[Federal Register Volume 69, Number 94 (Friday, May 14, 2004)]
[Notices]
[Pages 26910-26913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10953]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49673; File No. SR-NASD-2004-016]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Implementation of a Web-based Arbitration Claim Notification and 
Filing Procedure

May 10, 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 January 29, 2004, the National Association of

[[Page 26911]]

Securities Dealers, Inc. (``NASD'') 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 February 25, 2004, NASD filed Amendment No. 1 
to the proposed rule change.\3\ On April 16, 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, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Mignon McLemore, Counsel, NASD, to Katherine 
England, Assistant Director, Division of Market Regulation, 
Commission, dated February 24, 2004.
    \4\ See letter from Mignon McLemore, Counsel, NASD, to Katherine 
England, Assistant Director, Division of Market Regulation, 
Commission, dated April 16, 2004.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Below is the text of the proposed rule change. Proposed new 
language is in italics.
* * * * *

10314. Initiation of Proceedings

    Except as otherwise provided herein, an arbitration proceeding 
under this Code shall be instituted as follows:

(a) Statement of Claim

    (1) The Claimant shall file with the Director of Arbitration an 
executed Submission Agreement, a Statement of Claim of the controversy 
in dispute, together with the documents in support of the Claim, and 
the required deposit. Sufficient additional copies of the Submission 
Agreement and the Statement of Claim and supporting documents shall be 
provided to the Director of Arbitration for each party and each 
arbitrator. The Statement of Claim shall specify the relevant facts and 
the remedies sought. The Director of Arbitration shall endeavor to 
serve promptly by mail or otherwise on the Respondent(s) one (1) copy 
of the Submission Agreement and one (1) copy of the Statement of Claim.
    (2) A Claimant or counsel (referred to herein collectively as 
``Claimant'') may use the online claim notification and filing 
procedure to complete part of the arbitration claim filing process 
through the Internet. To commence this process, a Claimant may complete 
a Claim Information Form that can be accessed through an NASD Web site. 
In completing the Claim Information Form, the Claimant may attach an 
electronic version of the Statement of Claim to the form, provided it 
does not exceed 50 pages. Once this online form has been completed, an 
NASD Dispute Resolution Tracking Form will be generated and displayed 
for the Claimant to reproduce as necessary. The Claimant shall then 
file with the Director of Arbitration the rest of the materials 
required in subparagraph (1), above, along with a hard copy of the NASD 
Dispute Resolution Tracking Form.
    (Remainder of rule unchanged.)
* * * * *

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 Rule 10314(a) to 
allow parties to complete part of the arbitration claim filing process 
through the Internet.
Background
    NASD Dispute Resolution is upgrading its computer technology 
platform, in what is known as the MATRICS \5\ Computer Project, which 
will replace its two legacy case management systems: CRAFTIS \6\ and 
NLSS.\7\ Before the upgrade is complete, the MATRICS Computer Project 
will be implemented in a series of overlapping releases between the 
second quarter of 2003 and the fourth quarter of 2005. A significant 
component of this upgrade includes the development of an online, Web-
based arbitration claim notification and filing system. The release to 
implement this component of the upgrade was originally scheduled for 
deployment in 2005, but has taken less time than anticipated to design 
and develop. Once this component of the release had been tested, NASD 
decided to accelerate the implementation of the online claim 
notification and filing procedure, to the first quarter of 2004.
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    \5\ MATRICS stands for Mediation and Arbitration Tracking 
Retrieval Interactive Case System.
    \6\ CRAFTIS is the legacy software application that NASD Dispute 
Resolution uses to support its case administration function. It uses 
an old technology platform and is not Web-based.
    \7\ NLSS stands for the Neutral List Selection System, which is 
the computer program NASD uses to appoint arbitrators on a 
rotational basis.
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Current Procedures for Filing and Processing an Arbitration Claim
    Currently, if a party wants to file an arbitration claim, a package 
of materials is sent to the party to complete.\8\ The materials contain 
a Claim Information Sheet that NASD Dispute Resolution asks the party 
to complete on a voluntary basis. The Claim Information Sheet gathers 
key data about the claim and the parties and serves as a reliable 
source of background information for intake staff.\9\ Once the party 
has completed the materials, the party then completes the claim filing 
process by submitting the Statement of Claim, executed Uniform 
Submission Agreement, and filing fee and hearing session deposit 
through the mail.\10\
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    \8\ Parties may also download this information from NASD Dispute 
Resolution's Web site.
    \9\ NASD Dispute Resolution estimates that the sheet is 
submitted in approximately 75% of the arbitration cases filed.
    \10\ Pursuant to the Code, ``mailing'' can be accomplished by 
first-class postage pre-paid, overnight mail service, method of 
delivery acceptable to the parties and the Director.
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    When the intake staff in New York receives the Claimant's 
materials, they enter this new claim information into NASD's CRAFTIS 
computer system. This process requires manual entry of data by at least 
two staff members in different offices. For example, when a new claim 
is received, a staff member in New York opens a case file by reviewing 
either the Statement of Claim or the Claim Information Sheet, if it is 
submitted, and by inputting the claim information in a new CRAFTIS 
file. Once this process is complete, the case is assigned to the 
appropriate NASD Dispute Resolution regional office, where another 
staff member performs an analysis of the claim documents and then 
manually enters more data (i.e., party information, type of dispute, 
fees, and relief requested) into this CRAFTIS file. This process 
requires the staff member to analyze the case to determine what 
information must be entered into CRAFTIS and to input the data into the 
system. This stage of the process usually takes an average of 30 
minutes per case.
The Effects of the Online Claim Notification Procedure
    The proposed rule change would modify how an arbitration claim is 
filed in several ways. In the package of information sent to the 
Claimant or

