[Federal Register Volume 66, Number 144 (Thursday, July 26, 2001)]
[Notices]
[Pages 39069-39071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18643]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44572; File No. SR-ISE-00-17]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendments No. 1 and No. 2 by the International Securities 
Exchange LLC Relating to its Arbitration Program

July 18, 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 November 20, 2000, the International Securities Exchange LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change. On 
March 5, 2001, the Exchange filed Amendment No. 1 thereto,\3\ and on 
July 16 2001, the Exchange filed Amendment No. 2 thereto,\4\ as 
described in Items I, II, and III below, which Items have been prepared 
by the ISE. 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\ See Letter from Katherine Simmons, Vice President and 
Associate General counsel, ISE, to Nancy J. Sanow, Assistant 
Director, Division of Market Regulation, Commission, dated March 5, 
2001 (``Amendment No. 1''). In Amendment No. 1, the ISE added 
paragraphs (a) and (b), which are jurisdictional provisions 
currently contained in ISE rule 1800, to the proposed rule text.
    \4\ See Letter from Jennifer M. Lamie, Assistant General 
Counsel, ISE, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated July 16, 2001 (``Amendment No. 
2''). Amendment No. 2 replaced the initial filing and Amendment No. 
1 in their entirety. In Amendment No. 2, the ISE made minor changes 
to the order of the subsections under ISE Rule 1800, amended the 
language of its proposed jurisdictional provisions, and added 
subsection (c), which governs predispute arbitration agreements.

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[[Page 39070]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend Chapter 18, Arbitration, of the 
ISE Rules. Specifically, the ISE proposes to repeal Rules 1800 through 
1835 and create new Rule 1800, which will state that the NASD Code of 
Arbitration, as the same may be in effect from time to time, shall 
govern Exchange arbitrations. The proposed rule also states that the 
Exchange shall retain jurisdiction over its members for failure to 
honor arbitration awards and any right, action or determination by the 
Exchange which it would otherwise be authorized to adopt, administer or 
enforce is in no way limited or precluded by incorporation of the NASD 
Code of Arbitration. Proposed new language is in italics.
* * * * *

CHAPTER 18

Arbitration

[Rules 1800--1835 repealed entirely]

Rule 1800. Arbitration

    (a) General. The 10000 Series of the NASD Manual (``NASD Code of 
Arbitration''), as the same may be in effect from time to time, 
shall govern Exchange arbitrations except as may be specified in 
this Rule 1800. Definitions in the NASD Code of Arbitration shall 
have the same meaning as that prescribed herein, and procedures 
contained in the NASD Code of Arbitration shall have the same 
applications as toward Exchange arbitrations.
    (b) Jurisdiction. Any dispute, claim or controversy arising out 
of or in connection with the business of any member of the Exchange, 
or arising out of the employment or termination of employment of 
associated persons(s) with any member may be arbitrated under this 
Rule 1800 except that (1) a dispute, claim, or controversy alleging 
employment discrimination (including a sexual harassment claim) in 
violation of a statute may only be arbitrated if the parties have 
agreed to arbitrate it after the dispute arose; and (2) any type of 
dispute, claim, or controversy that is not permitted to be 
arbitrated under the NASD Code of Arbitration, such as class action 
claims, shall not be eligible for arbitration under this Rule 1800.
    (c) Predispute Arbitration Agreements. The requirements of NASD 
Rule IM-3110(f) shall apply to predispute arbitration agreements 
between Members and their customers.
    (d) Referrals. If any material or communications related to the 
proceeding, that the arbitrator has reason to believe may constitute 
a violation of the Exchange's Rules or the federal securities laws, 
the arbitrator may initiate a referral of the matter to the Exchange 
for disciplinary investigation; provided, however, that any such 
referral should only be initiated by an arbitrator after the matter 
before him has been settled or otherwise disposed of, or after an 
award finally disposing of the matter has been rendered pursuant to 
Rule 10330 of the NASD Code of Arbitration.
    (e) Payment of Awards. Any Member, or person associated with a 
Member, who fails to honor an award of arbitrators appointed in 
accordance with the Rules in this Chapter 18 shall be subject to 
disciplinary proceedings in accordance with Chapter 16 (Discipline).
    (f) Other Exchange Actions. The submission of any matter to 
arbitration under this Chapter shall in no way limit or preclude any 
right, action or determination by the Exchange which it would 
otherwise be authorized to adopt, administer or enforce.
* * * * *

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 ISE 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 ISE 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 Exchange has contracted with NASD Regulation to perform 
arbitrations under ISE's rules. Accordingly, the Exchange proposes to 
eliminate all of the arbitration rules currently contained in Chapter 
18 of the ISE Rules and incorporate the NASD Code of Arbitration by 
reference.\5\ The proposed rule also specifies that potential 
violations of ISE rules identified during an arbitration hearing may be 
referred to the ISE for investigation, and that disciplinary action may 
be brought by the ISE as a result thereof. Finally, a member or person 
associated with a member will be subject to discipline by the ISE if it 
fails to honor an award made as a result of an arbitration initiated 
under ISE Rules.\6\
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    \5\ The ISE represents that, as of this date, no cases have been 
opened under the Exchange's existing arbitration rules.
    \6\ NASDR performs arbitrations for the Philadelphia Stock 
Exchange. See Exchange Act Release 40517 (October 1, 1998), 63 FR 
54177 (October 8, 2000). Because there have not been any 
arbitrations initiated under ISE rules, the proposed rule does not 
contain language found in the Phlx rules to address pending 
arbitrations.
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2. Statutory Basis
    The ISE believes that the proposed rule change, as amended, is 
consistent with the provisions of section 6(b)(5) of the Act,\7\ which 
requires that an exchange have rules that are designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transaction in 
securities, and, in general, to protect investors and the public 
interest.
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    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The ISE does not believe that the proposed rule change, as amended, 
will result in 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

    Written comments on the proposed rule change, as amended, 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) 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 ISE consents, the Commission will:
    (A) By order approve the proposed rule change, as amended, or
    (B) institute proceedings to determine whether the proposed rule 
change, as amended, 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, as amended is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 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

[[Page 39071]]

proposed rule change, as amended, 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 will also be available for inspection and 
copying at the principal office of the ISE. All submissions should 
refer to File No. SR-ISE-00-17 and should be submitted by August 16, 
2001.

    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. 01-18643 Filed 7-25-01; 8:45 am]
BILLING CODE 8010-01-M