[Federal Register Volume 69, Number 72 (Wednesday, April 14, 2004)]
[Notices]
[Pages 19887-19890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8444]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49545; File No. SR-NASD-2003-164]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 by the National Association of 
Securities Dealers, Inc. Relating to the Adjournment of a Hearing 
Within Three Business Days of the First Scheduled Hearing Session A

April 8, 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 November 4, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') through its wholly owned subsidiary, 
NASD Dispute Resolution, Inc. (``NASD Dispute Resolution''), 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 NASD. On March 5, 2004, NASD filed 
Amendment No. 1 to the proposed rule change.\3\ On April 1, 2004, NASD 
filed Amendment No. 2 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter dated March 5, 2004 from Mignon McLemore, 
Counsel, NASD Dispute Resolution, to Katherine England, Assistant 
Director, Division of Market Regulation.
    \4\ See letter dated April 1, 2004 from Mignon McLemore, 
Counsel, NASD Dispute Resolution, to Katherine England, Assistant 
Director, Division of Market Regulation.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD Dispute Resolution is proposing to amend NASD IM-10104, Rule 
10306, and Rule 10319 of the NASD Code of Arbitration Procedure 
(``Code'') of the NASD, to impose a fee on parties of $100 and to 
compensate arbitrators in the event a hearing is adjourned within three 
business days before a scheduled hearing session. Below is the text of 
the proposed rule change. Proposed new language is in italics; proposed 
deletions are in [brackets].
* * * * * *

IM-10104. Arbitrators' Honorarium

    All persons selected to serve as arbitrators pursuant to the 
Association's Code of Arbitration Procedure shall be paid an honorarium 
for each hearing session (including a prehearing conference) in which 
they participate.
    The honorarium shall be $200 for each hearing session[, $50 for 
travel to a canceled hearing,] and $75 per day additional honorarium to 
the chairperson of the panel. The honorarium for a case not requiring a 
hearing shall be $125.
    The honorarium for travel to a canceled hearing session shall be 
$50. If a hearing session other than a prehearing conference is 
adjourned pursuant to Rule 10319(d), each arbitrator shall receive an 
additional honorarium of $100.

10306. Settlements

    (a) Parties to an arbitration may agree to settle their dispute at 
any time.
    (b) If the parties agree to settle their dispute, they will remain 
responsible for payment of fees incurred, including fees for previously 
scheduled hearing sessions and fees incurred as a result of 
adjournments, pursuant to Rule 10319.
    [(b)] (c) The terms of a settlement agreement do not need to be 
disclosed to the Association. However, [the parties will remain 
responsible for payment of fees incurred, including fees for previously 
scheduled hearing sessions. If] if the parties fail to agree on the 
allocation of outstanding fees, the fees shall be divided equally among 
all parties.

10319. Adjournments

    (a) The arbitrator(s) may, in their discretion, adjourn any 
hearing(s) either upon their own initiative or upon the request of any 
party to the arbitration.
    (b) If an adjournment requested by a party is granted after 
arbitrators have been appointed, the party requesting the adjournment 
shall pay a fee equal to the initial deposit of hearing session fees 
for the first adjournment and twice the initial deposit of hearing 
session fees, not to exceed $1,500, for a second or subsequent 
adjournment requested by that party. The arbitrators may waive these 
fees in their discretion. If more than one party requests the 
adjournment, the arbitrators shall

[[Page 19888]]

allocate the fees among the requesting parties.
    (c) Upon receiving a third request consented to by all parties for 
an adjournment, the arbitrator(s) may dismiss the arbitration without 
prejudice to the Claimant filing a new arbitration.
    (d) If an adjournment request is made by one or more parties and 
granted within three business days before a scheduled hearing session, 
the party or parties making the request shall pay an additional fee of 
$100 per arbitrator. If more than one party requests the adjournment, 
the arbitrators shall allocate the $100 per arbitrator fee among the 
requesting parties. The arbitrators may allocate all or portion of the 
$100 per arbitrator fee to the non-requesting party or parties, if the 
arbitrators determine that the non-requesting party or parties caused 
or contributed to the need for the adjournment. In the event that a 
request results in the adjournment of consecutively scheduled hearing 
sessions, the additional fee will be assessed only for the first of the 
consecutively scheduled hearing sessions. In the event that an 
extraordinary circumstance prevents a party or parties from making a 
timely adjournment request, arbitrators may use their discretion to 
waive the fee, provided verification of such circumstance is received.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD 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. NASD 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
    NASD Dispute Resolution proposes to amend NASD IM-10104, Rule 
10306, and Rule 10319 of the Code to impose a fee of $100 per 
arbitrator on parties and to compensate arbitrators in the event a 
hearing is adjourned within three business days before a scheduled 
hearing session.

