[Federal Register Volume 68, Number 192 (Friday, October 3, 2003)]
[Notices]
[Pages 57496-57497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25074]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48552; File No. SR-NYSE-2003-28]


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

September 26, 2003.
    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 September 25, 2003, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by NYSE.\3\ 
NYSE filed the proposed rule change pursuant to section 19(b)(3)(A) of 
the Act \4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders the 
proposal effective upon filing with the Commission. 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.
    \3\ Commission staff made non-substantive changes to the 
description of the proposed rule change with the permission of the 
NYSE. Telephone conversation between Robert Clemente, Director--
Arbitration, NYSE, and Andrew Shipe, Special Counsel, Division of 
Market Regulation, Commission, September 26, 2003.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of an extension, until March 31, 
2004, of Rule 600(g).

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 NYSE 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 proposed rule change is intended to extend until March 31, 
2004, Rule 600(g), a pilot program that was initially approved by the 
Commission on November 12, 2002 \6\ for a six-month period, and which 
was then extended until September 30, 2003.\7\
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    \6\ Release No. 34-46816 (November 12, 2002), 67 FR 69793 
(November 19, 2002) (SR-NYSE-2002-56).
    \7\ Release No. 34-47836 (May 12, 2003), 68 FR 27608 (May 20, 
2003) (SR-NYSE-2003-16).
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    The Exchange's statement of purpose is contained in the 
Commission's Approval Order. In that Approval Order the Commission 
stated:

    The Exchange's Director of Arbitration will monitor the progress 
of the above described litigation [NASD Dispute Resolution, Inc. and 
New York Stock Exchange, Inc. v. Judicial Council of California, No. 
C 02 3485 (N.D. Cal.)] and determine whether there is a continuing 
need for the waiver option.\8\
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    \8\ Release No. 34-46816 (November 12, 2002), 67 FR 69793, 69794 
(November 19, 2002) (SR-NYSE-2002-56).

    The above litigation, in which the Exchange and NASD Dispute 
Resolution, Inc. sought a declaratory judgment that the Ethics 
Standards for Neutral Arbitrators in Contractual Arbitrations (the 
``California Standards'') are preempted by federal law, has not been 
concluded. On November 12, 2002, Judge Samuel Conti dismissed the 
action on Eleventh Amendment grounds.\9\ A Notice of Appeal from Judge 
Conti's decision has been filed with the United States Court of Appeals 
for the Ninth Circuit.\10\ The Exchange's Director of Arbitration has 
determined that, in the absence of a final judicial determination or 
legislative resolution of the preemption issue, there is a continuing 
need for the waiver option.
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    \9\ NASD Dispute Resolution, Inc. and New York Stock Exchange, 
Inc. v. Judicial Council of California, No. C 02 3485 (N.D. Cal.).
    \10\ In another district court decision, Mayo v. Dean Witter 
Reynolds, Inc., Morgan Stanley Dean Witter & Co. dba Morgan Stanley 
Dean Witter, and Does 1-50, No. C-01-20336 JF, 2003 WL 1922963 (N.D. 
Cal., April 22, 2003), Judge Jeremy Fogel held that application of 
the California Standards to the Exchange and other self-regulatory 
organizations is preempted by the Act, the comprehensive system of 
federal regulation of the securities industry established pursuant 
to the Act, and the Federal Arbitration Act. The Mayo decision was 
not appealed. Since the decision in Mayo, the question of the 
applicability of the California Standards to SROs has been presented 
in another case in federal court in California, Credit Suisse First 
Boston Corp. v. Grunwald, No. C 02-2051 SBA (N.D. Cal. Mar. 31, 
2003). The Grunwald court concluded that the California Standards 
cannot apply to SRO-appointed arbitrators because such arbitrators 
do not fall within the statutory definition of ``neutral 
arbitrators.'' The appeal in Grunwald is fully briefed, and the 
Ninth Circuit is considering it on an expedited basis. The 
Commission and the Judicial Council submitted amicus briefs in the 
Ninth Circuit, and NASD Dispute Resolution and NYSE have moved to 
intervene on appeal. The appeal from Judge Conti's decision in NASD 
Dispute Resolution, Inc. and New York Stock Exchange, Inc. v. 
Judicial Council of California is currently stayed pending a 
decision in Grunwald.
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2. Statutory Basis
    The Exchange states that the proposed changes are consistent with 
section 6(b)(5) of the Act \11\ 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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    \11\ 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

    The NYSE has stated that because the proposed rule change does not: 
(i) Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days (or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest), it has become effective pursuant to section 
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ At any 
time within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate the rule change if it appears to the 
Commission that the action is necessary or appropriate in the public

[[Page 57497]]

interest, for the protection of investors, or would otherwise further 
the purposes of the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\14\ the proposal 
may not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, and the self-
regulatory organization must file notice of its intent to file the 
proposed rule change at least five business days beforehand. The 
Exchange has requested that the Commission waive the five-day pre-
filing requirement and the 30-day operative delay so that the proposed 
rule change will become immediately effective upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\15\ Waiving the pre-
filing requirement and accelerating the operative date will merely 
extend a pilot program 1 that is designed to provide investors with a 
mechanism to resolve disputes with broker--dealers. During the period 
of this extension, the Commission and NYSE will continue to monitor the 
status of the previously discussed litigation. For these reasons, the 
Commission designates the proposed rule change as effective and 
operative immediately.
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    \15\ For purposes of accelerating the operative 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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IV. Solicitation of Comments

    Interested persons 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 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. NYSE-2003-28 and should 
be submitted by October 24, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25074 Filed 10-2-03; 8:45 am]
BILLING CODE 8010-01-P