[Federal Register Volume 69, Number 190 (Friday, October 1, 2004)]
[Notices]
[Pages 58985-58986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2448]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50449; File No. SR-NYSE-2004-50]


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

September 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 August 23, 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. NYSE 
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 proposed rule change consists of an extension, until March 31, 
2005, 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 March 31, 
2005, NYSE Rule 600(g), a pilot program that was most recently extended 
for a six-month period ending September 30, 2004.\5\
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    \5\ Release No. 34-49521 (April 2, 2004), 69 FR 18661 (April 8, 
2004) (SR-NYSE-2004-18).
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    NYSE Rule 600(g) states:
    This paragraph applies to the Ethics Standards for Neutral 
Arbitrators in 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.\6\ 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.\7\ A Notice of Appeal from Judge Conti's decision has been 
filed with the United States Court of Appeals for the Ninth Circuit.\8\ 
The Exchange has

[[Page 58986]]

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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    \6\ Release No. 34-46816 (November 12, 2002); 67 FR 69793 
(November 19, 2002) (SR-NYSE-2002-56).
    \7\ NASD Dispute Resolution, Inc. and New York Stock Exchange, 
Inc. v. Judicial Council of California, No. C 02 3485 (N.D. Cal.).
    \8\ 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, and the California Supreme Court 
granted their motion to intervene. Principle briefing before the 
California Supreme Court has been completed, but the parties expect 
an additional amicus brief to be filed in August 2004 and that the 
case will not be set for oral argument until some time thereafter.
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2. Statutory Basis
    The Exchange states that the proposed changes are consistent with 
Section 6(b)(5) of the Act \9\ 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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    \9\ 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\10\ and Rule 19b-4(f)(6) thereunder.\11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\12\ 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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    \12\ 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.\13\ 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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    \13\ 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. 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-NYSE-2004-50 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-NYSE-2004-50. 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 NYSE. 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-NYSE-2004-50 and should be 
submitted on or before October 22, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-2448 Filed 9-30-04; 8:45 am]
BILLING CODE 8010-01-P