[Federal Register Volume 66, Number 196 (Wednesday, October 10, 2001)]
[Notices]
[Pages 51711-51713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25386]



[[Page 51711]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44897; File No. SR-NASD-2001-62]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Amending NASD Code of Arbitration Procedure 
Rule 10333 Relating to Member Surcharges and Hearing and Prehearing 
Process Fees

October 2, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''), \1\ and Rule 19b-4 thereunder, \2\ 
(``NASD''), through its wholly owned subsidiary, NASD Dispute 
Resolution, Inc. notice is hereby given that on September 28, 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. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    NASD Dispute Resolution proposes to amend Rule 10333 of the NASD 
Code of Arbitration Procedure (``Code'') to raise member surcharges and 
hearing and prehearing process fees paid by members. Below is the text 
of the proposed rule change. Proposed new language is in italics; 
proposed deletions are in brackets.
* * * * *
10000. Code of Arbitration Procedure
* * * * *
10333. Member Surcharge and Process Fees.
(a) Member Surcharge
    (1) Each member that is named as a party to an arbitration 
proceeding, whether in a Claim, Counterclaim, Cross-Claim or Third-
Party Claim, shall be assessed a nonrefundable surcharge pursuant to 
the schedule below when the Director of Arbitration perfects service of 
the claim naming the member on an party to the proceeding.
    (2) For each associated person who is named, the surcharge shall be 
assessed against the member or members that employed the associated 
person at the time of the events which gave rise to the dispute, claim 
or controversy. No member shall be assessed more than a single 
surcharge in any arbitration proceeding.
    (3) The surcharge shall not be chargeable to any other party under 
Rules 10332(c) and 10205(c) of the Code.

Member Surcharge Schedule

Amount in Dispute                       Surcharge
 
$.01-$2,500...........................  $150
$2,500.01-$5,000......................  $200
$5,001.01-$10,000.....................  [$300] $325
$10,000.01-$25,000....................  [$400] $425
$25,000.01-$30,000....................  $600
$30,000.01-$50,000....................  [$800] $875
$50,000.01-$100,000...................  [$1,000] $1,100
$100,000.01-$500,000..................  [$1,500] $1,700
$500,000.01-$1,000,000................  [$2,000] $2,250
$1,000,000.01-$5,000,000..............  [$2,500] $2,800
$5,000,000.01-$10,000,000.............  [$3,000] 3,350
Over 10,000,000.......................  [$3,600] $3,750
 

    ([b]4) Unchanged.
    ([c]5) If the dispute, claim, or controversy does not involve, 
disclose, or specify money a claim, the non-refundable surcharge shall 
be [$1,200] $1,500 or such greater or lesser amount as the Director of 
Arbitration or the panel of arbitrators may require, but shall not 
exceed the maximum amount specified in the schedule.
([d]b) Prehearing and Hearing Process Fees
    (1) Each member that is a party to an arbitration proceeding in 
which more than $25,000 is in dispute will pay:
    (A) [a non-refundable process fee as set forth in the schedule 
below for each stage of the proceeding] a non-refundable prehearing 
process fee of $750, due at the time the parties are sent arbitrator 
lists in accordance with Rule 10308(b)(5); and
    (B) each member that is a party to an arbitration proceeding will 
pay a non-refundable hearing process fee, due when the parties are 
notified of the date and location of the first hearing session, as set 
forth in the schedule below.
    (2) [The process fee shall not be chargeable to any other party 
under Rules 10332(c) and 10205(c) of the Code.] If an associated person 
of a member is a party, the member that employed the associated person 
at the time of the events which gave rise to the dispute, claim or 
controversy will be charged the process fees[.], even if the member is 
not a party. No member shall be assessed more than one prehearing and 
one hearing process fee in any arbitration proceeding.
    (3) The prehearing and hearing process fees shall not be chargeable 
to any other party under Rules 10332(c) and 10205(c) of the Code.
    [The prehearing process fee will accrue according to the schedule 
set forth below, but will not become due until (1) the parties are 
notified of the prehearing conference, or (2) if no prehearing 
conference is scheduled, the parties are notified of the date and 
location of the first hearing session. The hearing fee will accrue and 
be due and payable when the parties are notified of the date and 
location of the first hearing session. All accrued but unpaid fees will 
be due and payable at the conclusion of the member's or associated 
person's involvement in the proceeding. No member will pay more than 
one prehearing and hearing process fee for any case. The process fees 
will stop accruing when either the member enters into a settlement of 
the dispute or the member is dismissed from the proceeding or, if the 
member is paying a process fee as a result of an associated person 
being named as a party, when the associated person enters into a 
settlement or is dismissed from the proceeding, whichever is later.]

[Prehearing Process Fee Schedule

(proceedings where more than $25,000 is in dispute)

Service of Claim (accrues when the claim has been submitted and      $50
 is ready to be served on the respondents)......................
Case Preparation (accrues when the first answer to the claim is     $150
 received or due and discovery or motions proceedings commence..
Prehearing Activities (accrues when the parties are first           $400
 notified of the names of any arbitrators selected to hear the
 matter or are given the names of arbitrators to select)........
                                                                 -------
      Total.....................................................   $600]
 

Hearing Process Fee Schedule

[(accrues and becomes due and payable when the parties are notified of 
the date and location of the first hearing session)]

Damages Requested                       Hearing Process Fee
 
$1-$25,000............................  $0
$25,000.01-$50,000....................  $1,000
$50,000.01-$100,000...................  [$1,500] $1,700
$100,000.01-$500,000..................  [$2,500] $2,750
$500,000.01-$1,000,000................  [$3,500] $4,000
$1,000,000.01-$5,000,000..............  [$4,500] $5,000
More than $5,000,000..................  [$5,000] $5,500
Unspecified...........................  [$2,000] $2,200
 

