[Federal Register Volume 70, Number 120 (Thursday, June 23, 2005)]
[Notices]
[Pages 36451-36453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3262]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51863; File No. SR-NYSE-2005-02]


Self-Regulatory Organizations; New York Stock Exchange, Inc., 
Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2 and 3 
Relating to Amendments to Exchange Rule 607

June 16, 2005.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Exchange Act'' or ``Act''),\2\ and Rule 19b-4 thereunder,\3\ 
notice is hereby given that on January 4, 2005, 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 the NYSE. On May 12, 2005, the NYSE filed 
Amendment No. 1 to the proposed rule change (``Amendment No. 1'').\4\ 
On May 13, 2005, the NYSE filed Amendment No. 2 to the proposed rule 
change (``Amendment No. 2).\5\ On June 16, 2005, the NYSE filed 
Amendment No. 3 to the proposed rule change (Amendment No. 3).\6\ The 
Commission

[[Page 36452]]

is publishing this notice to solicit comments on the proposed rule 
change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 was filed and withdrawn by the NYSE on May 
12, 2005.
    \5\ See Amendment No. 2. Amendment No. 2 supplemented the 
initial filing.
    \6\ See Amendment No. 3. Amendment No. 3 supplemented the 
initial filing and modified certain statements in Amendment No. 2.
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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 amendments to Rule 607 
concerning the procedures for the appointment of arbitrators to 
arbitration cases administered by the NYSE. The text of the proposed 
rule change is available on the NYSE's Web site (http://www.NYSE.com), 
at the NYSE's principal office, and at the Commission's Public 
Reference Room.

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 NYSE included statements 
concerning the purpose of and basis for the proposed rule changes. The 
text of these statements, as amended, 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 NYSE currently has several methods by which arbitrators are 
assigned to cases, including the traditional method pursuant to NYSE 
Rule 607 where NYSE staff appoints arbitrators to cases.
a. The Pilot Program
    On August 1, 2000, the NYSE implemented a two-year pilot program to 
allow parties, on a voluntary basis, to select arbitrators under three 
alternative methods (in addition to the traditional method).\7\ Upon 
expiration of the two-year pilot, the NYSE renewed the pilot for an 
additional two years, ending on July 31, 2004.\8\ The pilot was 
subsequently extended again until January 31, 2005,\9\ and further 
extended until July 31, 2005.\10\
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    \7\ The pilot program was implemented originally for a two-year 
period. Exchange Act Release No. 43214 (August 28, 2000), 65 FR 
53247 (September 1, 2000) (SR-NYSE-2000-34).
    \8\ See Exchange Act Release No. 46372 (August 16, 2002), 67 FR 
54521 (August 22, 2002) (SR-NYSE-2002-30).
    \9\ See Exchange Act Release No. 49915 (June 25, 2004), 69 FR 
39993 (July 1, 2004).
    \10\ See Exchange Act Release No. 51085 (Jan. 27, 2005), 70 FR 
5716 (Feb. 3, 2005), corrected at 70 FR 7143 (Feb. 10, 2005).
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    The first alternative under the pilot program is the Random List 
Selection method, by which the parties are provided randomly-generated 
(as described below) lists of public- and securities-classified 
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, with three 
potential arbitrators for each vacancy, and one peremptory challenge 
available to each party for each vacancy. Under the pilot program, if 
vacancies remain after the second list has been processed, arbitrators 
are then randomly assigned to serve, subject only to challenges for 
cause.
    The second alternative method under the pilot program is the 
Enhanced List Selection method, in which six public- and three 
securities-classified arbitrators are selected by NYSE staff, based on 
their qualifications and expertise. The lists are then sent to the 
parties. The parties have three strikes to use 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.
    Lastly, the pilot program permits parties, pursuant to mutual 
agreement, to choose arbitrators through any alternative method.
    Under the pilot program, the parties must all agree to use either 
the Random List Selection method, the Enhanced List Selection method or 
an ``alternative method.'' Absent such agreement, under the pilot 
program, the traditional method is used.
b. The Initial Filing
    The proposed amendments to Rule 607 in the initial filing, filed on 
January 4, 2005 (the ``Initial Filing'') retained the traditional 
method of staff appointment of arbitrators as an option. In addition, 
the proposed amendments modified and made permanent the Random List 
Selection method by specifying the number of arbitrators on each list 
(the pilot did not specify the numbers, but the Initial Filing 
specified that it would be 10 public arbitrators and five securities 
arbitrators) and limiting the number of strikes (four against the 
public arbitrators and two against the securities arbitrators). The 
proposed amendments in the Initial Filing also eliminated the second 
list of arbitrators. According to the NYSE, this would simplify and 
shorten the appointment process. The Initial Filing also specified that 
for simplified arbitrations, the randomly generated list would contain 
the names of three arbitrators.\11\ Further, the Initial Filing gave 
the customer or non-member the election of choosing to use Random List 
Selection as the method to appoint arbitrators. If a claim included a 
customer and a non-member, the election of the customer controlled, and 
all parties' agreement to use list selection would no longer be 
required.
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    \11\ 11 This provision was changed in Amendment No. 2, discussed 
below.
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    The Initial Filing also retained for the Director of Arbitration 
the discretion to appoint arbitrators to the panel pursuant to the 
traditional method of appointment in the event a full panel could not 
be appointed under Random List Selection. Further, in the Initial 
Filing, because parties rarely request Enhanced List Selection, or 
other alternative methods pursuant to mutual agreement, the NYSE 
proposed to eliminate those options as methods for selecting 
arbitrators.\12\ The Initial Filing also provided that a party could 
request an arbitrator's last three NYSE arbitration decisions, if any, 
whereas the pilot program had provided that these decisions would be 
sent automatically. Lastly, the Initial Filing provided that any 
request for additional information must be made within the ten business 
days in which the parties must return the lists, and that this time 
period is applicable to all requests for additional information under 
NYSE Rule 607 as well as NYSE Rule 608, which governs notice of 
selection of arbitrators and provides, among other things, that the 
Director of Arbitration will provide the parties with the names and 
employment histories of the arbitrators for the past ten years, and 
that a party may request additional information concerning an 
arbitrator's background.
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    \12\ In Amendment No. 2, the NYSE reinserted parties' ability to 
choose alternate methods pursuant to mutual agreement, although it 
retained the elimination of Enhanced List selection.
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c. The Amended Filing.
    In response to Commission staff comments, the NYSE filed Amendment 
No. 2. Amendment No. 2 increased the number of arbitrators and party 
strikes for simplified arbitrations, and provided that the NYSE would 
accommodate any reasonable alternative method of appointing 
arbitrators, if the parties agree, thereby retaining the provision 
currently in the pilot program. In Amendment No. 2, the NYSE also 
provided information regarding the random generation of lists or 
arbitrators. The computer randomly selects arbitrators for appointment 
after doing a conflicts check based on both brokerage house accounts 
and securities affiliations. For simplified arbitrations,

