[Federal Register Volume 70, Number 128 (Wednesday, July 6, 2005)]
[Notices]
[Pages 38989-38990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3542]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51931; File No. SR-NASD-2005-052]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change and Amendments No. 
1 and No. 2 Thereto Relating to Honorarium for Arbitrators Deciding 
Discovery-Related Motions

June 28, 2005.

I. Introduction

    On April 14, 2005, 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''), 
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 an honorarium for arbitrators deciding discovery-related 
motions. On April 29, 2005, NASD Dispute Resolution submitted Amendment 
No. 1 to the proposed rule change. On May 6, 2005, NASD Dispute 
Resolution submitted Amendment No. 2. The proposed rule change, as 
amended, was published for comment in the Federal Register on May 19, 
2005.\3\ The Commission received one comment on the proposal. For the 
reasons discussed below, the Commission is approving the proposed rule 
change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 51693 (May 12, 
2005), 70 FR 28972 (May 19, 2005) (the ``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

A. Description of the Proposal

    In 2002, NASD Dispute Resolution conducted arbitrator focus groups 
across the country. One of the consistently raised concerns was the 
amount of time and effort invested by chairpersons in reviewing and 
deciding various discovery motions, especially in situations in which 
the motions are decided without a hearing (i.e., on the papers). Also, 
Dispute Resolution staff has found that the current lack of 
compensation for deciding such motions has made it more difficult to 
recruit current arbitrators to become chairpersons. Currently, 
arbitrators are not compensated for deciding discovery motions on the 
papers. Arbitrators are compensated, however, when they conduct pre-
hearing conferences to hear arguments from parties regarding discovery 
motions.
    NASD, therefore, proposed to adopt a rule to compensate arbitrators 
in the amount of $200 (the same amount that is paid for an arbitrator 
to participate in a pre-hearing conference regarding discovery) to 
decide discovery motions on the papers. The new rule language states 
that NASD will pay arbitrators an honorarium of $200 to decide a 
discovery-related motion without a hearing session. For purposes of 
this rule, a discovery-related motion and any replies or other 
correspondence relating to the motion will be considered to be a single 
motion. If more than one arbitrator considers a discovery-related 
motion, each arbitrator will receive $200. The panel will allocate the 
cost of the honoraria as part of the eventual arbitration award. The 
rule will not apply to simplified cases administered under Rules 10203 
and 10302.

B. Comment Summary

    The proposal was published for comment in the Federal Register on

[[Page 38990]]

May 19, 2005.\4\ We received one comment letter on the proposal which 
suggested that compensation to arbitrators should be based on units of 
time required to decide discovery motion on the papers and also 
proposed several alternatives for improving the arbitration process.\5\ 
In response to the Greenberg Letter, the NASD states that ``NASD 
concluded that variable fee structures based on such factors as the 
number or complexity of motions or the time spent by an arbitrator in 
deciding a discovery-related motion on the papers could result in 
unlimited costs for the parties.'' \6\ The NASD therefore concluded 
that ``a set fee would be the most efficient way to compensate 
arbitrators for the additional work in deciding discovery-related 
motions, while keeping costs to the parties at reasonable and 
predictable levels.'' \7\ The NASD indicated that the remaining items 
in the Greenberg Letter were beyond the scope of the proposed rule 
change.\8\
---------------------------------------------------------------------------

    \4\ See Notice, supra note 3.
    \5\ See letter from Les Greenberg, Law Offices of Les Greenberg, 
to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 
received May 31, 2005 (``Greenberg Letter'').
    \6\ See letter from Mignon McLemore, Associate Chief Counsel, 
NASD, to Lourdes Gonzalez, Assistant Chief Counsel, Division of 
Market Regulation, Commission, dated June 24, 2005.
    \7\ Id.
    \8\ Id.
---------------------------------------------------------------------------

III. Discussion and Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the provisions of Sections 
15A(b)(5) \9\ and 15A(b)(6) \10\ of the Act, which require, among other 
things, that the NASD's rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among members and issuers and 
other persons using any facility or system that the NASD operates or 
controls, and that NASD 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. The Commission believes that the proposed rule change, 
as amended, accomplishes these goals by encouraging arbitrators to 
decide discovery-related motions on the papers without the need for a 
pre-hearing conference (while keeping costs to the parties at 
reasonable and predictable levels), thereby expediting the pace of 
arbitrations, which should reduce the time between the filing of an 
arbitration claim and the rendering of an award.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3(b)(5).
    \10\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

IV. Conclusions

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\11\ that the proposed rule change, as amended (SR-NASD-2005-052), be, 
and hereby is, approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3542 Filed 7-5-05; 8:45 am]
BILLING CODE 8010-01-P