[Federal Register Volume 69, Number 68 (Thursday, April 8, 2004)]
[Notices]
[Pages 18661-18663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7969]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49521; File No. SR-NYSE-2004-18]


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

April 2, 2004.
    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 March 24, 2004, 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 and II 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 conversations between Daniel Beyda, Vice President--
Arbitration and Hearing Board, NYSE, and Andrew Shipe, Special 
Counsel, Division of Market Regulation, Commission, April 1, 2004.
    \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 September 
30, 2004, of NYSE Rule 600(g), relating to arbitration.

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 September 30, 
2004, NYSE Rule 600(g), a pilot program that was most recently extended 
for a six-month period ending March 31, 2004.\6\
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    \6\ Release No. 34-48552 (September 26, 2003), 68 FR 57496 
(October 3, 2003) (SR-NYSE-2003-28).
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    NYSE Rule 600(g) states:
    This paragraph applies to the Ethics Standards for Neutral 
Arbitrators in

[[Page 18662]]

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:
     Request the Director to appoint arbitrators and 
schedule a hearing outside California, or
     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.
    According to the NYSE, Rule 600(g) was adopted by the Exchange in 
response 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.\7\ The 
Exchange states that on July 1, 2002, as a result of the purported 
application of the Ethics Standards for Neutral Arbitrators in 
Contractual Arbitrations (the ``California Standards'') to Exchange 
arbitrations and arbitrators, the Exchange suspended the appointment of 
arbitrators for cases pending in California. The Exchange and NASD 
Dispute Resolution, Inc. sought a declaratory judgment that the 
California Standards are pre-empted by federal law. On November 12, 
2002, Judge Samuel Conti dismissed the action on Eleventh Amendment 
grounds.\8\ A Notice of Appeal from Judge Conti's decision has been 
filed with the United States Court of Appeals for the Ninth Circuit.\9\ 
The Exchange has determined that, in the absence of a final judicial 
determination or legislative resolution of the pre-emption issue, there 
is a continuing need for the waiver option provided by Rule 600(g).
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    \7\ Release No. 34-46816 (November 12, 2002); 67 FR 69793 
(November 19, 2002) (SR-NYSE-2002-56).
    \8\ NASD Dispute Resolution, Inc. and New York Stock Exchange, 
Inc. v. Judicial Council of California, No. C 02 3485 (N.D. Cal.).
    \9\ 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. Apr. 22, 2003), Judge Jeremy Fogel held that application of the 
California Standards to the Exchange and other self-regulatory 
organizations (``SROs'') 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 (``FAA''). 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 has been fully 
briefed and argued, 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 
the Exchange were permitted to submit an amicus brief. 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. NASD Dispute 
Resolution and the Exchange also submitted an amicus brief in Jevne 
v. Superior Court, 6 Cal. Rptr. 3d 542, 113 Cal. App. 4th 486 (2d 
Dist. 2003), in which the California Court of Appeal held that the 
Judicial Council acted within its authority in drafting the 
California Standards, that the California Standards are not pre-
empted by the FAA, but that they are pre-empted by the Act. On March 
17, 2004, the California Supreme Court granted review in Jevne, and 
NASD Dispute Resolution and the Exchange have moved to intervene on 
appeal or, in the alternative, for leave to file an amicus brief 
with the California Supreme Court.
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2. Statutory Basis
    The Exchange states that the proposed changes are consistent with 
Section 6(b)(5) of the Act \10\ 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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    \10\ 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 \11\ and Rule 19b-4(f)(6) thereunder.\12\ 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 otherwise in furtherance 
of the purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\13\ 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 SRO 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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    \13\ 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.\14\ Waiving the pre-
filing requirement and accelerating the operative date will merely 
extend a pilot program that is designed to inform aggrieved parties 
about their options regarding mechanisms that are available for 
resolving 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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    \14\ For purposes only 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

[[Page 18663]]

Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. Comments should be submitted electronically 
at the following e-mail address: [email protected]. All comment 
letters should refer to File No. SR-NYSE-2004-18. This file number 
should be included on the subject line if e-mail is used. To help the 
Commission process and review your comments more efficiently, comments 
should be sent in hard copy or by e-mail but not by both methods. 
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 1 office of the 
NYSE. All submissions should refer to File No. SR-NYSE-2004-18 and be 
submitted by April 29, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-7969 Filed 4-7-04; 8:45 am]
BILLING CODE 8010-01-P