[Federal Register Volume 68, Number 228 (Wednesday, November 26, 2003)]
[Notices]
[Pages 66521-66523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29576]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48806; File No. SR-PCX-2003-61]


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

November 19, 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 October 30, 2003, the Pacific Exchange, Inc. (``PCX'' 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 PCX. PCX 
filed the proposed rule change pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. On November 12, 2003, the 
Exchange filed Amendment No. 1 to the proposed rule change.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 217 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ See letter from Tanya Cho, Staff Attorney, Regulatory 
Policy, Exchange, to Nancy Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated November 12, 2003. Amendment 
No. 1 made non-substantive corrections to PCX's original Form 19b-4 
filing.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange and its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE'') are proposing to extend the pilot rule in PCX Rule 12.1, 
Commentary .02 and PCXE Rule 12.2(h), which requires industry parties 
in arbitration to waive application of contested California arbitrator 
disclosure standards, upon the request of customers (and, in industry 
cases, upon the request of associated persons with claims of statutory 
employment discrimination), for an additional six-month pilot period.

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 PCX 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
    On November 21, 2002, the Commission approved, for a six-month 
pilot period, the Exchange's proposal to amend PCX and PCXE arbitration 
rules to require industry parties in arbitration to waive application 
of contested California arbitrator disclosure standards, upon the 
request of customers or, in employment discrimination cases, upon the 
request of associated persons.\6\ The Commission approved an extension 
of the pilot period on May 15, 2003.\7\ The pilot period is currently 
set to expire on November 22, 2003.
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    \6\ See Exchange Act Release No. 46881 (November 21, 2002), 67 
FR 71224 (November 29, 2002) (Order approving SR-PCX-2002-71).
    \7\ See Exchange Act Release No. 47872 (May 15, 2003), 68 FR 
28869 (May 27, 2003) (Order approving SR-PCX-2003-22).
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    On July 1, 2002, the Judicial Council of the State of California 
adopted new rules that mandated extensive disclosure requirements for 
arbitrators

[[Page 66522]]

in California (the ``California Standards''). The California Standards 
are intended to address perceived conflicts of interest in certain 
commercial arbitration proceedings. As a result of the imposition of 
the California Standards on arbitrations conducted under the auspices 
of self-regulatory organizations (``SROs''), the National Association 
of Securities Dealers, Inc. (``NASD'') and the New York Stock Exchange 
(``NYSE'') suspended the appointment of arbitrators for cases pending 
in California, and filed a joint complaint in federal court for 
declaratory relief in which they contend that the California Standards 
cannot lawfully be applied to NASD and NYSE because the California 
Standards are preempted by federal law and are inapplicable to SROs 
under state law.\8\ Subsequently, in the interest of continuing to 
provide investors with an arbitral forum in California pending the 
resolution of the applicability of the California Standards, the NASD 
and NYSE filed separate rule proposals with the Commission that would 
temporarily require their members to waive the California Standards if 
all non-member parties to arbitration have done so. The Commission 
approved the NASD's rule proposal on September 26, 2002\9\ and the 
NYSE's rule proposal on November 12, 2002.\10\ Both the NASD and the 
NYSE recently filed rule proposals to further extend the pilot period 
for an additional six months.\11\
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    \8\ See NASD Dispute Resolution, Inc. v. Judicial Council of 
California, 232 F. Supp. 2d 1055 (N.D. Cal. 2002), Notice of Appeal 
filed December 12, 2002, available on the NASD Web site at: http://www.nasdadr.com/pdf-text/ca_appeal_notice.pdf.
    \9\ See Exchange Act Release No. 46562 (September 26, 2002), 67 
FR 62085 (October 3, 2002) (Order approving SR-NASD-2002-126). 
Thereafter, the pilot period was extended to September 30, 2003. See 
Exchange Act Release No. 48187 (July 16, 2003), 68 FR 43553 (July 
23, 2003) (Order approving SR-NASD-2003-106).
    \10\ See Exchange Act Release No. 46816 (November 12, 2002), 67 
FR 69793 (November 19, 2002) (Order approving SR-NYSE-2002-56). 
Thereafter, the pilot period was extended to September 30, 2003. See 
Exchange Act Release No. 47836 (May 12, 2003), 68 FR 27608 (May 20, 
2003) (Order approving SR-NYSE-2003-16).
    \11\ See Exchange Act Release No. 48553 (September 26, 2003), 68 
FR 57494 (October 3, 2003) (Order approving SR-NASD-2003-144) and 
Exchange Act Release No. 48552 (September 26, 2003), 68 FR 57496 
(October 3, 2003) (Order approving SR-NYSE-2003-28).
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    Since the NASD's and NYSE's lawsuit relating to the application of 
the California Standards has not been resolved, PCX is now requesting 
an extension of the pilot for an additional six months (or until the 
pending litigation has resolved the question of whether or not the 
California Standards apply to SROs).\12\ PCX requests that the pilot be 
extended for six months beginning on November 23, 2003. The extension 
of time permits the Exchange to continue the arbitration process using 
PCX rules regarding arbitration disclosures and not the California 
Standards. No substantive changes are being made to the pilot program, 
other than extending the operation of pilot program.
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    \12\ See also Mayo v. Dean Witter Reynolds, Inc. et. al., 258 F. 
Supp. 2d 1097 (N.D. Cal. 2003) in which the District Court for the 
Northern District of California held that the California Standards, 
at least as applied to SROs, are preempted by federal law. As this 
decision was rendered on April 22, 2003, it is still subject to 
appeal.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6(b)(5) of the Act,\13\ in that it is 
designed to 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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    \13\ 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    PCX has designated the proposed rule change as one that: (i) Does 
not significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate. 
Therefore, the foregoing rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\ 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 interest, for the protection of investors, or 
would otherwise further the purposes of the Act.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\16\ 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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    \16\ 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.\17\ Waiving the pre-
filing requirement and accelerating the operative date will merely 
extend a pilot program that is designed to provide investors with a 
mechanism to resolve disputes with broker-dealers. During the period of 
this extension, the Commission and the Exchange 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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    \17\ 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 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 the Exchange. All

[[Page 66523]]

submissions should refer to File No. SR-PCX-2003-61 and should be 
submitted by December 17 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29576 Filed 11-25-03; 8:45 am]
BILLING CODE 8010-01-P