[Federal Register Volume 70, Number 120 (Thursday, June 23, 2005)]
[Notices]
[Pages 36440-36442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3267]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51855; File No. SR-NASD-2004-013]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendments 
Nos. 1 and 2 Thereto to Amend NASD Arbitration Rules for Mediation 
Proceedings

June 15, 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 January 23, 2004, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned subsidiary, NASD Dispute 
Resolution, Inc. (``NASD Dispute Resolution'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission''), and 
amended on January 3, 2005 and April 8, 2005, the proposed rule change 
as described in Items I, II, and III below, which Items have been 
prepared by NASD Dispute Resolution. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend the NASD Code of Arbitration Procedure 
(``Code'') to reorganize the current rules, simplify the language, 
codify current practices, and implement several substantive changes. 
NASD is proposing to reorganize its current dispute resolution rules 
(Rules 10000 et seq.) into three separate procedural codes: The NASD 
Code of Arbitration Procedure for Customer Disputes (``Customer 
Code''); the NASD Code of Arbitration Procedure for Industry Disputes 
(``Industry Code''); and the NASD Code of Mediation Procedure 
(``Mediation Code''). The three new codes will replace the current NASD 
Code in its entirety.
    This rule filing contains the proposed Mediation Code, the text of 
which is available on the NASD Web site at http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_009003&ssSourceNodeId=801.\3\ Also available at the same URL are a 
chart comparing the current mediation rules and the proposed Mediation 
Code and an old-to-new conversion guide.
---------------------------------------------------------------------------

    \3\ The proposed Customer Code and the proposed Industry Code 
have been filed separately with the Commission as SR-NASD-2003-158 
and SR-NASD-2004-011, respectively.
---------------------------------------------------------------------------

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

    In its filing with the Commission, NASD has 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 IV below. NASD 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

(a) Purpose
    This rule filing is part of a comprehensive plan to reorganize and 
simplify the NASD Code of Arbitration Procedure. Specifically, NASD is 
proposing to reorganize its dispute resolution rules in a more logical, 
user-friendly way, including creating separate Codes for customer and 
industry arbitrations, and for mediations. At the same time, it is 
proposing to rewrite the three Codes using plain English, in accordance 
with the Commission's plain English guidelines. Although NASD is also 
proposing to implement several substantive rule changes to its 
arbitration rules, as described in the Customer and Industry Code rule 
filings, NASD is not proposing any substantive changes to the current 
rules governing mediations.

Reorganization

    One of the most frequent criticisms of the current Code is that it 
is poorly organized. Parties, particularly infrequent users of the 
forum, have difficulty finding the rules they are looking for, because 
the rules are not presented in a logical order. The

[[Page 36441]]

confusion is compounded by the fact that certain rules in the Code 
apply only to customer cases, some apply only to industry cases, and 
still others apply to both types of disputes. In addition, the current 
Code contains the NASD mediation rules, despite the fact that many 
matters are submitted directly to mediation, and do not arise out of an 
arbitration proceeding.
    To address these concerns, NASD is proposing to divide the current 
Code into three separate Codes: The Customer Code, the Industry Code, 
and the Mediation Code. NASD believes that maintaining separate Codes 
will make it easier for parties to find the rules that apply to their 
disputes, particularly for parties to disputes that are submitted 
directly to mediation. NASD will maintain electronic versions of each 
code on its Web site, http://www.nasd.com, and will make paper copies 
available upon request.
    In keeping with the current NASD rule numbering system, each of the 
three codes will be numbered in the thousands, and major sections will 
be numbered in the hundreds. Individual rules within those sections 
will be numbered in the tens (or ones, if necessary). The current 
method for numbering and lettering paragraphs within individual rules 
will remain unchanged. The Customer Code will use the Rule 12000 
series, the Industry Code will use the Rule 13000 series, and the 
Mediation Code will use the Rule 14000 series, all of which are also 
currently unused. NASD will reserve the Rule 10000 series, which is 
currently used for NASD's dispute resolution rules, for future use.

Plain English

    In 1998, the SEC launched an initiative to encourage issuers and 
self-regulatory organizations (``SROs'') to use ``plain English'' in 
disclosure documents and other materials used by investors. At that 
time, the SEC published a ``Plain English Handbook,'' to provide 
guidance to issuers and SROs in drafting such materials. The Plain 
English Handbook recommended using shorter, more common words; breaking 
long rules into shorter ones; using the active voice whenever possible; 
and using easy-to-read formatting, such as bullet points. NASD has 
implemented these guidelines wherever possible in revising the proposed 
Mediation Code, as well as the proposed Customer and Industry Codes.

Proposed Definitions Rule

    NASD is also proposing to add a comprehensive definitions rule to 
the Mediation Code (proposed Rule 14100). This rule would include 
definitions of terms used throughout the proposed Mediation Code. NASD 
believes that this rule will provide useful clarification for parties 
and mediators.

No Substantive Changes

    The proposed rule change would establish a separate Mediation Code, 
and would shorten and simplify NASD's current mediation rules in a 
manner consistent with the proposed Customer and Industry Codes. 
However, with the exception of adding a definitions rule, as described 
above, NASD is not proposing any substantive changes to its current 
rules governing mediations.
(b) Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act, which requires, among other 
things, that NASD's rules must be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. NASD believes that the proposed rule change will 
protect the public interest by making its mediation rules easier to 
find, and by making the mediation process more accessible to parties.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

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 such 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. In particular, the 
Commission solicits comments on whether the proposed rule change 
provides for mediation procedures that are fair to investors in 
customer disputes and to associated persons in industry disputes. 
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-NASD-2004-013 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-NASD-2004-013. The 
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, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of NASD. 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 SR-2004-013 and should be submitted on or 
before July 14, 2005.


[[Page 36442]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3267 Filed 6-22-05; 8:45 am]
BILLING CODE 8010-01-P