[Federal Register Volume 70, Number 42 (Friday, March 4, 2005)]
[Notices]
[Pages 10729-10731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-900]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51273; File No. SR-NYSE-2004-031]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendments No. 1 Thereto and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 2 by the New York Stock 
Exchange, Inc. Relating to Appointments to the NYSE's Board of 
Arbitration and Other Changes to the NYSE's Arbitration Program

February 28, 2004.

I. Introduction

    On June 21, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to amendments to NYSE 
Rules 633, 634, and 635 relating to the administration of the 
Exchange's arbitration program. On October 29, 2004, the Exchange filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on January 4, 2005.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Karen Kupersmith, Director of Arbitration, NYSE, 
to Catherine McGuire, Chief Counsel, Division of Market Regulation, 
SEC, dated October 29, 2004.
    \4\ Exchange Act Release No. 50939 (Dec. 28, 2004), 70 FR 00420 
(Jan. 4, 2005).
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    On January 18, 2005, the Exchange filed Amendment No. 2 to the 
proposed rule change, which proposed certain technical changes to the 
rule text.\5\ The Commission received one comment letter in response to 
the proposed rule change.\6\ For the reasons discussed below, the 
Commission is approving the proposed rule change as amended.
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    \5\ Amendment 2, submitted electronically to the Commission on 
January 18, 2005 and signed by Mary Yeager, Assistant Corporate 
Secretary.
    \6\ Letter to Jonathan G. Katz, Secretary, Commission, from 
Robert S. Clemente, Esq., dated January 24, 2005, available online 
at http://www.sec.gov/rules/sro /nyse/nyse200431/rsclemente4506.htm.
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II. Description of the Proposed Rule Change

A. Description of the Proposal

    The proposed rule change consists of amendments to NYSE Rules 633, 
634, and 635 concerning appointments of members of the Board of 
Arbitration, appointments to panels of securities and non-securities 
arbitrators, and the appointment of the Director of Arbitration of the 
Exchange. NYSE Rule 633 governs the appointment of a Board of 
Arbitration, whose membership consists of current or former members of 
the Exchange, allied members, or officers of member corporations. 
Members of the Board of Arbitration decide controversies between 
parties who are members of the Exchange, allied members, member firms 
or member corporations. Currently, the Chairman of the NYSE Board 
appoints the members of the Board of Arbitration annually. As proposed, 
the Chairman will no longer appoint the members of the Board of 
Arbitration. Rather, the Director of Arbitration will do so, and she or 
he will do so on an ongoing basis rather than annually. Moreover, under 
the proposal, members of the Board of Arbitration may not be members of 
the Board of Executives.\7\ Currently, under NYSE Rule 633, they may 
not be members of the Board of Directors.\8\
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    \7\ The NYSE Board of Executives, which includes the Chairman of 
the NYSE Board and investors and representatives from member 
organizations, advises the Chief Executive Officer of the Exchange 
in his or her management of the operations of the Exchange. See NYSE 
Constitution, Article V, Section 1.
    \8\ Amendment No. 2, submitted on January 18, 2005, proposes a 
technical correction to the text of NYSE Rule 633, as follows. A 
proposed deletion appears in [brackets].
    The Director of Arbitration shall appoint a Board of Arbitration 
to be composed of [such number of] present or former members, allied 
members and officers of member corporations of the Exchange who are 
not members of the Board of Executives.
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    NYSE Rule 634 provides for the appointment of securities and non-
securities arbitrators to standing panels of arbitrators available to 
decide customer disputes. Arbitration panels for individual disputes 
are typically composed of two non-securities arbitrators and one 
securities arbitrator.\9\ Under the proposal, these arbitrators would 
be appointed by the Director of Arbitration rather than the Chairman of 
the NYSE Board, as is currently the case.\10\ The proposal also would 
remove a provision stating that the NYSE will keep separate arbitration 
panels to serve within or outside of the New York metropolitan area 
because the provision

[[Page 10730]]

