[Federal Register Volume 69, Number 201 (Tuesday, October 19, 2004)]
[Notices]
[Pages 61538-61541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2708]



[[Page 61538]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50510; File No. SR-NYSE-2004-29]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the New York Stock 
Exchange, Inc., Relating to Amendments to Procedures for the 
Appointment of Arbitrators to Arbitration Cases

October 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 June 10, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed amendments to its arbitration rules as 
described in Items I, II and III below, which items have been prepared 
by NYSE.\3\ On October 6, 2004, NYSE submitted Amendment Nos. 1 and 2 
to the proposed rule change.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended by 
Amendment Nos. 1 and 2, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Although the proposed rule has not yet been published for 
comment, the Commission has received 1 comment letter, which is 
discussed below in note 3 and related text.
    \4\ See letter from Karen Kupersmith, Director of Arbitration, 
NYSE, to Catherine McGuire, Chief Counsel, Division of Market 
Regulation, Commission, dated August 16, 2004 (``Amendment No. 1''); 
and letter from Karen Kupersmith, Director of Arbitration, NYSE, to 
Catherine McGuire, Chief Counsel, Division of Market Regulation, 
Commission, dated October 5, 2004 (``Amendment No. 2'').
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1. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change consists of amendments to NYSE Rule 607 
concerning the procedures for the appointment of arbitrators to 
arbitration cases administered by NYSE. The proposed rule change would 
modify and make permanent an alternative method for the appointment of 
arbitrators currently offered under a pilot program.\5\ The text of the 
proposed rule change, as amended by Amendment Nos. 1 and 2, is set 
forth below. Additions are in italics; deletions are in brackets.
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    \5\ The pilot program originally was set up for a two-year 
period. See Release No. 34-43214 (August 28, 2000), 65 FR 53247 
(September 1, 2000) (SR-NYSE-2000-34) (order approving pilot 
program). Upon expiration of the two-year period, NYSE renewed the 
pilot for an additional two years, which expired on July 31, 2004, 
and then again until January 31, 2005. See Release No. 34-46372 
(August 16, 2002), 67 FR 54521 (August 22, 2002) (SR-NYSE-2002-30) 
(order approving first extension of pilot program); Release No. 34-
49915 (June 25, 2004), 69 FR 39993 (July 1, 2004) (SR-NYSE-2004-28) 
(order approving second extension of pilot program).
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* * * * *

Rule 607

[Designation of Number of Arbitrators]

Appointment of Arbitrators

    (a) (1) In all arbitration matters involving customers and non-
members where the matter in controversy exceeds $25,000, or where the 
matter in controversy does not involve or disclose a money claim, the 
Director of Arbitration shall appoint an arbitration panel which shall 
consist of no less than three (3) arbitrators, at least a majority of 
whom shall not be from the securities industry, unless the customer or 
non-member requests a panel consisting of at least a majority from the 
securities industry.
    (2) An arbitrator will be deemed as being from the securities 
industry if he or she:
    (i) Is a person associated with a member, broker/dealer, government 
securities broker, government securities dealer, municipal securities 
dealer or registered investment adviser, or
    (ii) Has been associated with any of the above within the past five 
(5) years, or
    (iii) Is retired from or spent a substantial part of his or her 
business career in any of the above, or
    (iv) Is an attorney, accountant or other professional who devoted 
twenty (20) percent or more of his or her professional work effort to 
securities industry clients within the last two (2) years [.] , or
    (v) Is an individual who is registered under the Commodity Exchange 
Act or is a member of a registered futures association or any commodity 
exchange or is associated with any such person(s).
    (3) An arbitrator who is not from the securities industry shall be 
deemed a public arbitrator. A person will not be classified as a public 
arbitrator if he or she has a spouse or other member of the household 
who is a person associated with a registered broker, dealer, municipal 
securities dealer, government securities broker, government securities 
dealer or investment adviser.
    (b) Composition of Panels
    The individuals who shall serve on a particular arbitration panel 
shall be determined by the Director of Arbitration. The Director of 
Arbitration may name the chairman of each panel.