Background

    The NASD Code has several provisions dealing with postponements and 
cancellations of hearings (both situations are included in the term 
``adjournments''). Rule 10319(b) requires parties to pay fees for first 
and subsequent adjournments; Rules 10332(f) and 10205(f) provide for 
the forfeiture of the initial hearing deposit for matters that are 
settled or withdrawn within eight business days of the first scheduled 
hearing session (other than a prehearing conference); and Rules 
10332(g) and 10205(g) provide that matters that are settled or 
withdrawn after the commencement of the first hearing session (which 
may include a prehearing conference) are subject to assessment of forum 
fees for hearings held or scheduled within eight business days after 
NASD receives notice of the settlement or withdrawal.
    Over the past 13 years, NASD has taken several steps to address the 
delays caused by adjournments. In 1990, NASD proposed \5\ and the SEC 
approved \6\ an amendment to the Code to increase the adjournment fee 
and establish a timeframe by which an arbitration case could be settled 
or withdrawn without parties' forfeiting their hearing session deposit. 
In one provision, NASD proposed to increase the adjournment fee from 
$100 to an amount equal to the initial hearing session deposit, because 
it found that ``adjournments [were] the single most significant cause 
of delays in resolving disputes and result[ed] in the lengthening of 
the overall processing time for arbitration cases.''\7\ In another 
provision, NASD proposed that if a case were settled or withdrawn 
within eight business days of the first scheduled hearing session, NASD 
would retain the initial hearing session deposit.\8\ NASD expected 
these changes to ``reduce delays by discouraging frivolous requests for 
adjournments in the arbitration process and to encourage more efficient 
use of this process by parties to arbitration proceedings.''\9\ In 
2001, in an effort to ensure that the adjournment fees would operate as 
a deterrent to repeated adjournment requests, NASD amended Rule 
10319(b) to increase the cap for second or subsequent adjournments from 
$1,000 to $1,500.\10\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Rel. No. 27900 (April 12, 1990), 
55 FR 15048 (April 20, 1990) (File No. 90-3).
    \6\ See Securities Exchange Act Rel. No. 28086 (June 1, 1990), 
55 FR 23493 (June 8, 1990) (File No. 90-3).
    \7\ See Rel. No. 28086 at 23494.
    \8\ See Rel. No. 27900 at 15052.
    \9\ See Rel. No. 28086 at 23494.
    \10\ See Securities Exchange Act Rel. No. 44573 (July 18, 2001), 
66 FR 38773 (July 25, 2001) (File No. 2001-21).
---------------------------------------------------------------------------

    These Code provisions have not had the expected impact on curbing 
adjournment requests, particularly those requested at the last minute. 
NASD has found that parties often seek to adjourn scheduled hearing 
sessions on short notice for various reasons, which may include 
scheduling conflicts of parties or their counsel, ongoing settlement 
discussions, or unrelated matters.
    The issue of last minute hearing cancellations was raised as a 
concern by arbitrators at each of the regional arbitrator focus groups 
held by NASD Dispute Resolution in 2001 and 2002. Arbitration hearing 
dates are scheduled often months in advance and arbitrators, once 
assigned to hear a case, must reserve those dates. Thus, if a party 
requests that a hearing be adjourned at the last minute, the 
arbitrators lose not only the time that they spent preparing for the 
hearing and the honoraria from the adjourned hearing (or series of 
hearings), but also other income they could have earned on the reserved 
dates. Therefore, NASD Dispute Resolution believes that the proposed 
rule change is necessary to provide arbitrators with some compensation 
in the event that a scheduled hearing is adjourned at the last minute 
and to encourage parties, when appropriate, to settle their disputes 
earlier to avoid additional fees.

The Proposed Rule Change and its Application

    The proposed rule change would amend Rule 10319 to require that an 
additional $100 fee per arbitrator be paid by one or more parties if 
their request for an adjournment is made and granted within three 
business days before a scheduled hearing session or before the first of 
a number of consecutively scheduled hearing sessions.\11\ If one 
hearing session had been scheduled, the arbitrators would assess this 
fee for adjourning that hearing session. If a number of consecutively 
scheduled hearing sessions were scheduled, the fee would be assessed 
only for adjourning the first hearing in that group of consecutively 
scheduled hearing sessions, not for all hearing sessions in that group. 
The Rule will not apply to the adjournment of a prehearing conference. 
Further, for purposes of determining whether the timing of an 
adjournment would trigger a fee assessment, holidays recognized by

[[Page 19889]]

NASD will not be counted as business days.
---------------------------------------------------------------------------

    \11\ Conforming changes are being made to IM-10104 and Rule 
10306.
---------------------------------------------------------------------------

