[Federal Register Volume 67, Number 223 (Tuesday, November 19, 2002)]
[Notices]
[Pages 69793-69794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29313]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46816; File No. SR-NYSE-2002-56]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Inc., Relating to Arbitration

November 12, 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 October 30, 2002, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange.\3\ On November 8, 2002, the NYSE filed Amendment No. 1 to the 
proposed rule change.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons. 
For the reasons described below, the Commission is granting accelerated 
approval to the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission corrected a typographical error, and added a 
reference to define the duration of the proposed pilot period, to 
the description of the proposed rule change, with the consent of the 
Exchange. Telephone conversation between Robert S. Clemente, 
Director of Arbitration, NYSE, and Andrew Shipe, Special Counsel, 
Division of Market Regulation, Commission, (November 7, 2002).
    \4\ Amendment No. 1 made technical edits to the proposed rule 
text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange hereby proposes to amend Rule 600 relating to 
arbitrations for a six-month pilot period. During this six-month pilot 
period, the amendment to Rule 600 will require industry parties in 
arbitration to waive application of the California arbitrator 
disclosure standards upon the request of customers that have waived the 
application. The amendment will also require industry parties in 
arbitration to waive application of the California arbitrator 
disclosure standards upon the request of associated persons. Below is 
the text of the proposed rule change, as well as the text of two forms 
relating to the waiver procedures that the Exchange proposes to 
distribute pursuant to the terms of the proposed rule change. Proposed 
new language is italicized.
* * * * *

New York Stock Exchange, Inc.

Constitution and Rules

* * * * *

Arbitration

* * * * *

Rule 600

    (g) This paragraph applies to the Ethics Standards for Neutral 
Arbitrators in Contractual Arbitrations promulgated by the Judicial 
Council of California (the ``California Standards''), which, were they 
to have effect in connection with arbitrations conducted pursuant to 
this Code, would conflict with this Code.
    In light of this conflict, the affected customer(s) or an 
associated person of a member or member organization who asserts a 
claim against the member or member organization with which she or he is 
associated may:
    [sbull] Request the Director to appoint arbitrators and schedule a 
hearing outside California, or
    [sbull] Waive the California Standards and request the Director to 
appoint arbitrators and schedule a hearing in California. A written 
waiver by a customer or associated person who asserts a claim against 
the member or member organization with which he or she is associated on 
a form provided by the Director of Arbitration under this Code shall 
also constitute and operate as a waiver for all other parties to the 
arbitration who are members, allied members, member organizations, and/
or associated persons of a member or member organization.
* * * * * *

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.\5\ 
The text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.
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    \5\ The discussion in this section represents the NYSE's views 
on the situation in California and does not in any way represent a 
Commission position on this issue.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change is intended to provide options to 
customers and associated persons in California whose claims in 
arbitration cannot proceed because of the state's adoption of a law, 
and the Ethics Standards for Neutral Arbitrators in Contractual 
Arbitration (``the California Standards'') promulgated thereunder, that 
purport to apply to arbitrations conducted pursuant to Exchange rules. 
The California Standards, were they to have effect, would conflict with 
the Exchange's arbitration rules.
    The proposed amendment to Rule 600 responds to the purported 
imposition of California state law on arbitrations conducted under the 
auspices of the Exchange and pursuant to a set of nationally-applied 
rules approved by the Commission. On July 1, 2002, as a result of the 
purported application to Exchange arbitrations and arbitrators of the 
California Standards, the Exchange suspended the appointment of 
arbitrators for cases pending in California. The Exchange, along with 
NASD Dispute Resolution, Inc. (the ``NASD''), is seeking a judgment in 
the United States District Court for the Northern District of 
California declaring that the California Standards are preempted by the 
Act and the Federal Arbitration Act. The SEC has sought leave to appear 
as a friend of the court (``amicus curiae'') in the litigation and has 
submitted a brief that argues that the California Standards are 
preempted by the Act and by the Federal Arbitration Act.\6\
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    \6\ See Brief of the Securities and Exchange Commission, Amicus 
Curiae, in Support of Plaintiffs' Motion for Declaratory Judgment, 
NASD Dispute Resolution, Inc. and New York Stock Exchange, Inc. v. 
Judicial Council of California, No. C 02 3486 SBA (N.D. Cal.). The 
brief is available on the SEC Web site at: http://www.sec.gov/litigation/briefs/nasddispute.pdf.
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    Shortly after filing the declaratory judgment action, the Exchange 
began to offer customers the option to have their cases heard outside 
of California. This proposed amendment enables the Exchange to offer 
customers in California the additional option of having their cases 
heard in California if they choose to waive application of the 
California Standards.
    In disputes between a customer and a member, allied member, member 
organization, and/or associated person

