[Federal Register Volume 70, Number 97 (Friday, May 20, 2005)]
[Notices]
[Pages 29371-29373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2525]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51696; File No. SR-PCX-2005-50]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
Relating to a Pilot Rule Extension of a Waiver of California Arbitrator 
Disclosure Standards

May 13, 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 April 12, 2005 and on May 13, 2005 (Amendment No. 1), the Pacific 
Exchange, Inc. (``PCX'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. 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 Exchange and its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE'') are proposing to extend the pilot rule in PCX Rule 12.1(i) 
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 an additional six-month pilot period, until 
November 26, 2005.

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. The Exchange 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.\3\ The Commission approved an extension 
of the pilot period on May 15, 2003,\4\ November 19, 2003,\5\ May 24, 
2004,\6\ and November 23, 2004.\7\ The pilot period is currently set to 
expire on May 25, 2005.
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    \3\ See Exchange Act Release No. 46881 (November 21, 2002), 67 
FR 71224 (November 29, 2002) (Order approving SR-PCX-2002-71).
    \4\ See Exchange Act Release No. 47872 (May 15, 2003), 68 FR 
28869 (May 27, 2003) (Order approving SR-PCX-2003-22).
    \5\ See Exchange Act Release No. 48806 (November 19, 2003), 68 
FR 66521 (November 26, 2003) (Order approving SR-PCX-2003-61).
    \6\ See Exchange Act Release No. 49758 (May 24, 2004), 69 FR 
30734 (May 28, 2004) (Order approving SR-PCX-2004-25).
    \7\ See Exchange Act Release No. 50731 (November 23, 2004), 69 
FR 69660 (November 30, 2004) (Order approving SR-PCX-2004-104).
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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

[[Page 29372]]

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, the 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). For a more complete discussion of the various pending cases 
related to the California Standards, see Exchange Act Release No. 
50971 (January 6, 2005), 70 FR 2685 (January 14, 2005) (Notice 
regarding SR-NASD-2004-180), Exchange Act Release No. 51213 
(February 16, 2005), 70 FR 8862 (February 23, 2005) (Order approving 
SR-NASD-2004-180) and Exchange Act Release No. 51395 (March 18, 
2005), 70 FR 15137 (March 24, 2005) (Order approving SR-NYSE-2005-
14).
    \9\ See Exchange Act Release No. 46562 (September 26, 2002), 67 
FR 62085 (October 3, 2002) (Order approving SR-NASD-2002-126). 
Thereafter, the pilot period was extended to September 30, 2003. See 
Exchange Act Release No. 48187 (July 16, 2003), 68 FR 43553 (July 
23, 2003) (Order approving SR-NASD-2003-106).
    \10\ See Exchange Act Release No. 46816 (November 12, 2002), 67 
FR 69793 (November 19, 2002) (Order approving SR-NYSE-2002-56). 
Thereafter, the pilot period was extended to September 30, 2003. See 
Exchange Act Release No. 47836 (May 12, 2003), 68 FR 27608 (May 20, 
2003) (Order approving SR-NYSE-2003-16).
    \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); Exchange Act Release No. 49521 (April 2, 
2004), 69 FR 18661 (April 8, 2004) (Order approving SR-NYSE-2004-
18); Exchange Act Release No. 50447 (September 24, 2004), 69 FR 
58567 (September 30, 2004) (Order approving SR-NASD-2004-126); 
Exchange Act Release No. 50449 (September 24, 2004), 69 FR 58985 
(October 1, 2004) (Order approving SR-NYSE-2004-50; Exchange Act 
Release No. 51213 (February 16, 2005), 70 FR 8862 (Order approving 
SR-NASD-2004-180); and Exchange Act Release No. 51395 (March 18, 
2005), 70 FR 15137 (March 24, 2005) (Order approving SR-NYSE-2005-
14).
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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). PCX requests that the pilot be 
extended for six months beginning on May 26, 2005. The extension of 
time permits the Exchange to continue the arbitration process using PCX 
rules regarding arbitration disclosures and not the California 
Standards. No substantive changes are being made to the pilot program, 
other than extending the operation of pilot program.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\12\ in general, and Section 6(b)(5) of the Act,\13\ in 
particular, in that it is designed to promote just and equitable 
principles of trade by ensuring that OTP Holders, OTP Firms, ETP 
Holders and the public have a fair and impartial forum for the 
resolution of their disputes.
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    \12\ 15 U.S.C. 78s(b).
    \13\ 15 U.S.C. 78s(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. 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-PCX-2005-50 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-PCX-2005-50. 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 Room, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Copies of such filing also will 
be available for inspection and copying at the principal offices of the 
Exchange. 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-
2005-50 and should be submitted on or before June 10, 2005.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder, applicable to a national securities exchange.\14\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \15\ 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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    \14\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \15\ 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 PCX and PCXE adopted the pilot program under PCX 
Rule 12.1(i) and PCXE Rule 12.2(h), respectively, in

[[Page 29373]]

response to the purported imposition of the California Standards on 
Exchange arbitrations and arbitrators. The pilot rules are currently 
set to expire on May 25, 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 Exchange will continue to monitor the status of the 
pending litigation.
    After careful consideration, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\16\ 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 PCX Rule 12.1(i) and PCXE Rule 
12.2(h), expires on May 25, 2005. Accordingly, the Commission believes 
that there is good cause, consistent with Section 6(b)(5) of the 
Act,\17\ to approve the proposal on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 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,\18\ that the proposed rule change (SR-PCX-2005-50) is hereby 
approved on an accelerated basis, and that PCX Rule 12.1(i) and PCXE 
Rule 12.2(h) are extended until November 26, 2005.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2525 Filed 5-19-05; 8:45 am]
BILLING CODE 8010-01-P