[Federal Register Volume 66, Number 83 (Monday, April 30, 2001)]
[Notices]
[Pages 21423-21425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-10641]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44214; File No. SR-NASD-2001-21)


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc., Relating to 
Amendments to the Fee Structure of the Code of Arbitration Procedure

April 24, 2001.
    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 March 23, 2001, 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 (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by NASD Dispute Resolution. On April 20, 2001, 
the NASD filed Amendment No. 1 to the proposal.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Laura Gansler, Counsel, NASD Dispute 
Resolution, to Florence Harmon, Senior Special Counsel, Division of 
Market Regulation, Commission, dated April 19, 2001 (``Amendment No. 
1''). In Amendment No. 1, the NASD changed the first sentence of 
NASD Rule 10306 to indicate that the terms of a settlement agreement 
do not need to be disclosed to NASD Dispute Resolution, rather than 
the NASD as originally proposed.
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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 amend the Code of 
Arbitration of Procedure (``Code'') to clarify or simplify several fee-
related provisions of the Code. Proposed new language is in italics; 
proposed deletions are in brackets.
* * * * *

10306. Settlements

    [All settlements upon any matter shall be at the election of the 
parties.]
    (a) Parties to an arbitration may agree to settle their dispute 
at any time.
    (b) The terms of a settlement agreement do not need to be 
disclosed to NASD Dispute Resolution. However, the parties will remain 
responsible for payment of fees incurred, including fees for previously 
scheduled hearing sessions. If the parties fail to agree on the 
allocation of outstanding fees, the fees shall be divided equally among 
all parties.
* * * * *

10319. Adjournments

    (a) The arbitrator(s) may, in their discretion, adjourn any 
hearing(s) either upon their own initiative or upon the request of any 
party to the arbitration.
    (b) [Unless waived by the Director of Arbitration upon a showing of 
financial need,] If an adjournment requested by a party is granted 
after arbitrators have been appointed, the [a] party requesting the 
adjournment [after arbitrators have been appointed shall deposit with 
the request for an adjournment,] shall pay a fee equal to the 
initial deposit of hearing session fees for the first adjournment and 
twice the initial deposit of hearing session fees, not to exceed 
[$1,000] 1,500 for a second or subsequent adjournment requested 
by that party. [If the adjournment is granted, the arbitrator(s) may 
direct the return of the adjournment fee.] The arbitrators may 
waive these fees in their discretion. If more than one party requests 
the adjournment, the arbitrators shall allocate the fees among the 
requesting parties.
    (c) Upon receiving a third request consented to by all parties 
for an adjournment, the arbitrator(s) may dismiss the arbitration 
without prejudice to the Claimant filing a new arbitration.
* * * * *

[[Page 21424]]

10328. Amendments

    (a) After the filing of any pleadings, if a party desires to file a 
new or different pleading, such change must be made in writing and 
filed with the Director of Arbitration with sufficient additional 
copies of each arbitrator. The party filing a new or different pleading 
shall serve on all other parties, a copy of the new or different 
pleading in accordance with the provisions set forth in Rule 10314(b). 
The other parties may, within ten (10) business days from the receipt 
of service, file a response with all other parties and the Director of 
Arbitration in accordance with Rule 10314(b).
    (b) If a new or amended pleading increases the amount in 
dispute, all filing fees, surcharges, and process fees required under 
Rules 10332 and 10333 will be recalculated based on the amended amount 
in dispute.
    (c) After a panel has been appointed, no new or different 
pleading may be filed except for a responsive pleading as provided for 
in (a) above or with the panel's consent.
* * * * *

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
    NASD Dispute Resolution has identified several provisions of the 
Code relating to the assessment or payment of fees that have generated 
confusion for the staff and parties, or otherwise require 
simplification or clarification. The general purpose of the proposed 
rule change is to clarify or simplify these provisions. The proposed 
amendment to Rule 10319 would also harmonize the rule with recent 
changes to other parts of the Code.
    a. Settlement Default for the Allocation of Forum Fees. 
Rule 10306 of the Code provides that parties to arbitrations may 
settle their dispute at any time. The terms of any settlement agreement 
need not be disclosed to the NASD Dispute Resolution.\4\ However, 
settling parties remain responsible for payment of outstanding fees, 
including fees for previously held hearing sessions. NASD Dispute 
Resolution encourages parties to agree on how any outstanding fees 
shall be divided among the parties as part of the settlement agreement. 
Unfortunately, this often does not happen.
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    \4\ See Amendment No. 1, supra note 3.
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    When the parties fail to allocate fees in settlements, the staff 
must present this issue to the arbitrator(s) for resolution. This is a 
time-consuming process that is an unnecessary burden to the 
arbitrator(s) and can result in surprises to the parties. To eliminate 
any ambiguity in this area, the proposed rule change would amend Rule 
10306 to provide that if settling parties fail to agree on the 
allocation of outstanding fees, the fees will be divided equally among 
all parties by default.
    b. Adjournment Fees. The proposed rule change would modify 
the timing of the payment of adjournment fees. Rule 10319 of the Code 
currently requires parties requesting adjournment of an arbitration 
hearing to deposit a fee at the time the adjournment is requested. If 
the adjournment is not granted, the deposit is returned; if it is 
granted, the arbitrators may return the deposit in their direction.
    The proposed rule change would minimize the burden this rule places 
on parties, arbitrators, and staff by providing that payment of the 
adjournment fee is required only if an adjournment is granted, rather 
than requiring a deposit of fees when a request for adjournment is 
made. This would eliminate the need for parties to deposit funds that 
may be returned to them, as well as the need for the staff to track the 
deposits and issue refunds if necessary. It would also help to expedite 
the resolution of adjournment requests.
    The proposed rule change would also address a technical 
imperfection in the current adjournment fee rule. The current rule 
provides that, for initial adjournment requests, the fee is equal to 
the amount of the initial hearing session fee; for second or subsequent 
adjournment requests, the amount is twice the initial hearing session 
fee, but not more than $1,000. The intent of the portion of the current 
rule is to discourage repeat adjournments, by having second and 
subsequent adjournments cost substantially more than the first 
adjournment. When the NASD's new fee schedule went into effect in March 
1999, hearing session fees were generally increased.\5\ For several 
claim categories, the hearing session fee now exceeds $1,000, meaning 
that the rule as presently written can result in a lower fee 
for second and subsequent adjournments. To address this anomaly, the 
proposed rule change would increase the current $1,000 cap to $1,500.
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    \5\ See Securities Exchange Act Release No. 41056 
(February 16, 1999), 64 FR 10041 (March 1, 1999) (File No. SR-NASD-
97-79).
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    c. Recalculating Fees When Amount in Dispute is Amended. 
Finally, the proposed rule change would amend Rule 10328 of the 
Code, governing amendments to pleadings, to clarify that when a claim 
is amended to increase the amount in dispute, NASD Dispute Resolution 
will recalculate filing fees, hearing session deposits, surcharges, and 
process fees based on the new, increased claim. This will present 
parties from avoiding higher filing fees and surcharges by initially 
claiming an artificially low amount in dispute in their statement of 
claim.
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,\6\ 
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 the proposed rule change will protect investors and the 
general public by simplifying and clarifying various fee-related 
provisions of the Code.
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    \6\ 15 U.S.C. 78oA(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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i)

[[Page 21425]]

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 
NASD. All submissions should refer to SR-NASD-2001-21 in the caption 
above and should be submitted by May 21, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-10641 Filed 4-27-01; 8:45 am]
BILLING CODE 8010-01-M