the Exchange has sponsored a pilot 
mediation program. Under the pilot program, 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 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. The Exchange represents that of 
the cases mediated under this provision of the pilot, approximately 31 
percent (15 of 48) have settled before arbitration. Further, the 
Exchange believes that 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. The Exchange represents that 
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. The Exchange believes that this process 
relieves the parties from having to suggest mediation because the 
Exchange rule provides for it. Further, the Exchange represents that 
many parties believe that the other side will view their suggestion to 
mediate as a sign of weakness. The Exchange believes that this process 
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 case involving public customers. 
The Exchange believes the pilot's inclusion of customer cases may lead 
to more and earlier settlements. The Exchange represents that under the 
present pilot, where the parties have elected to mediate, 78.9 percent 
(15 to 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. The process is 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 Exchange's 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. The Exchange represents that many 
commentators noted 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. 
Further, the Exchange represents that 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 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. The Exchange represents that during the pilot program, where the 
parties have agreed to mediate claims below $500,000, 76 percent (16 of 
21) have settled.
    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. The Exchange represents that to date, 124 
administrative conferences have been conducted and 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, be default, 
the chairperson of the panel conduct the conference by telephone. The 
Exchange believes that 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

[[Page 1712]]

conference to resolve discovery disputes and other preliminary matters 
under NYSE Rule 619.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange \5\ 
and, in particular, the requirements of Section 6 and the rules and 
regulations thereunder.\6\ Specifically, the Commission believes the 
proposal is consistent with the Section 6(b)(5) requirements that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, and, 
in general, to protect investors and the public interest. In 
particular, the Commission believes that the proposed rule change will 
continue to help ensure that NYSE members, member organizations, and 
the public have a fair and impartial forum for the resolution of their 
disputes.
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    \5\ 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).
    \6\ 15 U.S.C. 78f.
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    Mediation is a method of dispute resolution where a mediator 
attempts to facilitate a settlement of the dispute. The Commission 
believes that it is reasonable and consistent with the Act to extend 
mediation to more cases because it may result in savings of time and 
money for a greater number of parties. The Commission notes that the 
Exchange is amending and extending this pilot program based on its 
evaluation of the effectiveness of the current pilot program. The 
Exchange represents that lowering the threshold to claims of $250,000 
or more and including cases involving public customers may lead to more 
and earlier settlements. In addition, the Exchange represents that 
early settlements reduce costs and increase party satisfaction.
    The Commission believes that it is consistent with the Act to 
require an administrative conference between the parties and the 
arbitrators in cases where the amount of the claim is $250,000 or more, 
to expedite the arbitration process and reduce costs of the 
arbitration. An administrative conference early in the process will 
allow the arbitrators to intervene to establish discovery schedules, 
resolve discovery disputes and other preliminary matters, and to 
attempt to narrow the issues in dispute and avoid costly contests over 
procedural matters. The Commission believes that reducing the threshold 
for administrative conferences from $500,000 to $250,000 should provide 
these benefits to a greater number of claims. Further, the procedural 
amendments to the pilot program should expedite the process for 
conducting administrative conferences.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-NYSE-00-39) is approved. The 
mediation program, NYSE Rule 638, and the administrative conference 
rule, NYSE Rule 639, are each approved on a two-year pilot basis 
through December 30, 2002.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-541 Filed 1-8-01; 8:45 am]
BILLING CODE 8010-01-M