[[Page 36453]]

the randomly generated list would contain the names of five arbitrators 
and each party would have two strikes. If a full panel cannot be 
appointed from the list(s) of proposed arbitrators, the computer 
continues to select arbitrators, one at a time, randomly until the 
panel has been filled by arbitrators able to serve. If a panel cannot 
be filled by arbitrators able to serve pursuant to Random List 
Selection, the Director of Arbitration would have the discretion to 
appoint arbitrators to the panel pursuant to the traditional method of 
appointment. This discretion would only be exercised if the lists of 
all arbitrators who have indicated their willingness to serve in a 
particular location, either at their own expense or at the expense of 
the NYSE, have been exhausted and no acceptable arbitrators on the 
lists were able to serve.
d. Comparison to SICA Rules.
    The proposed amendments resemble the Uniform Code of Arbitration 
(``UCA'') developed by the Securities Industry Conference on 
Arbitration (``SICA'').\13\ Aside from word choice and punctuation, the 
principal differences between the NYSE's proposed rules and the SICA-
developed UCA are:
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    \13\ The NASD also has a rule that provides for the appointment 
of arbitrators by list selection. See NASD Rule 10308.
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     The NYSE retains the traditional method of staff 
appointment.
     The NYSE specifies the number of arbitrators on the lists.
     The NYSE limits the number of peremptory challenges.
     The NYSE eliminates a second list containing three names 
for each vacancy under the Random List Selection method.
     The NYSE does not send the two lists of public and 
industry arbitrators under the Random List Selection method unless and 
until the customer or non-member requests in writing the use of the 
Random List Selection method within 45 days from the date of filing of 
the statement of claim.
     The NYSE does not set a time period in which the director 
of arbitration must send lists of potential arbitrators to the parties.
     The NYSE sets a ten business day period for the parties to 
return the lists to the director of arbitration.
     The NYSE sets a ten business day period for the parties to 
request additional information about a potential arbitrator.
     The NYSE permits the parties to agree to extend the time 
period in which to return the lists.
2. Statutory Basis
    The NYSE believes that the proposed rule change is consistent with 
Section 6(b) \14\ of the Act in general and Section 6(b)(5) of the Act 
\15\ in particular 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\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The 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.

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

    The NYSE has not solicited but has received written comments on the 
proposed rule change.

III. 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) 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.

IV. 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. We solicit specific 
comment on whether the Exchange should automatically send parties a 
potential arbitrator's prior three arbitration decisions, as provided 
in the pilot program, or whether it is appropriate for the Exchange 
only to send such decisions upon a party's request. We also solicit 
specific comment on whether the Exchange should inform parties that 
prior arbitration decisions are available on its Web site.
    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 e-mail to [email protected]. Please include File 
Number SR-NYSE-2005-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-02. 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. 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-2005-02 and should be submitted on or before July 
14, 2005. For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3262 Filed 6-22-05; 8:45 am]
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