[Voluntary Supplemental Procedures for Selecting Arbitrators]

    [(a)] (c) Party Agreement on Arbitrator Selection
    [Under Exchange Rules, the Director of Arbitration appoints the 
arbitrators, subject to the parties' peremptory challenges. The parties 
may agree on an alternative way to select arbitrators.] If all parties 
agree, they may select the arbitrators [themselves or decide how they 
will be selected. The Exchange will accommodate any reasonable 
alternative way to select arbitrators, provided the parties agree. The 
Exchange also offers two alternative ways to appoint arbitrators. The 
following is a brief description of each method] according to Random 
List Selection, as described below.
    [(b) Random List Selection]
    [1.] (1) Random List Selection--The Number and Type of Arbitrators
    (i) Claims up to $25,000. One public arbitrator, unless the 
customer or non-member requests a securities industry arbitrator, will 
decide claims up to $25,000 (not including costs and interest).
    (ii) Claims above $25,000 or where no dollar amount is claimed or 
disclosed. Three arbitrators will decide claims above $25,000 (not 
including costs and interest) or where no dollar amount is claimed or 
disclosed. The arbitration panel shall consist of a majority of public 
arbitrators, unless the customer or non-member requests a majority from 
the securities industry.
    (iii) How we classify arbitrators. A securities industry arbitrator 
is defined in NYSE Rule 607(a)(2). A public arbitrator is defined in 
NYSE Rule 607(a)(3). See also NYSE Guidelines for Classification of 
Arbitrators.
    [2.] (2) Selecting Arbitrators [(in place of NYSE Rule 608 Notice 
of Selection of Arbitrators)]
    (i) Lists of Arbitrators
    [(1)] (a) If one arbitrator hears [a] the case, the Director of 
Arbitration will send each party a randomly-generated list containing 
the names of three public arbitrators, unless the customer or non-
member requests securities industry arbitrators. Each party may use one 
strike against this list.
    [(2)] (b) If three arbitrators [will] hear the case, the Director 
of Arbitration will send each party two randomly-generated lists[, one 
of public arbitrators and one of securities industry arbitrators]. One 
list will contain the names of ten public arbitrators and the other 
list will contain the names of five securities industry arbitrators. If 
the customer or non-member requests a majority of securities industry

[[Page 61539]]

