[Federal Register Volume 67, Number 64 (Wednesday, April 3, 2002)]
[Notices]
[Pages 15848-15849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8008]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45663; File No. SR-NASD-2002-38]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the National Association of Securities Dealers, Inc. Relating to the 
Replacement of an Arbitrator Upon Disqualification or Other Disability 
of an Arbitrator

March 27, 2002.
    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 13, 2002, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its wholly owned subsidiary, 
NASD Dispute Resolution, Inc. (``NASD Dispute Resolution''), filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by NASD Dispute Resolution. NASD Dispute Resolution 
amended its proposal on March 22, 2002.\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 Barbara Z. Sweeney, Senior Vice President, 
NASD Dispute Resolution, to Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, dated March 22, 2002 
(``Amendment No. 1''). In Amendment No. 1, NASD Dispute Resolution 
replaced the original rule filing in its entirety and changed the 
filing to become immediately effective upon filing pursuant to 
section 19(b)(3)(A) of the Act and paragraph (f)(6) of Rule 19b-4. 
15 U.S.C. 78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6).
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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 procedure 
followed upon the disqualification or other disability of an arbitrator 
on a three-person arbitration panel under Rule 10313 of the Code of 
Arbitration Procedure (``Code''). Below is the text of the proposed 
rule change. Proposed new language is in italics; proposed deletions 
are in brackets.
* * * * *

CODE OF ARBITRATION PROCEDURE

* * * * *

10313. Disqualification or Other Disability of Arbitrators

    (a) In the event that any arbitrator, after the commencement of the 
earlier of [(a)] (1) the first pre-hearing conference or [(b)] (2) the 
first hearing but prior to the rendition of the award, should become 
disqualified, resign, die, refuse or otherwise be unable to perform as 
an arbitrator, [the remaining arbitrator(s) shall continue with the 
hearing and determination of the controversy, unless such continuation 
is objected to by any party within 5 days of notification of the 
vacancy on the panel. Upon objection,] the Director shall appoint a 
replacement arbitrator to fill the vacancy and the hearing shall 
continue. In the alternative, if all parties agree to proceed with any 
remaining arbitrator(s), they shall inform the Director in writing 
within 5 business days of notification of the vacancy, and the 
remaining arbitrator(s) shall continue with the hearing and 
determination of the controversy.
    (b) The Director shall inform the parties as soon as possible of 
the name and employment history of the replacement arbitrator for the 
past 10 years, as well as information disclosed pursuant to Rule 10312. 
A party may make further inquiry of the Director concerning the 
replacement arbitrator's background. If the arbitration proceeding is 
subject to Rule 10308, the party may exercise his or her right to 
challenge the replacement arbitrator within the time remaining prior to 
the next scheduled hearing session by notifying the Director in writing 
of the name of the arbitrator challenged and the basis for such 
challenge. If the arbitration proceeding is not subject to Rule 10308, 
within the time remaining prior to the next scheduled hearing session 
or the 10 day period provided under Rule 10311, whichever is shorter, a 
party may exercise the party's right to challenge the replacement 
arbitrator as provided in Rule 10311.
* * * * *

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

[[Page 15849]]

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 proposes to amend the procedure followed 
upon the disqualification or other disability of an arbitrator on a 
three-person arbitration panel under Rule 10313 of the Code. Currently, 
Rule 10313 of the Code provides that, when an arbitrator becomes 
disqualified, resigns, dies, refuses or otherwise becomes unable to 
perform as an arbitrator, the arbitration proceeds with the remaining 
arbitrators unless a party objects within five days of notification of 
the vacancy.\4\ If there is an objection, the arbitrator is replaced.
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    \4\ In very unusual circumstances, two arbitrators may have been 
disqualified or otherwise unable to serve at the same time, and the 
parties would have to decide whether to proceed with the one 
remaining arbitrator or seek two replacements.
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    Under the proposed rule change, NASD Dispute Resolution will send 
the name of a replacement arbitrator along with notification of the 
vacancy. After having this information, parties then will have five 
business days in which to decide whether to continue with only the 
remaining two arbitrators or accept a replacement.
    NASD Dispute Resolution staff has indicated that, in their 
experience, parties almost never want to proceed with only the two 
remaining arbitrators. Therefore, NASD Dispute Resolution believes that 
providing a replacement arbitrator immediately, without waiting for an 
objection, would save the parties time and reduce the administrative 
costs of producing a letter and waiting for responses when, in most 
cases, there will be an objection to continuing with only two 
arbitrators.
2. Statutory Basis
    NASD Dispute Resolution believes that the proposed rule change, as 
amended, is consistent with section 15A(b)(6) of the Act \5\ which 
requires, among other things, that the Association's rules 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 public 
interest by providing parties with an immediate replacement arbitrator, 
thereby reducing delays in the arbitration process and reducing the 
forum's administrative costs.
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    \5\ 15 U.S.C. 78o-3(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, as amended, will impose 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

    No written comments were solicited or received with respect to the 
proposed rule change, as amended.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing proposed rule change, as amended, does not 
(i) significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, and NASD Dispute 
Resolution provided the Commission with written notice of its intent to 
file the proposed rule change at least five business days prior to the 
filing date,\6\ it has become effective pursuant to section 19(b)(3)(A) 
of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ At any time within 
60 days of the filing of the proposed rule change, as amended, 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.
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    \6\ On March 13, 2002, NASD Dispute Resolution submitted the 
original rule filing under section 19(b)(2) of Act. 15 U.S.C. 
78s(b)(2). In Amendment No. 1, NASD Dispute Resolution requested 
that the proposed rule change become effective upon filing pursuant 
to section 19(b)(3)(A) of Act and Rule 19b-4(f)(6) thereunder. 15 
U.S.C. 78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6). The Commission has 
agreed to accept the original rule filing as satisfying the 5-day 
pre-filing requirement pursuant to Rule 19b-4(f)(6). 17 CFR 240.19b-
4(f)(6).
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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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, 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-2002-38 and should be submitted by April 24, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-8008 Filed 4-2-02; 8:45 am]
BILLING CODE 8010-01-P