[Federal Register Volume 69, Number 104 (Friday, May 28, 2004)]
[Notices]
[Pages 30734-30735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-12093]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49758; File No. SR-PCX-2004-25]


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

May 24, 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 May 11, 2004, the Pacific Exchange, Inc. (``PCX'' 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 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. 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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 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 a 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.\5\ The Commission approved an extension 
of the pilot period on May 15, 2003,\6\ and November 19, 2003.\7\ The 
pilot period is currently set to expire on May 23, 2004.
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    \5\ See Exchange Act Release No. 46881 (November 21, 2002), 67 
FR 71224 (November 29, 2002) (Order approving SR-PCX-2002-71).
    \6\ See Exchange Act Release No. 47872 (May 15, 2003), 68 FR 
28869 (May 27, 2003) (Order approving SR-PCX-2003-22).
    \7\ See Exchange Act Release No. 48806 (November 19, 2003), 68 
FR 66521 (November 26, 2003) (Order approving SR-PCX-2003-61).
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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 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, 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 filed rule proposals to further extend the pilot period for 
additional six-month periods.\11\
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    \8\ See Motion for Declaratory Judgment, NASD Dispute 
Resolution, Inc. and New York Stock Exchange, Inc. v. Judicial 
Council of California, filed in the United States District Court for 
the Northern District of California, No. C 02 3486 SBA (July 22, 
2002), available on the NASD Web site at: http://www.nasdadr.com/pdf-text/072202 --ca--complaint.pdf.
    \9\ See Exchange Act Release No. 46562 (September 26, 2002), 67 
FR 62085 (October 3, 2002) (Order approving SR-NASD-2002-126).
    \10\ See Exchange Act Release No. 46816 (November 12, 2002), 67 
FR 69793 (November 19, 2002) (Order approving SR-NYSE-2002-56).
    \11\ See Exchange Act Release No. 48553 (September 26, 2003), 68 
FR 57494 (October 3, 2003) (Order approving SR-NASD-2003-144); 
Exchange Act Release No. 49452 (March 19, 2004) 69 FR 17010 (March 
31, 2004) (Order approving SR-NASD-2004-40); Exchange Act Release 
No. 48552 (September 26, 2003), 68 FR 57496 (October 3, 2003) (Order 
approving SR-NYSE-2003-28); and Exchange Act Release No. 49521 
(April 2, 2004), 69 FR 18661 (April 8, 2004) (Order approving SR-
NYSE-2004-18).
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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 May 24, 2004. The extension of 
time permits the Exchange to continue the arbitration process using PCX 
rules regarding arbitration disclosures and not the California

[[Page 30735]]

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 Richard Mayo v. Dean Witter Reynolds, Inc. et al., 
C-01-20336 JF (N.D. Cal.) 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 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-PCX-2004-25 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-PCX-2004-25. 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 the 
PCX. 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 SR-PCX-
2004-25 and should be submitted on or before June 18, 2004.

    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).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-12093 Filed 5-27-04; 8:45 am]
BILLING CODE 8010-01-P