[[Page 69794]]

of a member or member organization, customers affected by the 
conflicting California Standards may elect to either have the 
arbitration hearing in another state, or waive the California Standards 
and have the hearing in California. The customer's waiver operates to 
waive the California Standards for any other party who is a member, 
allied member, member organization, and/or associated person of a 
member or member organization. Under the proposed amendment, the 
Exchange would also offer the waiver option to an associated person of 
a member or member organization who asserts a claim against the member 
or member organization with which she or he is associated. The Exchange 
is proposing that Rule 600(g) be adopted as a six-month pilot 
amendment, from November 12, 2002 to May 12, 2003,\7\ during which 
period the Exchange's Director of Arbitration will monitor the progress 
of the above-described litigation and determine whether there is a 
continuing need for the waiver option.
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    \7\ The Commission adjusted the proposed pilot period based on 
the date that the Commission approved the proposed rule change. 
Telephone conversation between Robert S. Clemente, Director of 
Arbitration, NYSE, and Florence Harmon, Senior Special Counsel, 
Division of Market Regulation, Commission, (November 8, 2002).
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    Customers or associated persons who requested, between July 1, 2002 
and the effective date of this proposed rule, that a hearing be held 
outside of California, but have not had arbitrators appointed, may 
choose to sign the waiver, which will void their previous request for a 
hearing outside of California. Customers or associated persons who 
elect, after the effective date of this proposed rule, to have a 
hearing held outside of California may not subsequently rescind that 
choice.
    The Exchange will notify parties (and their representatives, if 
any) who currently are awaiting the appointment of arbitrators in 
California of the terms of this new rule upon its approval by the 
Commission, and will provide them with the waiver forms.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with the objectives of section 6(b)(5) of the Act,\8\ in that they 
promote 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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    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NYSE 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

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

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 NYSE. All submissions 
should refer to File No. NYSE-2002-56 and should be submitted by 
December 10, 2002.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, the requirements of section 6 of the Act.\9\ 
Specifically, the Commission finds that the proposal is consistent with 
section 6(b)(5) of the Act, which requires that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, as well as to remove impediments to and perfect 
the mechanism of a free and open market, and, in general, to protect 
investors and the public interest.\10\ The Commission further finds 
good cause for approving the proposed rule change prior to the 30th day 
after the date of publication of notice thereof in the Federal 
Register. Accelerated approval is necessary to protect investors in 
that the rules are designed to help address the backlog of cases 
created by the confusion over the new California Standards, are 
designed to provide them with a mechanism to help resolve their 
disputes with broker-dealers in a more expedited manner, and are 
designed to help ensure the certainty and finality of arbitration 
awards. Additionally, the proposed rule change will become effective as 
a pilot program for six months, from November 12, 2002 to May 12, 2003, 
during which time the Commission and NYSE will monitor the status of 
the previously discussed litigation.
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    \9\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-2002-56) is hereby 
approved on an accelerated basis through May 12, 2003.
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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. 02-29313 Filed 11-18-02; 8:45 am]
BILLING CODE 8010-01-P