    The following example illustrates how the Rule will work. An 
arbitrator schedules five consecutive hearing sessions to begin on a 
Tuesday, following a Monday holiday. If a party's adjournment request 
is made and granted no later than the preceding Tuesday, the party 
would not be assessed the $100 per-arbitrator fee, because the request 
was made and granted more than three business days before the first 
scheduled day of the hearing session.\12\ If, however, a party's 
request is made and granted on the preceding Wednesday or later in that 
week, then the party would be assessed the $100 per-arbitrator fee for 
the adjournment of the first day in a group of consecutively scheduled 
hearing sessions, which, in the example, is the following Tuesday.\13\ 
The party would not be assessed a $100 per-arbitrator fee for the 
subsequently scheduled hearing sessions that have now been canceled.
---------------------------------------------------------------------------

    \12\ The party could be subject to other fees and costs as a 
result of adjourning the hearing, however. See Rules 10319(b) and 
10332(f).
    \13\ Id.
---------------------------------------------------------------------------

    Generally, when NASD Dispute Resolution receives a party's 
adjournment request, a decision on the request is usually made in a 
short timeframe (i.e., from a few hours to a few days). Staff of NASD 
Dispute Resolution makes every effort to process adjournment requests 
expeditiously, but the requesting party should allow for delays over 
which the staff has no control. If a requesting party asks for an 
adjournment within the three days before a scheduled hearing session 
and the arbitrators cannot be reached, the request will not be granted 
and the hearing will proceed as scheduled, unless extraordinary 
circumstances exist, as explained below.
    The proposed rule change would allow arbitrators to assess the $100 
per-arbitrator fee against the requesting party, after the request is 
granted. There may be instances, however, in which the arbitrators 
determine that a non-requesting party has caused or contributed to the 
need for the adjournment. In these instances, the requesting party can 
ask for a reallocation of the fees to the non-requesting party or a 
sharing of the fees. The arbitrators can review the circumstances and, 
in their discretion, allocate all or a portion of the fee to the non-
requesting party. In instances where more than one party requests an 
adjournment, arbitrators must allocate the fees among those 
parties.\14\
---------------------------------------------------------------------------

    \14\ See Rule 10319(b).
---------------------------------------------------------------------------

    The proposed rule change also will apply to final settlements 
reached by the parties. If staff is notified of a final settlement 
within three business days before a scheduled hearing session, and the 
hearing must be canceled, this will be considered to be an adjournment 
request that is ``made and granted'' for purposes of proposed Rule 
10319(d), and the allocation of the $100 per-arbitrator fee will be 
handled pursuant to Rule 10306.\15\
---------------------------------------------------------------------------

    \15\ Rule 10306 is being amended to include a specific reference 
to fees for adjournments under Rule 10319; however, the provisions 
of the Rule addressing fee allocation remain unchanged.
---------------------------------------------------------------------------

    If an adjournment is requested and granted within three business 
days before a scheduled hearing session, NASD Dispute Resolution 
believes that arbitrators should assess the $100 per-arbitrator fee in 
all cases, regardless of the reason for the request. For example, this 
fee should be assessed even if arbitrators determine to waive the fees 
established under Rule 10319(b). NASD Dispute Resolution believes that 
by applying this standard, arbitrators will not be inundated with 
requests to waive the fee. NASD Dispute Resolution recognizes, however, 
that there are some extraordinary circumstances that could prevent a 
party from making an adjournment request in time to avoid the 
additional fee assessment (e.g., a serious accident or a sudden severe 
illness). In these cases, arbitrators will have the discretion to waive 
the fee, provided they receive verification of such circumstances.\16\
---------------------------------------------------------------------------

    \16\ A waiver of the fee, pursuant to Rule 10319(d), will not 
affect the payment of the honorarium, described in IM-10104.
---------------------------------------------------------------------------

    The NASD will announce the effective date of the proposed rule 
change in a Notice to Members to be published no later than 60 days 
following Commission approval. The effective date will be 30 days 
following publication of the Notice to Members announcing Commission 
approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\17\ which require, among 
other things, that the Association's rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest. NASD believes that the proposed rule change 
will help NASD Dispute Resolution maintain a deep pool of qualified 
arbitrators by assuring them of some compensation in the event a 
scheduled hearing is adjourned at the last minute. NASD believes 
maintaining depth and quality of arbitrators protects investors and the 
public interest by providing a more efficient forum for investors to 
address grievances.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    Written comments were neither solicited nor received.

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

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. Comments 
should be submitted electronically at the following e-mail address: 
[email protected]. All comment letters should refer to File No. SR-
NASD-2003-164. 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

[[Page 19890]]

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 NASD. All submissions should refer to File No. 
SR-NASD-2003-164 and be submitted by May 5, 2004. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8444 Filed 4-13-04; 8:45 am]
BILLING CODE 8010-01-P