arbitrators, one list will contain the names of ten securities industry 
arbitrators and the other list will contain the names of five public 
arbitrators. Each party may use four strikes against the list of ten 
arbitrators and two strikes against the list of five arbitrators.
    (c) The strikes referred to in (a) and (b) above are in lieu of the 
peremptory challenges referenced in Rule 609.
    [(3)] (d) With the lists, [you] the parties will also receive the 
arbitrators' biographical profile. [and his or her] Upon request, the 
Exchange will send a party an [arbitrators'] arbitrator's last three 
NYSE arbitration decisions, if any.
    (ii) Any party may ask the Director of Arbitration for more 
information about a potential arbitrator. The request for additional 
information must be made within the ten business days the party has to 
return the lists as provided in [Section (b)(2)(iii)(1)] (iii) below. 
This time period of ten business days is applicable to all requests for 
additional information in this Rule and Rule 608. The NYSE shall send 
the arbitrator's response to all parties at the same time. The Director 
of Arbitration has discretion to limit the additional information 
requested from the arbitrator. The request for more information will 
toll the time for returning the lists to the Director of Arbitration.
    (iii) [You] Parties must return [your] lists within ten business 
days.
    [(1)] (a) [You] Parties must return [your] lists to the Director of 
Arbitration within ten business days of the date [you] received [them], 
unless extended by the tolling period. The Director of Arbitration may 
extend the deadline for returning the lists if [the Director] he/she 
finds a reasonable basis for the extension. The parties may also agree 
to extend the deadline. [You] Parties must:
     Strike through the names of any unacceptable arbitrators, 
as limited by the number of strikes as set forth above, and
     Rank the remaining names in order of [your] preference, 
with ``1'' being the arbitrator [that you] most strongly [prefer] 
preferred.
    [(2)] (b) If [you do] a party does not return [your] lists on time, 
the Director of Arbitration will proceed as if all arbitrators on the 
lists are acceptable to [you] that party. The NYSE will invite 
arbitrators to serve in the order of the parties' mutual preferences. 
[We determine mutual] Mutual preferences are determined by adding 
together the numbers assigned to each arbitrator and selecting 
arbitrators with the lowest numbers first. In the event of a tie, 
arbitrators will be selected in alphabetical order.
    [(iv) Second List, if necessary
    (1) If the Exchange cannot select arbitrators from the remaining 
names, a second list will be sent to the parties. The second list will 
contain three names for each vacancy on the panel. On the second list, 
each party has one non-renewable peremptory challenge for each vacancy 
on the panel. Each party is to number the remaining names in order of 
its preference. You must return the list to the Director within ten 
business days of the date you received it. The NYSE will invite 
arbitrators to serve in the order of the parties' mutual preferences.]
    [(2)] (c) If no acceptable arbitrators are left on the [second 
list] lists, the Director of Arbitration will randomly appoint 
arbitrators. The Director of Arbitration will also randomly appoint one 
or more arbitrators if: (i) Acceptable arbitrators are unable to serve; 
or (ii) arbitrators cannot be found on the lists for any other reason.
    [3.] (3) Objecting to Potential Arbitrators
    ([a] i) Multiple Parties. In cases where there are two or more 
people designated as claimants, respondents and/or third party 
respondents, each group so designated will share one set of strikes. 
The Director of Arbitration may allow additional strikes if [the 
Director] he/she determines that justice would be served by doing so.
    ([b] ii) Challenges for Cause. [You] Parties have an unlimited 
number of challenges for cause. The Director of Arbitration will 
determine in accordance with Rule 609(b) whether to grant a challenge 
for cause. If any arbitrator is removed from the list ``for cause'' 
before the expiration of the time to return the lists, a replacement 
name will be provided.
    [4.] (4) Filling Vacancies of Arbitrators
    ([a] i) Vacancies before the first hearing. If an arbitrator must 
withdraw before the first hearing, the Director of Arbitration will 
invite the next arbitrator on the parties' lists to fill the vacancy. 
If there are no remaining names, or if the vacancy cannot be filled 
from the names on the lists, the Director of Arbitration will randomly 
appoint an arbitrator. [You] A party will receive the arbitrator's 
biographical profile, and upon request, [and] his or her last three 
NYSE arbitration decisions, if any, for the last 10 years (see 
2.(i)(d)). [You] A party may ask the Director of Arbitration for 
additional information on the proposed arbitrator's background, and 
[You] may challenge the arbitrator for cause.
    ([b] ii) Vacancies after the hearing starts. This circumstance is 
governed by NYSE Rule 611.
    [5.] (5) Disclosures
    After the Exchange assembles a complete panel of arbitrators, the 
Exchange will notify the arbitrators of their appointment. The Exchange 
will advise the parties of any information disclosed by the arbitrators 
under Rule 610 (Disclosures Required by Arbitrators).
    [(c) Enhanced List Selection
    I. The Number and Type of Arbitrators
    The Exchange will provide the parties with the names and profiles 
of six ``Public'' and three ``Securities'' arbitrators, unless the 
customer or non-member requests a majority of industry arbitrators. The 
Exchange will screen potential arbitrators for conflicts and 
availability and, if applicable, employment law experience or training, 
or other applicable expertise. The Director of Arbitration will advise 
the parties of any information disclosed by the arbitrators under Rule 
610 (Disclosures Required by Arbitrators).
    II. Selecting Arbitrators
    (a) You Must Return Your Lists Within Ten Business Days
    You must return your lists within ten business days. You will have 
ten business days from receipt of the lists to strike up to three names 
and number the remaining names, in order of their preference. The 
number ``1'' signifies the arbitrator that you most strongly prefer. 
The Exchange will appoint three arbitrators (two public and one 
securities) using the combined preference rankings of the parties. If a 
party does not return the lists within ten business days, the Exchange 
will consider all arbitrators on the lists as acceptable. If there is a 
tie in the rankings, the Exchange will invite arbitrators to serve in 
alphabetical order.
    (b) Administrative Appointment
    If an arbitrator is unable to serve, the Exchange will contact the 
next arbitrator from the remaining names on the lists. If the lists 
have been exhausted, the Exchange will appoint an arbitrator from 
outside the list. When the Exchange appoints an arbitrator, each party 
has one peremptory challenge for each arbitrator the Exchange appoints. 
A party must use a peremptory challenge within ten business days of 
receiving notice of the appointment of the arbitrator.
    III. Multiple Parties
    In cases where there are two or more people designated as 
claimants, respondents or third party respondents, each group so 
designated will share one set of strikes and/or one peremptory 
challenge. The Director of Arbitration may allow additional peremptory

[[Page 61540]]

challenges if he determines that justice would be served by doing so.
    IV. Challenges for Cause
    The parties have unlimited challenges for cause. The Director of 
Arbitration will decide whether to grant a challenge for cause. If any 
arbitrator is removed from the list ``for cause'' before the end of the 
time to return the lists, the Director of Arbitration will provide the 
parties with a replacement name.]
* * * * *

 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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule changes. The text of these statements may be examined at 
the places specified in Item IV below and is set forth in Sections A, B 
and C below.

