[Federal Register Volume 66, Number 143 (Wednesday, July 25, 2001)]
[Notices]
[Pages 38773-38774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18445]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44573; File No. SR-NASD-2001-21]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 2 to the Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Amendments to the Fee Structure of 
the Code of Arbitration Procedure

July 18, 2001.

I. Introduction

    On March 23, 2001, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its wholly owned 
subsidiary, NASD Dispute Resolution, Inc. (``NASD Dispute 
Resolution''), pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ proposed a rule 
change to amend Rule 10301 of the Code of Arbitration of the NASD, to 
amend the Code of Arbitration of Procedure (``Code'') to clarify or 
simplify several fee-related provisions of the Code.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    On April 20, 2001, the NASD filed Amendment No. 1 to the 
proposal.\3\ The proposed rule change, as amended, was published for 
comment in the Federal Register on April 30, 2001.\4\ The Commission 
received one comment letter on the proposal.\5\ On July 17, 2001, the 
NASD filed Amendment No. 2 to the proposal.\6\ This notice and order 
approves the proposed rule change, as amended, and solicits comments 
from interested persons on Amendment No. 2.
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    \3\ See letter from Laura Leedy Gansler, Counsel, NASD Dispute 
Resolution, Inc., to Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, dated April 19, 2001 
(``Amendment No. 1'').
    \4\ See Securities Exchange Act Release No. 44214 (April 24, 
2001), 66 FR 21423.
    \5\ See letter from Linda P. Drucker, Vice President & Associate 
General Counsel, Charles Schwab, to Jonathan Katz, Secretary, 
Commission, dated May 22, 2001 (``Schwab Letter'').
    \6\ See letter from Laura Leedy Gansler, Counsel, NASD Dispute 
Resolution, Inc., to Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission dated July 16, 2001 
(``Amendment No. 2''). In Amendment No. 2, the NASD modify the 
proposed changes to Rule 10306 of the Code to clarify that parties 
will be responsible of payment of fees in the event of settlement in 
accordance with the terms of the Code.
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II. Description of the Proposal

    Rule 10306 of the Code relating to the assessment or payment of 
fees provides that parties to arbitrations may settle their dispute at 
any time. The proposed rule change amends 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. The 
proposed rule change also modifies 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 discretion. The proposed rule change provides 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. The proposed rule change also addresses 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 Exchange represents 
that the intent of this 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.\7\ 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 
increases the current $1,000 cap to $1,500.
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    \7\ 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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    Finally, the proposed rule change amends 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.

III. Summary of Comments

    The Commission received one comment letter on the proposed rule

[[Page 38774]]

change.\8\ The Commenter expressed concern that, as drafted, the 
amendment proposed by the NASD to Rule 10306(b) was a disincentive to 
settlement because parties would be obligated to pay for hearings that 
were scheduled months in advance if the case settled. In pertinent 
part, the proposed rule language stated:
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    \8\ See note 4, supra.
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    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.
    The Commenter pointed out that one of the factors that contributes 
to the decision to settle a case is the desire to avoid fees and 
assessments. However, the Commenter felt that under the NASD's proposed 
language, parties who settled their case after a hearing was scheduled, 
but several months before the hearing was held, would necessarily incur 
hearing fees.
    In response to the Commenter's concerns, the NASD submitted 
Amendment No. 1 to the proposed rule change.\9\ In Amendment No. 1, the 
NASD noted that Rules 10332(f) and (g) of the Code provide that 
settling parties are only responsible for payment of hearing session 
fees for hearings held or scheduled within eight days of the date that 
NASD Dispute Resolution is notified of the settlement. Therefore, the 
NASD explained that under the current rule and the proposed rule 
change, settling parties would only be responsible for fees for hearing 
sessions that were held, or scheduled to be held, within eight days of 
the date the NASD Dispute Resolution receives notice of the settlement.
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    \9\ See note 5, supra.
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    However, the NASD amended the proposed rule to eliminate any 
possible confusion regarding whether the proposed rule change would 
alter the Code's current provisions regarding what hearing session fees 
settling parties are required to pay. The NASD proposed to amend Rule 
10306(b) to read, in pertinent part:
    The terms of a settlement agreement do not need to be disclosed to 
the NASD Dispute Resolution. However, the parties will remain 
responsible for payment of fees incurred under the Code.\10\
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    \10\ See note 4, supra.
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IV. 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 
association.\11\ The Commission believes that the proposed rule change 
is consistent with the provisions of Section 15A(b)(6) of the Act,\12\ 
which requires, among other things, that the Association's rules be 
designated 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. Specifically, the Commission 
believes that the proposed rule change will help protect investors and 
the general public by simplifying and clarifying various fee-related 
provisions of the Code.
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    \11\ In approving this rule proposal, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78o(b)(6).
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V. Amendment No. 2.

    The Commission finds good cause for approving Amendment No. 2 prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. In amendment No. 2, the Exchange clarified that 
the proposed rule change would not effect the applicability of the 
Code's current provisions regarding what hearing session fees settling 
parties are required to pay.
    The Commission finds that the NASD's proposed change in Amendment 
No. 2 simply clarifies the proposed rule change and raises no new 
regulatory issues. Further, the Commission believes that Amendment No. 
2 does not significantly alter the original proposal, which was subject 
to full notice and comment period. Therefore, the Commission finds that 
granting accelerated approval to Amendment No. 2 is appropriate and 
consistent with Section 19(b)(2) of the Act.\13\
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    \13\ 15 U.S.C. 78s(b)(2).
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VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether the proposed 
amendment 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 amendment, all 
written statements with respect to the proposed amendment that are 
filed with the Commission, and all written communications relating to 
the amendment 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 at the 
Commission's Public Reference Room. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
NASD.
    All submissions should refer to File No. SR-NASD-2001-21 and should 
be submitted by August 15, 2001.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NASD-2001-21), as amendment, 
is approved.
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    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-18445 Filed 7-24-01; 8:45 am]
BILLING CODE 8010-01-M