[Federal Register Volume 67, Number 174 (Monday, September 9, 2002)]
[Notices]
[Pages 57255-57256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46440; File No. SR-MSRB-2002-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change Relating to Arbitration

August 30, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ 15 U.S.C. 78s(b)(1),\2\ notice is hereby given that 
on August 19, 2002, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change (File No. 
SR-MSRB-2002-09). The proposed rule change is described in Items I, II, 
and III below, which Items have been prepared by the Board. 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

    The Board is filing herewith a proposed rule change relating to 
arbitration. Below is the text of the proposed rule change. Proposed 
new language is italicized; proposed deletions are in brackets.
Rule G-35. Arbitration
    [Every broker, dealer and municipal securities shall be subject to 
the Arbitration Code set forth herein.
    Arbitration Code]
    Section 1 through Section 37. Deleted.
    [Section 38.] Arbitration Involving Bank Dealers.
    As of January 1, 1998, every bank dealer (as defined in rule D-8) 
shall be subject to the Code of Arbitration Procedure of the National 
Association of Securities Dealers, Inc. (``NASD'') for every claim, 
dispute or controversy arising out of or in connection with the 
municipal securities activities of the bank dealer acting in its 
capacity as such. For purposes of this rule, each bank dealer shall be 
subject to, and shall abide by, the NASD's Code of Arbitration 
Procedure, including any amendments thereto, as if the bank dealer were 
a ``member'' of the NASD.
Rule A-16. Arbitration Fees and Deposits
    Rescinded
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for the Proposed Rule Change

    In its filing with the Commission, the MSRB 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 
texts of these statements may be examined at the places specified in 
Item IV below. The MSRB 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

    (a) In 1997, the MSRB amended Rule G-35, on arbitration, to provide 
that it would not accept any new arbitration claims filed on or after 
January 1, 1998

[[Page 57256]]

(the ``1997 amendments'').\3\ The MSRB noted that any customer or 
securities dealer with a claim, dispute or controversy against a 
broker, dealer or municipal securities dealer (``dealer'') involving 
its municipal securities activities may submit that claim to the 
arbitration forum of any self-regulatory organization (``SRO'') of 
which the dealer is a member, including the National Association of 
Securities Dealers, Inc. (``NASD''). Bank dealers, however, are unique 
in that they are subject to the MSRB's rules but are not members of any 
other SRO. Thus, it was necessary to provide an alternative arbitration 
forum for claims involving the municipal securities activities of bank 
dealers. The 1997 amendments accomplished this by providing that as of 
January 1, 1998 every bank dealer, as defined in Rule D-8,\4\ shall be 
subject to the NASD's Code of Arbitration Procedure (the ``NASD's 
Code'') for every claim, dispute or controversy arising out of or in 
connection with the municipal securities activities of the bank dealer 
acting in its capacity as such. The 1997 amendments further required 
that bank dealers abide by the NASD's Code as if they were ``members'' 
of the NASD for purposes of arbitration. However, the enforcement 
mechanism for bank dealers was not altered by the amendments; the bank 
regulatory agencies continue to be responsible for the inspection and 
enforcement of bank dealers' municipal securities activities, including 
arbitration.\5\
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    \3\ File No. SR-MSRB-97-04, approved in Release No. 34-39378 
(Dec. 1, 1997).
    \4\ Rule D-8 defines ``bank dealer'' to mean a municipal 
securities dealer which is a bank or a separately identifiable 
department or division of a bank as defined in Rule G-1.
    \5\ Thus, for example, a bank dealer's refusal to submit to 
arbitration pursuant to the NASD's Code, or a bank dealer's failure 
to pay an arbitration award rendered pursuant to that Code, would 
constitute a violation of MSRB Rule G-35 since it is this rule that 
subjects bank dealers to the NASD's Code.
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    At the time of the 1997 amendments, the MSRB stated that it would 
``continue to operate its program in order to administer its current, 
open cases and any new claims received prior to January 1, 1998, but 
will discontinue administering its arbitration program when all such 
cases have been closed.''\6\ The MSRB further stated that, at such 
time, it would submit a filing to the Commission to delete Sections 1 
through 37 of Rule G-35, and rescind Rule A-16, on arbitration fees and 
deposits.\7\ On May 14, 2002, the MSRB transferred its final, open 
arbitration case to the NASD. There are no further arbitration cases 
pending before the MSRB. Accordingly, the MSRB is submitting the 
proposed rule change to delete Sections 1 through 37 of Rule G-35, on 
arbitration, and to rescind Rule A-16, on arbitration fees and 
deposits. The proposed rule change also incorporates by reference into 
Rule G-35 changes to the NASD's Code.\8\ The MSRB notes that any 
customer or securities dealer with a claim, dispute or controversy 
against a bank dealer involving its municipal securities activities may 
continue to submit that claim to the NASD's arbitration program.
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    \6\ File No. SR-MSRB-97-04 at page 2.
    \7\ Id. at page 3.
    \8\ In April 2002, at the request of the SEC's Division of 
Market Regulation, the MSRB requested that, pursuant to Section 36 
of the Act and Rule 0-12 thereunder, the SEC grant an exemption from 
the requirements of Section 19(b) of the Act and Rule 19b-4 
thereunder to allow the MSRB to incorporate by reference into Rule 
G-35 any changes to the NASD's Code without requiring that the MSRB 
submit a separate filing for each such change. See letter from Diane 
G. Klinke, General Counsel, MSRB, to Jonathan G. Katz, Secretary, 
SEC, dated April 4, 2002.
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    (b) The MSRB has adopted the proposed rule change pursuant to 
Section 15B(b)(2)(C) and (D) of the Act, which provide that the MSRB's 
rules shall:

be designed * * *, in general, to protect investors and the public 
interest * * * [and] if the Board deems appropriate, provide for the 
arbitration of claims, disputes, and controversies relating to 
transactions in municipal securities * * *.

    As noted in the 1997 amendments, the MSRB deems it no longer 
appropriate to administer an arbitration program. All non-bank dealers 
engaged in municipal securities activities are members of the NASD, and 
the NASD's arbitration program is available to those dealers and their 
customers for any claim, dispute or controversy arising out of, or in 
connection with, the municipal securities activities of such dealers. 
The MSRB believes that the proposed rule change provides for the 
protection of investors and the public interest including those 
investors who wish to pursue arbitration claims against bank dealers in 
connection with their municipal securities activities by ensuring that 
there is an arbitration forum available (i.e., the NASD arbitration 
program) for such claims.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act since it would continue to subject bank 
dealers to the NASD's Code of Arbitration Procedure in connection with 
their municipal securities activities. Non-bank dealers already are 
subject to the NASD's Code by virtue of being NASD members.

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 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 
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 submissions, 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 the filing will also be available for 
inspection and copying at the Board's offices. All submissions should 
refer to File No. SR-MSRB-2002-09 and should be submitted by September 
30, 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. 02-22770 Filed 9-6-02; 8:45 am]
BILLING CODE 8010-01-P