[Federal Register Volume 70, Number 56 (Thursday, March 24, 2005)]
[Notices]
[Pages 15137-15139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1293]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51395; File No. SR-NYSE-2005-14]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto of the New York Stock Exchange, Inc. Relating to Arbitration

March 18, 2005.
    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 February 7, 2005, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed amendment to its arbitration 
rules as described in Items I and II below, which Items have been 
prepared by the Exchange. On March 10, 2005, the Exchange filed 
Amendment No. 1 to the proposed rule change. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and is approving the proposal on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 September 
30, 2005, of Exchange 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 III 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
    The proposed rule change is intended to extend until September 30, 
2005, Exchange Rule 600(g), a pilot program that was most recently 
extended for a six-month period ending March 31, 2005.\3\
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    \3\ See Securities Exchange Act Release No. 50449 (September 24, 
2004), 69 FR 58985 (October 1, 2004) (SR-NYSE-2004-50).
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    Exchange 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, Exchange 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.\4\ 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 preempted by federal law. On 
November 12, 2002, Judge Samuel Conti dismissed the action on Eleventh 
Amendment grounds.\5\ A Notice of Appeal from Judge Conti's decision 
has been filed with the United States Court of Appeals for the Ninth 
Circuit.\6\ The Exchange has

[[Page 15138]]

determined that, in the absence of a final judicial determination or 
legislative resolution of the preemption issue, there is a continuing 
need for the waiver option provided by Exchange Rule 600(g).
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    \4\ See Securities Exchange Act Release No. 46816 (November 12, 
2002), 67 FR 69793 (November 19, 2002) (SR-NYSE-2002-56).
    \5\ NASD Dispute Resolution, Inc. and New York Stock Exchange, 
Inc. v. Judicial Council of California, No. C 02 3485 (N.D. Cal.).
    \6\ 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. 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 District Court in Grunwald concluded that the California 
Standards cannot apply to SRO-appointed arbitrators because such 
arbitrators do not fall within the statutory definition of ``neutral 
arbitrators.'' On appeal, the Ninth Circuit disagreed that SRO-
appointed arbitrators did not fall within the statutory definition 
of ``neutral arbitrators'' but held that the California Standards 
are preempted by the Act. See Credit Suisse First Boston Corp. v. 
Grunwald, No. 03-15695 (9th Cir. Mar. 1, 2005). 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, Second 
District held that the Judicial Council acted within its authority 
in drafting the California Standards, that the California Standards 
are not preempted by the FAA, but that they are preempted by the 
Act. On March 17, 2004, the California Supreme Court granted review 
in Jevne. NASD Dispute Resolution and the Exchange were allowed to 
intervene on appeal before the California Supreme Court. The Jevne 
appeal has been fully briefed and was argued before the California 
Supreme Court on March 8, 2005.
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2. Statutory Basis
    The Exchange states that the proposed change is consistent with 
Section 6(b)(5) of the Act \7\ in that it promotes 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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    \7\ 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. 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-2005-14 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-2005-14. 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 Room, 450 Fifth 
Street, NW., Washington, DC 20549-0609. 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-2005-14 and should be submitted on or before April 14, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\8\ In particular, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act \9\ in that it 
promotes 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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    \8\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission also believes that the proposed rule change raises 
no issues that have not been previously considered by the Commission. 
Granting accelerated approval here 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. The NYSE adopted the pilot program under Rule 600(g) in 
response to the purported imposition of the California Standards on 
Exchange arbitrations and arbitrators. The pilot rule is currently 
extended until March 31, 2005, and must be extended in order to 
continue to provide the waiver option until a final judicial 
determination is reached. During the period of this extension, the 
Commission and NYSE will continue to monitor the status of the 
previously discussed litigation.
    After careful consideration, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\10\ for approving the proposed 
rule change prior to the thirtieth day after the date of publication of 
notice in the Federal Register. The Commission notes that the current 
extension of the pilot program under Exchange Rule 600(g) expires on 
March 31, 2005. Accordingly, the Commission believes that there is good 
cause, consistent with Section 6(b)(5) of the Act,\11\ to approve the 
proposal on an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 15 U.S.C. 78f(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSE-2005-14), as amended, 
is hereby approved on an accelerated basis, and Exchange Rule 600(g) is 
extended until September 30, 2005.
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    \12\ 15 U.S.C. 78s(b)(2).


[[Page 15139]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1293 Filed 3-23-05; 8:45 am]
BILLING CODE 8010-01-P