[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Notices]
[Pages 79214-79217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32738]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47025; File No. SR-NYSE-2002-59]


Self Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Pilot Programs 
for Mediation and Administrative Conferences

    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 November 4, 2002 the New York Stock Exchange, Inc. (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a proposed rule change (SR-NYSE-2002-59) as 
described in Items I, II and

[[Page 79215]]

III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule changes from interested persons. On December 18, 2002, 
the NYSE submitted Amendment No. 1 to the proposal.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19B-4.
    \3\ See letter to Florence Harmon, Senior Special Counsel, SEC, 
from Darla Stuckey, Corporate Secretary, NYSE, dated December 17, 
2002 (``Amendment No. 1''). In Amendment No. 1, the NYSE made 
technical changes to the rule text, the substance of which is 
incorporated into this notice.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to allow its pilot programs for Mediation 
and Administrative Conferences (Rules 638 and 639) to expire on 
December 30, 2002 and adopt Rules 638 and 639 as amended. The Exchange 
is also proposing amendments to Rules 628 (Agreement to Arbitrate) and 
630 (Uniform Arbitration Code) to reflect to the adoption of Rules 638 
and 639. Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *
NYSE Constitution and Rules
Rule 628. Agreement to Arbitrate
    Article XI of the Constitution and Rules 600-[637]639 shall be 
deemed a part of and be incorporated by reference in every agreement to 
arbitrate under the Constitution and Rules of the New York Stock 
Exchange, Inc.
* * * * *
Rule 630. Uniform Arbitration Code
    The provisions of the Uniform Arbitration Code contained in Rules 
600 to [637]639 shall also apply to controversies between members, 
allied members, member firms, member organizations and/or non-members 
who are not [public] customers except in so far as such provisions 
specifically apply to matters involving [public] customers.
* * * * *
Rule 638. Mediation
    (a) Mediation Pending Arbitration
    (1) [A single mediation session of up to four hours will be 
conducted in all cases submitted for arbitration where the amount of 
the claim is $250,000 or more.
    (2) The New York Stock Exchange will provide the parties with a 
mediator. The mediator's fee for the single mediation session shall be 
$500 and shall be paid by the New York Stock Exchange. If the parties 
select a mediator of their own choosing, from outside the list of 
proposed mediators, they shall be responsible for any difference in the 
mediator's fee. If the parties desire they can extend the mediation 
beyond the first session at their own expense.] If the parties agree, 
any matter submitted for arbitration at the New York Stock Exchange is 
eligible to be submitted to mediation.
    (2)[(3)] Unless the parties agree on a mediator, the Director of 
Arbitration, upon request from the parties, will send a list of five 
proposed mediators together with the mediators' biographical 
information described in Rule 608. The parties shall have ten days to 
agree on a mediator from the list or choose their own mediator. If no 
agreement is reached, the Director of Arbitration will select a 
mediator from the list unless all the names on the list are objected to 
by the parties. In that instance, the Director of Arbitration will 
appoint a mediator from outside the list.
    (3)[(4)] Unless otherwise agreed to by the parties, mediation shall 
not delay the arbitration.
    (4)[(5)] The mediation shall be confidential and no record kept of 
the proceeding. The mediator will not be permitted to act as an 
arbitrator in the same case and the mediator shall not be called to 
testify in any proceeding regarding the mediation.
    [(6) In all other matters submitted to arbitration, mediation shall 
be available upon the consent of the parties, at their own expense.] 
(b) Mediation Prior to Arbitration
    (1) If the parties agree, any matter eligible for arbitration under 
the Constitution and Rules of the New York Stock Exchange may be 
mediated at the Exchange. To begin a mediation under this paragraph, 
the parties must file with the Exchange an agreement to mediate.
    (2) At the time of filing an agreement to mediate, a party shall 
pay a non-refundable filing fee to the Exchange as required for the 
filing of an arbitration for the same amount in dispute under Rule 629 
(Schedule of Fees) unless the fee is waived by the Director of 
Arbitration. The parties are directly responsible for the payment of 
the mediator's fee.
    (3) If the case does not settle after mediation, the non-refundable 
filing fee will be applied to the non-refundable filing fee if a party 
elects to commence an arbitration.
* * * * *
Rule 639. Administrative Conferences
    [In all cases where the amount of the claim is $250,000 or more, 
the parties shall attend] Prior to the scheduling of a hearing [under 
Rule 607], an administrative conference may be scheduled at the request 
of a party, an arbitrator, or in the discretion of the Director of 
Arbitration [with the arbitrators]. [The Director of Arbitration will 
schedule t]The conference will be scheduled for a date no sooner than 
30 days after the request unless the parties agreed to a date that can 
be accommodated by the Exchange [within 90 days after the Director 
serves the Statement of Claim, unless all parties request that it be 
scheduled later]. The Administrative Conference will be [conducted] 
held by telephone [with the chairperson presiding] [and] with the 
arbitrator or a person appointed by the Director of Arbitration 
([either] an Arbitration Counsel [or an arbitrator]) [will] preside 
during the conference. In any claims involving a [public] customer, any 
arbitrator appointed will be a public arbitrator [will conduct the 
administrative conference,] unless the [public] customer demands, in 
writing, a securities arbitrator. [The chairperson shall have 
discretion to conduct the conference in-person and may request that all 
of the arbitrators attend the conference.]
    At the conference, [the Arbitrator(s) may establish a schedule for 
discovery and the hearing, issue subpoenas and direct the appearance of 
witnesses, and resolve or narrow any other issue which may expedite the 
arbitration] the presiding person will address procedural matters 
including, but not limited to, setting a schedule for discovery and the 
hearing as described in Rule 619 (d) or (e) as applicable.