[[Page 26912]]

counsel (referred to herein collectively as ``Claimant''), in addition 
to a Claim Information Sheet, there will be instructions on how to 
submit a Claim Information Form online, including procedures for 
accessing the system. Prior to submitting a claim for the first time, a 
Claimant will obtain a User Identification name (``User ID'') and 
password through a self-registration process on the NASD Web site. 
Repeat Claimants, and attorneys who are submitting new claims on behalf 
of different Claimants, may continue to use their User ID and password 
to enter data for new cases.
    The proposed rule change would allow a Claimant to commence the 
arbitration claim filing process by completing a Claim Information Form 
online that can be accessed through an NASD Web site.\11\ The Claim 
Information Form has been upgraded to allow the Claimant to attach an 
electronic version of the Statement of Claim to the form, provided it 
does not exceed 50 pages. Once this online form has been completed, the 
Claimant will be prompted to print the NASD Dispute Resolution Tracking 
Form (``Tracking Form''). The Claimant would then complete the claim 
filing process by filing a copy of the Tracking Form, the Statement of 
Claim (if it has not been submitted electronically), an executed 
Uniform Submission Agreement, and the filing fee and hearing session 
deposit through the mail, as is current practice.\12\
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    \11\ The current Web site address for the online claim filing 
system is http://www.nasdadr.com/uniform_forms_guide.asp.
    \12\ Submission of documents through this online notification 
system does not alter the date a claim is filed; rather, filing a 
claim requires submission of documentation pursuant to Rule 
10314(a).
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Benefits of the Online Claim Notification Procedure
    The online version of the Claim Information Form would gather 
information similar to the paper version currently in use, but the 
format would be upgraded to provide:
     A ``look up'' tool, that will be used to provide the exact 
name of the member or associated person for automatic insertion into 
the Claim Information Form;
     A link to the fee calculators, which will calculate the 
amount that should be remitted with the Statement of Claim; and
     ``Tool tips'' to help the Claimant navigate the Claim 
Information Form.
    These enhancements will enable Claimants to enter the required 
information more quickly and accurately. For example, the Claim 
Information Form will require that the Claimant list those members or 
associated persons who would be parties to the claim. The Claim 
Information Form ``look up'' tool will provide the exact name of the 
member or associated person. Once the Claimant has found the requisite 
information, the system will allow the Claimant to load the information 
automatically into the form fields, thus minimizing transcription 
errors. If, after a search using the ``look up'' tool, the Claimant is 
unable to find the requisite information, the Claimant may type 
whatever information the Claimant has into a text box on the form for 
intake staff to analyze.
    The Claim Information Form will also provide a link to the existing 
online fee calculator, to assist the Claimant in determining the 
correct amount of fees and deposits associated with the claim.
    Further, the Claim Information Form will provide on-screen guidance 
to Claimants through ``tool tips,'' which are small help screens that 
can be displayed in order to assist the Claimant in completing certain 
data elements.
    Once the Claimant has completed the Claim Information Form, the 
system will generate a Tracking Form that will summarize the Claimant's 
entries for review and provide a tracking number for the claim. Prior 
to submission, the Claimant will be prompted to print a hard copy of 
the Tracking Form to file with the other documentation to NASD Dispute 
Resolution. The system will also encourage the Claimant to print a copy 
as a receipt. The remaining aspects of the claim filing procedure 
remain unchanged from the Claimant's perspective.
    The intake staff in New York will be notified that a claim has been 
electronically submitted when it receives the Claimant's materials in 
hard copy with the Tracking Form attached. The intake staff will access 
the system and, using the tracking number or some other identifying 
information, locate the Claimant's data. The data will be stored in a 
secure ``holding area'' in the system, where an intake staff member 
will verify it, and then upload it into the CRAFTIS system. The 
uploaded data will instantly be transferred to the screens currently 
completed manually by applicable staff. Once this process is completed, 
the Claimant's file will be transferred to the appropriate NASD Dispute 
Resolution regional office, where the staff member will be able to 
analyze the case without having to input data into CRAFTIS.
Conclusion
    NASD Dispute Resolution believes that the online claim notification 
procedure will expedite the case intake process, provide better data 
accuracy, reduce manual data entry, and provide for more efficient 
claims intake and administration. Moreover, NASD Dispute Resolution 
believes that the implementation of a Web-based arbitration claim 
notification and filing system is a positive step toward streamlining 
the claim filing process and providing global access to potential 
filers.\13\
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    \13\ NASD believes that most potential filers have access to the 
Internet. During the transition from paper filing to the online 
claim notification and filing procedure, NASD staff will work with 
any Claimants who have technological problems with using this 
system.
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\14\ 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. In light of recent regulatory developments in 
the securities markets, NASD believes the proposed rule change will 
enhance the efficiency of the NASD arbitration forum, by providing a 
better mechanism to process new claims expeditiously.
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    \14\ 15 U.S.C. 78o-3(b)(6).
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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:

[[Page 26913]]

    (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 proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an E-mail to [email protected]. Please include 
File Number SR-NASD-2004-016 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-016. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW, Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of NASD. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number and should be 
submitted on or before June 4, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-10953 Filed 5-13-04; 8:45 am]
BILLING CODE 8010-01-P