[Federal Register Volume 72, Number 132 (Wednesday, July 11, 2007)]
[Notices]
[Pages 37811-37813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-13468]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56015; File No. SR-NYSE-2007-48]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment No.1 Thereto 
Relating to Proposed Amendments to Rule 600 To Provide Guidance 
Regarding New and Pending Arbitration Claims in Light of the 
Consolidation of NYSE Regulation Into NASD DR

July 5, 2007.
    On May 23, 2007, pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ 
the New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change that was published for comment in the Federal Register on 
June 4, 2007.\4\ On June 21, 2007, the NYSE filed Amendment No. 1 to 
revise the proposed rule change as described in Items I, II, and III 
below, which Items have been substantially prepared by the NYSE.\5\ The 
Commission 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\ See Release No. 34-55818 (May 25, 2007), 72 FR 30898 (June 
4, 2007).
    \5\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE proposes to amend current Rule 600 and adopt a new Rule 600A. 
As part of the consolidation of the member firm regulation function of 
NYSE Regulation, Inc. (``NYSE Regulation'') with the National 
Association of Securities Dealers, Inc. (``NASD''), NYSE Regulation 
will cease to provide an arbitration program, and its existing 
arbitration department (``NYSE Arbitration'') will be consolidated with 
that of NASD Dispute Resolution, Inc. (``NASD DR''). The proposed 
amendments provide that the arbitration rules of the Exchange shall 
apply only to NYSE arbitration cases pending prior to the date which is 
the later of the date of approval of this proposed rule change or the 
date of the consolidation (the ``Effective Date''), and that, 
thereafter, disputes between NYSE member organizations, associated 
persons, and/or their customers will be arbitrated under the NASD DR 
Codes of Arbitration Procedure. The text of the proposed rule is set 
forth below. Proposed new language is italicized.
* * * * *

Rule 600 Arbitration

* * * * *

Supplementary Material

    Rules 600 through 639, and Rule 347, with the exception of Rule 
600A, apply only to arbitrations filed prior to [insert later of 
effective date of the consolidation or approval of this proposed rule 
change] and are otherwise of no force or effect. Notwithstanding the 
foregoing, arbitrations filed with NYSE Arca on or prior to January 31, 
2007 continue to be governed by the NYSE Arca Rule 12 in effect on or 
prior to January 31, 2007, and arbitrations filed with NYSE Arca 
Equities on or prior to January 31, 2007 continue to be governed by the 
NYSE Arca Equities Rule 12 in effect on or prior to January 31, 2007. 
On and after [insert date of the consolidation] all such arbitrations 
filed prior to [insert later of effective date of the consolidation or 
approval of this proposed rule change] shall, until concluded, be 
administered by NASD Dispute Resolution, Inc. (``NASD DR'') pursuant to 
a Regulatory Services Agreement with the Exchange.
* * * * *

Rule 600A

    (a) Duty to Arbitrate. (i) Any dispute, claim or controversy 
between or among member organizations and/or associated persons shall 
be arbitrated pursuant to the NASD DR Codes of Arbitration Procedure; 
and, (ii) any dispute, claim or controversy between a customer or non-
member and a member organization and/or associated person arising in 
connection with the business of such member organization and/or in 
connection with the activities of an associated person, shall be 
arbitrated pursuant to NASD DR Codes of Arbitration Procedure as 
provided by any duly executed and enforceable written agreement, or 
upon the demand of the customer or non-member. Such obligation to 
arbitrate shall extend only to those matters that are permitted to be 
arbitrated under NASD DR Codes of Arbitration Procedure.
    (b) Referrals. The Exchange may receive, investigate and take 
disciplinary action with respect to any referral it receives from a 
NASD DR arbitrator of any matter which comes to the attention of such 
arbitrator during and in connection with the arbitrator's participation 
in a proceeding, either from the record of the proceeding or from 
material or communications related to the proceeding, that the 
arbitrator has reason to believe may constitute a violation of the 
Exchange's Rules or the federal securities laws.
    (c) Failure to Arbitrate or to Pay an Arbitration Award. Any member 
organization or associated person who fails to submit to arbitration a 
matter required to be arbitrated pursuant to this Rule, or that fails 
to honor an arbitration award made pursuant to the NASD DR Codes of 
Arbitration Procedure, or made under the auspices of any other self-
regulatory organization, shall be subject to disciplinary proceedings 
in accordance with Exchange Rule 476. 
    (d) Other Actions. The submission of any matter to arbitration as 
provided for under this Rule shall in no way limit or preclude any 
right, action or determination by the Exchange that it would otherwise 
be authorized to adopt, administer or enforce. 
* * * * *

