[Federal Register Volume 67, Number 119 (Thursday, June 20, 2002)]
[Notices]
[Pages 42088-42089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15572]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46077; File No. SR-NASD-2002-62]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
To Amending Code of Arbitration Procedure To Conform Rule 10314(b) to 
the Current Minimum Standard Applicable to Claims

June 14, 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 May 9, 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. 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.
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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 Procedure to conform Rule 10314(b) to the current minimum 
standard applicable to claims. Below is the text of the proposed rule 
change. Proposed new language is in italics; proposed deletions are in 
brackets.

CODE OF ARBITRATION PROCEDURE

* * * * *

10314.  Initiation of Proceedings

    (a) Unchanged.
    (b) Answer--Defenses, counter Claims and/or Cross-Claims:
    (1) Within 45 calendar days from receipt of the Statement of Claim, 
Respondent(s) shall serve each party with an executed Submission 
Agreement and a copy of the Respondent's Answer. Respondent's executed 
Submission Agreement and Answer shall also be filed with the Director 
of Arbitration with sufficient additional copies for the arbitrator(s) 
along with any deposit required under the schedule of fees. The Answer 
shall specify all [available defenses and] relevant facts and available 
defenses [thereto that will be relied upon at the hearing] to the 
Statement of Claim submitted and may set forth any related Counterclaim 
the Respondent(s) may have against the Claimant, any Cross-Claim the 
Respondent(s) may have against any other named Respondent(s), and any 
Third-Party Claim against any other party or person based on any 
existing dispute, claim, or controversy subject to arbitration under 
this Code.
    (2) (A) A Respondent, Responding Claimant, Cross-Claimant, Cross-
Respondent, or Third-Party Respondent who pleads only a general denial 
[as an Answer] to a pleading that states specific facts and contentions 
may, upon objection by a party, in the discretion of the arbitrators, 
be barred from presenting any facts or defenses at the time of the 
hearing.
    (Remainder of rule unchanged.)
* * * * *

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 proposes to amend the Code to conform Rule 
10314(b) to the current minimum standard applicable to claims, so that 
Answers need only specify relevant facts and available defenses to the 
Statement of Claim that was submitted by the claimant, rather than 
specifying all such facts and defenses that may be relied upon at the 
hearing.
    As background, NASD Dispute Resolution recently streamlined its 
procedures for review of arbitration claims, NASD Dispute Resolution 
does not consider a Statement of Claim to be deficient if it meets the 
minimum requirements of a properly signed Uniform Submission Agreement 
that names the same respondents as shown on the Statement of Claim, 
proper fees, and sufficient copies of the Statement of

[[Page 42089]]

Claim. This has accelerated the claims review process, so that claims 
can be served promptly after filing.\3\ Accordingly, the Statement of 
Claim may not contain details on the evidence to be presented at the 
hearing.
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    \3\ Although the Uniform Forms Guide (last amended April 2001) 
(Http://www.nasdadr.com/pdf-text/uniform_forms_guide.pdf) 
continues to recommend that the Statement of Claim set forth the 
details of the dispute, informal guidance for parties on the Dispute 
Resolution Website now states, ``A claim is reviewed for the minimum 
requirements of a properly signed Submission Agreement, proper fees, 
and sufficient copies of the Statement of Claim. The Statement of 
Claim should include the dollar amount of damages requested, and the 
type of claims being made. Any deficiencies can delay the service of 
the claim.'' Arbitration Case Flow (Http://www.nasdadr.com/arb_case_flow.asp) (visited May 3, 2002).
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    Rule 10314(b)(1) currently provides, however, that the ``Answer 
shall specify all available defenses and relevant facts thereto that 
will be relied upon at the hearing,'' and Rule 10314(b)(2)(B) provides 
that a ``Respondent who fails to specify all available defenses and 
relevant facts in such party's Answer may, upon objection by a party, 
in the discretion of the arbitrators, be barred from presenting such 
facts or defenses not included in such party's Answer at the hearing.'' 
\4\ Similarly, Rule 10314(b)(2)(A) provides that ``Respondent who 
pleads only a general denial as an Answer may, upon objection by a 
party, in the discretion of the arbitrators, be barred from presenting 
any facts or defenses at the time of the hearing.''
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    \4\ The term ``defenses'' in Rule 10314 is understood to include 
not only defenses to the specific allegations in the Statement of 
Claim, but also any affirmative defenses that the respondent may 
wish to set forth.
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    The National Arbitration and Mediation Committee (NAMC) of NASD 
Dispute Resolution \5\ determined that the above provisions could place 
the respondent at an unfair disadvantage because the initial claim may 
be quite brief, but may be expanded substantially by the time of the 
hearing. Based on Rule 10314(b), the arbitrators may prevent the 
respondent from introducing additional facts or defenses to the 
expanded claim. The NAMC recommended, therefore, that Rule 10314(b)(1) 
be amended to provide that the Answer should only be required to 
specify all relevant facts and available defenses to the Statement of 
Claim submitted, which would make the requirement consistent with the 
streamlined claims procedure; and that Rule 10314(b)(2)(A) be amended 
to apply only to general denials to pleadings that state specific facts 
and contentions.
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    \5\ NASD Dispute Resolution states that the NAMC includes 
representation from public investors, from the securities industry, 
and from the neutrals serving in the NASD Dispute Resolution forum. 
NASD Dispute Resolution additionally states that this diverse 
composition ensures a neutral approach in the administration of the 
forum.
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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 
public interest by harmonizing the requirements for claimants and 
respondents.
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    \6\ 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 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 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 self-regulatory organization consents, the Commission will:
    A. By order approve the 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 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 
NASD.
    All submissions should refer to File No. SR-NASD-2002-62 and should 
be submitted by July 11, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
Jill M. Peterson,
Assistant Secretary.
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    \7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 02-15572 Filed 6-19-02; 8:45 am]
BILLING CODE 8010-01-P