[Rules 638 and 639 approved on a two-year basis through December 30, 
2002.]
* * * * *

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 places 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 Exchange's proposed rule changes are intended to: (1) Adopt a

[[Page 79216]]

rule for mediation that parties may agree to at their own expense (Rule 
638); (2) adopt an Administrative Conference rule that provides for the 
scheduling of an administrative conference at the request of the 
parties or discretion of the arbitrator(s) or Director of Arbitration; 
(3) provide that the Director may appoint a staff member or arbitrator 
to preside at the administrative conference which is to be held via 
telephone conference call and limited to procedural matters (Rule 639); 
and (4) amend Rules 628 (Agreement to Arbitrate) and 630 (Uniform 
Arbitration Code) to reflect adoption of rules 638 (Mediation) and 639 
(Administration Conferences).
    Rules 638 (Mediation) and 639 (Administrative Conferences) were 
originally approved by the Commission on a 2-year pilot basis on 
November 19, 1998.\4\ On December 29, 2000, the Commission approved 
amendments to the two pilot rules and granted a 2-year extension.\5\
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    \4\ See Securities Exchange Act Release Act 34-40695 (November 
19, 1998).
    \5\ See Securities Exchange Act Release No. 34-43785 (December 
29, 2000).
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    The Exchange is proposing to allow the pilot to expire and adopt 
Rule 638 as amended to eliminate automatic scheduling of mediation and 
the Exchange's payment of $500 toward the mediator's fee. As amended, 
Rule 638 will provide for mediation in any case where the parties 
agree, and at their own expense, either before, an arbitration is filed 
or during the pendency or an arbitration.
    The intent of the pilot mediation rule was to encourage an early 
resolution of disputes. The results have not been as good as 
anticipated. Initially, practitioners favored the pilot mediation 
program because it aided them in getting their clients to consider 
mediation, which is a process completely under the parties control. 
However, in 1999 only 41% of industry cases submitted for mediation 
settled. The percentage fell to 26% in 2000, then rose to 40% and fell 
to 38% respectively in 2001 and 2002. In addition, mediations involving 
customers, which settled at over 90% in 1999 and 2000, fell to 65% in 
2001 and just barely 50% in the first half of 2002. Recently parties 
participating in the pilot, particularly customers, have complained 
that the mediation sessions are too often used as means of obtaining 
discovery, or the opposing party appears with little or no authority to 
settle.
    Mediation works best when both parties are willing to negotiate and 
craft their own resolution rather than leaving the final determination 
to a third party, such as an arbitrator. Accordingly, the Exchange is 
proposing amending the mediation rules to provide for mediation only 
upon agreement of the parties and at their expense. The Exchange will 
continue to facilitate mediations in cases filed for arbitration 
without imposing any additional administrative fees. Parties who wish 
to mediate prior to arbitration will continue to be required to submit 
a filing fee, which will be credited toward the arbitration, if 
mediation is unsuccessful.
    As a companion to the mediation pilot, the Exchange adopted, on a 
pilot basis, Rule 639 Administrative Conferences, with the intent of 
bringing parties and arbitrators together early in the process with a 
view toward expediting the arbitration. Originally designed for claims 
of $500,000 or more, Rule 639 was amended in December 2000 and the 
ceiling lowered to $250,000. Under the pilot, an administrative 
conference was automatically scheduled shortly after the answer to the 
statement of claim was filed.
    In the time since its adoption, the administrative conference pilot 
proved to be useful in cases where the parties cooperated in pursuing a 
swift resolution of their dispute. In other cases it has become an 
abused process where parties have sought to use the conference to delay 
the process and thus defeated the original intent of the pilot.
    The Exchange is proposing to allow the pilot to expire \6\ and 
adopt Rule 639, as amended, to provide that an administrative 
conference will be scheduled only when requested by the parties or at 
the discretion of the Director of Arbitration or the arbitrator(s). The 
Director of Arbitration will appoint a member of the Exchange 
arbitration staff or an arbitrator to preside. The administrative 
conference will be conducted via conference call. The conference will 
be limited to procedural matters such as discovery and scheduling of 
the hearing. An arbitrator may issue an order at the conclusion of the 
administrative conference. If an arbitration staff member presides, he 
or she will assist the parties in reaching agreement on procedural 
issues.
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    \6\ Because this proposed rule has not yet been approved, the 
NYSE plans to file a proposed rule change to extend the pilot until 
such time as SR-NYSE-2002-59 is approved by the Commission. 
Telephone conversation between Robert S. Clemente, Director of 
Arbitration, NYSE, and Florence E. Harmon, Senior Special Counsel, 
SEC on December 9, 2002.
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    The proposed amendments to Rules 628 and 630 reflect the adoption 
of Rules 638 and 639.
2. Statutory Basis
    The Exchange believes that the proposed changes are consistent with 
Section 6(b) \7\ of the Act,\8\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles by insuring that members and member 
organizations and the public have a fair and impartial forum for the 
resolution of their disputes.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    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 a 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 changes, or
    (B) Institute proceedings to determine whether the proposed rule 
changes should be disapproved.

IV. Solicitation of Comments

    Interested person 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 (6) 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

[[Page 79217]]

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 principal office of the Exchange. All submissions should 
refer to the file number SR-NYSE-2002-59 and should be submitted by 
January 17, 2003.

    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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-32738 Filed 12-26-02; 8:45 am]
BILLING CODE 8010-01-M