[Federal Register Volume 67, Number 163 (Thursday, August 22, 2002)]
[Notices]
[Pages 54521-54523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21430]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46372; File No. SR-NYSE-2002-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the New York Stock Exchange, 
Inc. Relating to the Renewal of Supplemental Procedures Relating to 
Arbitration Rules

August 16, 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 August 2, 2002 the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities Exchange Commission (``SEC'' or 
``Commission'') the proposed Renewal of Supplemental Procedures to the 
Arbitration Rules as described in Items, I, II and III below, which 
items have been prepared by the NYSE. The Commission is publishing this 
notice to solicit comments on the Renewal of Supplemental Procedures 
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

    The purpose of the proposed Renewal of Supplemental Procedures is 
to allow the parties to agree, on a pilot basis for two years from the 
date of filing, to select arbitrators under a procedure that is an 
alternative to NYSE Rules 601 and 607. The proposed Renewal of the 
Supplemental Procedures is fully described in Exhibit A of the Form 
19b-4.

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 Exchange 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 placed specified in 
Item IV below. The Exchange 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 purpose of the proposed Renewal of Supplemental Procedures is 
to allow the parties to agree, on a pilot basis for two years from the 
date of filing, to select arbitrators under a procedure that is an 
alternative to NYSE Rules 601 and 607. The proposed Renewal of 
Supplemental Procedures is based, in part, on rules approved by the 
Securities Industry Conference on Arbitration (``SICA'') that 
established a list selection procedure for appointment of arbitrators. 
The Supplemental Procedures are voluntary and will not be used unless 
all parties agree to them.

[[Page 54522]]

The Supplemental Procedures invite the parties to select their own 
arbitrators or agree on a procedure to select arbitrators. The 
Supplemental Procedures also suggest two ways the parties can select 
arbitrators instead of having the Exchange appoint them.
    The Exchange started an informal pilot program in July 1998 in an 
attempt to gauge the parties' interest in alternative ways to select 
arbitrators. The Exchange's Board approved a two-year pilot program for 
Supplemental Procedures for selecting arbitrators in April 6, 2000. The 
Exchange filed the Supplemental Procedure with the SEC and they became 
effective on August 1, 2000.\3\
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    \3\ Exchange Act Release No. 43214 (August 28, 2002) 65 FR 53247 
(September 1, 2000).
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NYSE Appoints Arbitrators Under Rules 601 and 607

    Under NYSE Rules 601 and 607, the Director of Arbitration appoints 
arbitrators to serve on each case. The Director generally delegates 
this task to a staff attorney. Each party has one peremptory challenge 
that allows the party to remove an arbitrator without specifying a 
reason. The parties have unlimited challenges for cause.
    In 1998, the National Association of Securities Dealers, Inc. 
(``NASD'') amended its rules to require that all arbitrators be 
appointed using a rotational list selection system. Their rule differs 
somewhat from the SICA Uniform Code and the Exchange's proposed 
Supplemental Procedures.