* * * * *

[[Page 51712]]

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 the 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
    The proposed amendments to Rule 10333 of the NASD Code would raise 
member surcharges and hearing process fees, which are paid by members 
only, by an aggregate of ten percent. The proposed rule change would 
also combine the various current portions of the prehearing process fee 
paid by members in cases in which more than $25,000 is in dispute into 
one fee of $750, representing an increase of $150, payable at the time 
arbitrator lists are sent to parties pursuant to Rule 10308(b)(5) of 
the Code. The primary purposes of the proposed fee increase are to fund 
NASD Dispute Resolution's share of the cost of developing and 
implementing a new computer system, MATRICS, which will greatly enhance 
the administration of cases in the forum, and to give NASD Dispute 
Resolution additional funds to pay for inflationary cost increases. The 
proposed rule change would also amend and reorganize Rule 10333 to 
reflect the consolidation of the prehearing process fee payments, and 
to make the rule easier to use.

Member Surcharge Increase

    Rule 10333 currently requires that each member that is a party to 
an arbitration proceeding, or that employed an associated person who is 
a party to an arbitration proceeding at the time of events that gave 
rise to the dispute, pay a non-refundable member surcharge. The amount 
of the surcharge varies depending on the amount in dispute, ranging 
from $150 for cases involving claims of $2,500 or less, to $3,600 for 
claims involving more than $10,000,000.
    Under the proposed rule change, member surcharges, which were last 
raised in 1997, would be raised by an aggregate of ten percent. Actual 
increases in each case would range from zero to 25.7 percent, depending 
on the amount in dispute. The highest actual per-case increase would be 
$350. Based on anticipated caseloads, this would generate additional 
annual revenue of approximately $1,000,000 per year.

Prehearing Process Fees

    Currently, Rule 10333 provides that, in cases in which the amount 
in controversy exceeds $25,000, each member that is a party, or members 
that employed an associated person named as a party at the time of the 
events that gave rise to the arbitration proceeding, must pay a 
prehearing process fee. The prehearing process fee is currently divided 
into three segments, which accrue as follows: $50 at the time of the 
service of claim; $150 when the first answer to the claim is received 
or due and discovery and motions proceedings begin; and $400 when the 
parties are first notified of the names of any of the arbitrators 
selected to hear the matter, or are given the names of arbitrators to 
select.
    Under the proposed rule change, these three prehearing process fees 
would be combined into a single fee of $750, an increase of $150, due 
at the time the parties receive the arbitrator lists. This would 
generate a projected $850,000 in additional revenue per year.

Hearing Process Fee Increase

    Rule 10333 also requires that each member that is a party to an 
arbitration, or that employed an associated person who is a party to an 
arbitration proceeding at the time of the events that gave rise to the 
dispute, pay a hearing process fee, which accrues when the parties are 
notified of the date and location of the first hearing session. The 
amount of the hearing process fee ranges between $0 and $5,000 
depending on the amount of damages requested.
    The proposed rule change would result in a ten percent aggregate 
increase in the hearing process fee paid by members. Actual increases 
in each case would range from zero to 14 percent, depending on the 
amount in dispute. The highest per-case increase would be $500. Based 
on anticipated caseloads, this would generate additional annual revenue 
of approximately $1,000,000 per year.

Other Changes to Rule 10333

    The proposed rule change would also reorganize Rule 10333 to make 
it simpler to use, and to conform the text throughout the rule to the 
proposed consolidation of the prehearing process fee payments. The rule 
would be broken into two sections: Members Surcharges and Prehearing 
and Hearing Process Fees. Other than the reorganization of the text, 
and the increase in the surcharge amounts, the substance of the rule 
regarding payment of surcharges would not be changed in any material 
respect. Other than the reorganization of the text and the increase in 
the amount of fees, the substance of the rule regarding prehearing and 
hearing process fees would be modified to reflect the consolidation of 
the prehearing process fee payments. In addition, language in Rule 
10333(d) explaining that all accrued but unpaid member fees are due at 
the conclusion of the member's or associated person's involvement in 
the case, even in the case of settlement, would be deleted. NASD 
Dispute Resolution has determined that the language is no longer 
necessary in light of a recently approved amendment to Rule 10306 of 
the Code, which clarifies that in the event of a settlement, parties 
remain responsible for all fees incurred under the Code.\3\
---------------------------------------------------------------------------

    \3\ Exchange Act Release No. 44573 (April 20, 2001)(File No. SR-
NASD-2001-21), 66 FR 21423 (April 30, 2001).
---------------------------------------------------------------------------

2. Statutory Basis
    NASD Dispute Resolution believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) \4\ of the Act, 
which requires, among other things, that the NASD'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 changes will protect investors and the 
general public by ensuring that NASD Dispute Resolution remains 
adequately funded and able to meet its commitment to provide fair, 
expeditious, and cost-effective dispute resolution services for 
investors, brokerage firms, and their employees.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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.

[[Page 51713]]

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \5\ of the Act and Rule 19b-4(f)(2) thereunder \6\ as 
establishing or changing a due, fee, or other charge paid solely by 
members of the NASD. At any time within 60 days of the filing of such 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate, in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of the Act.\7\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(F)(2).
    \7\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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 File No. SR-NASD-2001-62 and 
should be submitted by October 31, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25386 Filed 10-9-01; 8:45 am]
BILLING CODE 8010-01-M