[Federal Register Volume 67, Number 205 (Wednesday, October 23, 2002)]
[Notices]
[Pages 65163-65164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26887]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46666; File No. SR-MSRB-2002-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of the Proposed Rule Change Relating to 
Arbitration

October 16, 2002.
    On August 19, 2002, pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ 
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 relates to MSRB Rule G-35, on arbitration.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The Commission published the proposed rule change for comment in 
the Federal Register, September 9, 2002.\3\ The Commission did not 
receive any comment letters relating to the forgoing proposed rule 
change.
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    \3\ See Release No. 34-46440 (August 30, 2002), 67 FR 57255.
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I. Description of the Proposed Rule Change

    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 (the ``1997 amendments'').\4\ 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,\5\ 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. Furthermore, the 1997 amendments 
required that bank dealers abide by the NASD's Code as if they were 
``members'' of the NASD for purposes of arbitration.
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    \4\ File No. SR-MSRB-1997-04, approved in Release No. 34-39378 
(Dec. 1, 1997).
    \5\ 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.
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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 submitted 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-1997-04 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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    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

[[Page 65164]]

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.

II. Summary of Comments

    The Commission did not receive any comment letters addressing the 
MSRB's proposed rule change.

III. Discussion

    The Commission must approve a proposed MSRB rule change if the 
Commission finds that the proposal is consistent with the requirements 
set forth under the Act and the rules and regulations thereunder, which 
govern the MSRB.\9\ The language of Section 15B(b)(2)(C) of the Act 
requires that the MSRB's rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principals of trade, to foster cooperation and coordination with 
persons engaged in regulating, settling, processing information with 
respect to, and facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market in 
municipal securities, and, in general, to protect investors and the 
public interest.\10\
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    \9\ Additionally, in approving this rule, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-4(b)(2)(C).
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    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.
    After careful review, the Commission finds that the MSRB's proposed 
rule change relating to Rule G-35, on arbitration, meets the requisite 
statutory standard. The Commission believes that this proposed rule 
change is consistent with the requirements of the Act, and the rules 
and regulations thereunder. In addition, the Commission finds that the 
proposed rule is consistent with the requirements of section 
15B(b)(2)(C) of the Act, as set forth above.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Exchange Act,\11\ that the proposed rule change (File No. SR-MSRB-2002-
09) be and hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26887 Filed 10-22-02; 8:45 am]
BILLING CODE 8010-01-P