Voluntary Supplemental Procedures for Selecting Arbitrators

    (a) Party Agreement on Arbitrator Selection
    Under NYSE Rules, described above, the Director of Arbitration 
appoints the arbitrators, subject to the parties' challenges. The 
parties, however, may agree on an alternative way to select 
arbitrators. If all parties agree, they may select the arbitrators 
themselves or decide how they will be selected. The Exchange will 
accommodate any reasonable alternative way to select arbitrators, 
provided the parties agree. The Exchange also offers two alternative 
ways to appoint arbitrators. The following is a brief description of 
each method.
    (b) Random List Selection
    Under Random List Selection, the Exchange provides the parties with 
a list of names of arbitrators randomly generated by computer. Except 
as described below, the list will have fifteen names. Ten of the 
arbitrators will be public arbitrators as defined by NYSE Rule 
607(a)(3), and five will be securities industry arbitrators as defined 
by NYSE Rule 607(a)(2), unless the public customer or non-member 
request a panel consisting of at least a majority from the securities 
industry. If, in the determination of the Exchange, the limited size of 
the arbitrator pool in a particular city makes a list of fifteen 
impractical, the lists may be limited to nine arbitrators, six public 
arbitrators and three securities industry arbitrators. Before the 
Exchange sends the lists of the parties, it will review the 
arbitrators' profiles for obvious conflicts or relationships with the 
parties or their counsel. The Exchange will replace those with 
conflicts by having the computer randomly select the name of a 
replacement arbitrator. The parties are also provided with the 
arbitrators' biographical and disclosure information as specified in 
NYSE Rules 608 (Notice of Selection of Arbitrators).
    Within ten business days of receiving the lists, the parties may 
strike any or all of the names on the list. The parties are asked to 
number the remaining names in order of their preference (with ``1'' 
being the highest preference) and return the lists to the Exchange. If 
any arbitrator is removed from the list for cause before the expiration 
of the time within which to return the lists, the Exchange will provide 
a replacement name. The Exchange eliminates the names stricken and 
determines the ranking of the remaining names by adding the parties' 
rankings. The NYSE determines mutual preferences by adding the numbers 
assigned by each party to each arbitrator and selecting arbitrators 
with the lowest numbers first. The Exchange invites arbitrators to 
serve in order of the parties' combined preferences. In cases of a tie 
in the rankings, arbitrators will be invited to serve in alphabetical 
order.
    If the Exchange cannot assemble a panel of arbitrators from the 
parties' lists, the Exchange will provide the parties with a second 
randomly generated list of names. The second list will have three names 
for each open seat on the panel. On the second list, each party has one 
non-renewable peremptory for each vacancy on the panel. Each party is 
to number the remaining names in order of its preference. If any 
arbitrator is removed from the list for cause before the expiration of 
the time within which to return the lists, the Exchange will provide a 
replacement name. If there remains more than one name per vacancy after 
the parties have exercised their strike, the Exchange will invite 
arbitrators to serve in order of the parties' combined preferences. In 
the case of a tie, the Exchange will invite arbitrators to serve in 
alphabetical order.
    The Exchange will notify the arbitrators of their selection and 
advise the parties of any disclosures under Rule 610.
    (c) Enhanced List Selection
    The second alternative is a hybrid of Exchange Rules and Random 
List Selection. Under Enhanced List Selection, the Exchange provides 
the parties with the names and profiles of nine arbitrators, six public 
arbitrators and three securities industry arbitrators, unless the 
public customer or non-member requests a panel consisting of at least a 
majority from the securities industry. The staff attorney selects these 
arbitrators based upon their qualifications and experience. The parties 
may exercise three peremptory challenges and number, in order of their 
preference (with ``1'' being the highest preference) the remaining 
names. If the Exchange removes any arbitrator from the list for cause 
before the end of the time to return the lists, the Exchange will 
provide a replacement name. The staff attorney then invites the 
arbitrators to serve based upon the parties' combined rankings. In case 
of a tie in the rankings, the Exchange will invite arbitrators to serve 
in alphabetical order.
    If the Exchange cannot appoint a complete panel from the list, the 
staff attorney will appoint an arbitrator or arbitrators to complete 
the panel. Each party has one non-renewable peremptory challenge for 
each arbitrator the Exchange appoints. A party must use a peremptory 
challenge within ten business days of receiving notice of the 
appointment. The parties have unlimited challenges for cause.

Voluntary Pilot Program

    The Exchange does not believe a rule requiring one of the 
alternative selection methods is appropriate at this time. Since July 
of 1998, the Exchange has offered parties the opportunity to select 
arbitrators on a voluntary basis similar to those detailed above. The 
Exchange has attempted to gauge the parties' interest in using 
alternatives to appoint arbitrators. After approximately 24 months of 
offering these alternatives, less than 15 percent of the parties in 
arbitration have chosen the alternatives. The Exchange has asked the 
parties to comment on the pilot, but has had limited responses. Some 
who responded preferred greater party control over the selection of 
arbitrators afforded by list selection. Others expressed a preference 
for the value added by the participation of Exchange staff attorneys in 
selecting arbitrators. To date, the results of the pilot program have 
been inconclusive.

[[Page 54523]]

Accordingly, it is appropriate to renew the pilot program for two more 
years to allow the Exchange to collect additional information about the 
desirability of the Supplemental Procedures. The modest rate of 
acceptance leads the Exchange to recommend that the alternatives be 
continued on a voluntary basis.
1. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) \4\ of the Act in that it promotes just and 
equitable principles of trade by ensuring that members and member 
organizations and the public have a fair and impartial forum for the 
resolution of their disputes.
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    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days or such shorter time as the Commission may 
designate,\5\ the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \6\ and subparagraph (f)(6) of Rule 19b-
4 thereunder.\7\
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    \5\ The Exchange provided the Commission with the five-business 
day notice required by Rule 19b-4(f)(6) of the Act on August 2, 
2002.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
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    The Commission also notes that under Rule 19b-4(f)(6)(iii), the 
proposal does not become operative for 30 days after date of its 
filing, or such shorter time as the Commission may designate it 
consistent with the protection of investors and the public interest. 
The Exchange requests a waiver of this 30-day period for the following 
reasons. First, the Supplemental Procedures are voluntary. Second, the 
Exchange notes that it based the Supplemental Procedures on the Uniform 
Code of Arbitration developed by SICA. Finally, the Exchange notes that 
the Commission approved a similar rule change by the National 
Association of Securities Dealers, Inc. (``NASD'') that provides for a 
list selection of arbitrators.\8\ For the reasons discussed above, the 
Commission designates that the waiver of the 30-day period is 
consistent with the protection of investors and the public interest.\9\
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    \8\ See Exchange Act Release No. 40555 (October 14, 1998) 63 FR 
56670 (October 22, 1998).
    \9\ For the purposes only of accelerating the operating date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
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 NYSE. All 
submissions should refer to File No. SR-NYSE-2002-30 and should be 
submitted by September 12, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21430 Filed 8-21-02; 8:45 am]
BILLING CODE 8010-01-P