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

1. Purpose
    NYSE currently has several methods by which arbitrators are 
assigned to cases, including the traditional method pursuant to NYSE 
Rule 607, by which NYSE staff appoints arbitrators to cases. On August 
1, 2000, NYSE implemented a pilot program to allow parties, on a 
voluntary basis, to select arbitrators under other alternative methods 
(in addition to the traditional method). The first alternative under 
the pilot is the Random List Selection method, by which the parties are 
provided randomly generated lists of public and securities industry 
arbitrators. The parties have ten days to strike and rank the names on 
the lists. Based on mutual ranking of the lists, the highest-ranking 
arbitrators are invited to serve on the case. If a panel cannot be 
generated from the first list, a second list is generated and sent to 
the parties, which provides three potential arbitrators for each 
vacancy and allows each party to use one peremptory challenge for each 
vacancy. If vacancies remain after the second list has been processed, 
arbitrators are randomly assigned by NYSE staff to serve, subject only 
to challenges for cause.
    The second alternative method under the pilot is Enhanced List 
Selection, in which six public and three securities classified 
arbitrators are selected for lists by NYSE staff, based on the 
arbitrators' qualifications and expertise. The lists are sent to the 
parties. The parties are permitted to use a limited number of strikes 
and are required to rank the arbitrators not stricken. Based on mutual 
ranking of the lists, the highest-ranking arbitrators are invited to 
serve on the case.
    Under the pilot program, the Exchange also will accommodate the use 
of any reasonable alternative method of selecting arbitrators that the 
parties decide upon, provided that the parties agree. Absent agreement 
to the use of Random List Selection, Enhanced List Selection, or any 
other reasonable alternative method, the traditional method is used.
    The proposed rule change retains the traditional method of staff 
appointment of arbitrators and makes permanent a modified form of the 
Random List Selection currently in use. One of the modifications 
specifies that, for arbitrations involving a three-member panel, 
parties will be provided with randomly generated lists containing the 
names of 10 public and 5 securities industry arbitrators from which the 
parties may choose. The customer or non-member may request, however, 
that the panel consist of a majority of securities industry 
arbitrators. In that case, the parties will be provided with lists 
containing the names of 10 securities industry and 5 public 
arbitrators. In contrast, the pilot did not specify the numbers or 
types of arbitrators to be included on the lists. The proposed rule 
change also limits the number of strikes the parties may use: 4 against 
the public arbitrators and 2 against the securities industry 
arbitrators. Further, in order to simplify and shorten the appointment 
process, the proposed rule change eliminates the process of providing a 
second list of arbitrators to the parties in the event they cannot 
agree to a panel from the first list.
    For simplified arbitrations (i.e., those involving a one-member 
panel), the proposed rule change clarifies that the randomly generated 
selection list will contain the names of 3 arbitrators. These 
arbitrators will be public arbitrators, unless the customer or non-
member requests otherwise. Each party may use 1 strike.
    For simplified as well as non-simplified arbitrations, the proposed 
rule change gives the parties greater flexibility by permitting them to 
agree to extend the deadline in which to return their lists (i.e., 
beyond the prescribed 10 business days). As under the pilot program, 
the parties must all agree to use Random List Selection, or the 
traditional method will be used. Finally, the proposed rule change 
provides that descriptions of an arbitrator's last 3 awards will be 
sent to a party only upon the party's request, thus eliminating 
unnecessary paperwork generated by the current rule. Parties now may 
view all awards on the NYSE Web site, which in effect provides greater 
access to information than before.
    In that parties have rarely requested Enhanced List Selection or 
other alternative methods offered under the pilot program, NYSE is not 
proposing to make them permanent parts of NYSE's arbitrator selection 
program.
2. Statutory Basis
    NYSE believes the proposed changes are consistent with Section 
6(b)(5) of the Act,\6\ 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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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NYSE 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.

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

    NYSE has neither solicited nor received written comments on the 
proposed rule change. The Commission has received, however, one comment 
letter from PIABA prior to the publication of the proposed rule 
filing.\7\ The comment letter states that PIABA will have several 
comments on the substance of the proposed rule when it is published for 
comment and generally objects to the NYSE's failure to involve any 
participants in the arbitration process in the formulation of the 
proposed rule change prior to its filing with the Commission. At the 
Commission staff's request, NYSE has agreed to extend the comment 
period for the proposed rule change from 21 days to 45 days from its 
publication in the Federal Register.
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    \7\ See letter from Charles Austin, Jr., President, Public 
Investors Arbitration Bar Association, to Catherine McGuire, Chief 
Counsel, Division of Market Regulation, Commission, dated June 23, 
2004.
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IV. 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)

[[Page 61541]]

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

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change as amended 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-2004-29 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-2004-29. 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-2004-29 
and should be submitted on or before December 2, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated Authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2708 Filed 10-18-04; 8:45 am]
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