does not reflect current Exchange practice.\11\
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    \9\ A securities arbitrator is someone ``engaged in or retired 
from the securities business'' and a non-securities arbitrator is 
someone ``not engaged in the securities business.'' See NYSE Rule 
634.
    \10\ As permitted by the NYSE Constitution, this authority has 
been delegated to the Vice President, Arbitration and Hearing Board. 
NYSE stated in its proposal that, in practice, arbitration 
department management routinely appoints new individuals to the 
rosters of arbitrators subject to the oversight of the Vice 
President.
    \11\ Amendment No. 2 also proposes a technical correction to the 
text of NYSE Rule 634, as follows. The proposed deletion appears in 
[brackets]:
    The Director of Arbitration shall from time to time appoint two 
panels of arbitrators,[.] the first of such panels shall be composed 
of persons engaged in or retired from the securities business and 
the second of such panels shall be composed of persons not engaged 
in the securities business.
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    Currently, NYSE Rule 635 provides that the Chairman of the NYSE 
Board appoints the Director of Arbitration. In light of a recent 
corporate restructuring at the Exchange,\12\ the proposal instead 
provides that the Chief Regulatory Officer will designate the Director 
of Arbitration, subject to the approval of the NYSE's Regulatory 
Oversight Committee.\13\
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    \12\ See Exchange Act Release No. 48946 (Dec. 17, 2003), 68 FR 
74678 (Dec. 24, 2003).
    \13\ See NYSE Constitution, Article IV, Section 12(a)(4) (the 
Regulatory Oversight Committee is responsible for, inter alia, 
``personnel actions involving senior regulatory personnel'').
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B. Comment Summary

    The proposed rule change was published for comment in the Federal 
Register on January 4, 2005, and the Commission received one comment 
letter in response.\14\ The commenter opposed the proposal. With regard 
to the Exchange's proposed changes to Rules 633 and 634, the commenter 
contended that the NYSE should separate itself and its management from 
the process of appointing arbitrators by implementing a system of 
review and oversight of the arbitrator appointment process. The 
commenter opposed delegating the arbitrator selection process to the 
Director of Arbitration.
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    \14\ See supra note 6.
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    With regard to Rule 635, the commenter stated that the rule should 
be amended to specify that the appointment of the Director of 
Arbitration by the Chief Regulatory Officer must be subject to the 
review and approval of the Regulatory Oversight Committee.

III. Discussion and Findings

    After careful consideration of the proposal and the comment that 
was received, the Commission finds that the proposed rule change, as 
amended, is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange.\15\ Specifically, the Commission finds that the proposal is 
consistent with Section 6(b)(5) of the Act in that it promotes just and 
equitable principles of trade by helping to ensure that members and 
member organizations and the public have a fair and impartial forum for 
the resolution of their disputes.\16\
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    \15\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The NYSE is updating its arbitration selection process to reflect 
more accurately the way in which arbitrators are selected. 
Specifically, as amended, NYSE Rule 633 would rest the obligation of 
selecting members of the Board of Arbitration with the Director of 
Arbitration, who is the NYSE staff person responsible for recruiting 
potential arbitrators. Similarly, NYSE Rule 634, as amended, would 
authorize the Director of Arbitration to appoint arbitration panel 
members. The Director of Arbitration reports to the Chief Regulatory 
Officer, who in turn reports to the Regulatory Oversight Committee and 
NSYE Board.
    In response to the comment received, the Commission believes that 
the proposed rule change provides appropriate oversight over the 
appointment of arbitrators.\17\ Important functions of the Exchange are 
routinely delegated to the Exchange staff. Nevertheless, the Board of 
Directors maintains the ultimate authority, and the responsibility, to 
ensure that the actions of the Exchange staff are carried out in a 
manner that is consistent with the federal securities laws.\18\ 
Similarly, although the proposed text of Rule 635 does not expressly 
require that the Regulatory Oversight Committee review the Chief 
Regulatory Officer's appointment of a Director of Arbitration, as the 
commenter recommended, this appointment is subject to the oversight of 
the Regulatory Oversight Committee as a function of the Exchange's 
routine corporate governance structure.\19\ Therefore, we believe the 
proposal sufficiently addresses the commenter's concerns.
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    \17\ See, e.g., NYSE Constitution, Article IV, Section 14(a) 
(``Delegation Authority''); id., Article VI, Section 4(a) 
(responsibilities of the Chief Regulatory Officer are ``[s]ubject to 
the authority of the Board and the Regulatory Oversight & Regulatory 
Budget Committee'').
    \18\ Increased scrutiny of applicants for the position of 
arbitrator, while a laudable goal, is beyond the scope of this 
particular proposed rule change.
    \19\ See Exchange Act Release No. 50939, supra note 4, 70 FR at 
00421, citing NYSE Constitution, Article IV, Section 12(a)(4).
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    The Commission finds good cause for approving Amendment No. 2 
before the thirtieth day after the date of publication of notice of 
filing thereof in the Federal Register. The proposed Amendment No. 2 
makes necessary technical corrections to the rule text and does not 
alter the substantive content of the rules.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-2004-031 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-2004-031. 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 its 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 Amendment 
No. 2 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-2004-031 and should be 
submitted on or before March 25, 2005.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSE-2004-031), as amended, 
be, and hereby is, approved, and that Amendment No. 2 thereto to the 
proposed rule change be,

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and hereby is, approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.20-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-900 Filed 3-3-05; 8:45 am]
BILLING CODE 8010-01-P