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

    In its filing with the Commission, NYSE included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the

[[Page 37812]]

places specified in Item IV below. 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 purpose of the proposed rule change is to provide guidance 
regarding both new and pending arbitration claims in light of the 
consolidation of the member firm regulation function of NYSE Regulation 
into NASD DR. NYSE Arbitration currently administers an arbitration 
program for NYSE Regulation, governed by NYSE Regulation Rules 600 
through 639. NYSE Arbitration also administers a program for NYSE Arca, 
Inc. (``NYSE Arca'') and NYSE Arca Equities, Inc. (``NYSE Arca 
Equities''), governed by what is referred to as ``Rule 12.'' \6\
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    \6\ NYSE Arca and NYSE Arca Equities have two separate rules 
that govern arbitrations, one for Equity Trading Permit (``ETP'') 
holders, and one for Option Trading Permit (``OTP'') holders and OTP 
firms; both rules are known as ``Rule 12.'' Although Rule 12 has 
subsequently been amended, for purposes of administering NYSE Arca 
and NYSE Arca Equities arbitrations filed on or prior to January 31, 
2007, NYSE Arbitration follows Rule 12 as it was in effect on that 
date.
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    As part of the consolidation of NYSE Regulation with NASD,\7\ NYSE 
Regulation will cease to administer an arbitration program, and its 
existing arbitration department will be consolidated with NASD DR. As a 
result, on and after the date of the consolidation, all arbitration 
claims filed prior to the Effective Date, and previously subject to 
NYSE Regulation rules and administration, will be administered by NASD 
DR pursuant to a Regulatory Services Agreement with the NYSE.
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    \7\ Additional information regarding the consolidation may be 
found in: SR-NASD-2007-23 (March 19, 2007) concerning proposed 
amendments to the By-Laws of NASD to implement governance and 
related changes to accommodate the consolidation of the member firm 
regulatory functions of NASD and NYSE Regulation, Inc.; and SR-NYSE-
2007-22 (February 27, 2007) concerning proposed amendments to 
several NYSE rules which, among other matters, harmonize the rules 
with corresponding NASD regulatory requirements.
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    The rules governing the administration of any particular 
arbitration will depend on the date the case was filed. This will 
ensure that any person that filed an arbitration under a particular set 
of arbitration rules will continue to have the case administered 
pursuant to those rules through to the case's conclusion. There are two 
categories of cases. First, NYSE arbitration cases filed before the 
Effective Date will continue to be governed by existing NYSE Regulation 
arbitration rules, as would pending NYSE Arca and NYSE Arca Equities 
cases filed on or after February 1, 2007.\8\ Second, those NYSE Arca 
and NYSE Arca Equities cases filed on or prior to January 31, 2007 are 
(and will continue to be) governed by Rule 12.
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    \8\ See Release No. 34-55142 (January 19, 2007), 72 FR 3898 
(January 26, 2007) (SR-NYSEArca-2006-54) and Release No. 34-55141 
(January 19, 2007), 72 FR 3897 (January 26, 2007) (SR-NYSEArca-2006-
55).
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    Proposed Exchange Rule 600A provides detailed guidance concerning 
claims involving member organizations and/or associated persons that 
are asserted on and after the Effective Date. First, any dispute, claim 
or controversy between or among member organizations and/or associated 
persons shall be arbitrated pursuant to the NASD DR Codes of 
Arbitration Procedure. Second, any dispute, claim or controversy 
between a customer or a non-member and a member organization and/or 
associated person arising in connection with the business of such 
member organization and/or in connection with the activities of an 
associated person shall be arbitrated pursuant to NASD DR Codes of 
Arbitration Procedure as provided by any duly executed and enforceable 
written agreement, or upon the demand of the customer or non-member. 
Note that the obligation to arbitrate shall extend only to those 
matters that are permitted to be arbitrated under NASD DR Codes of 
Arbitration Procedure.
    In almost all cases the change from NYSE to NASD DR arbitration 
rules should not result in material, substantive differences to persons 
participating in the arbitration process. However, one difference is 
the treatment of employment discrimination claims. NASD DR rules 
provide that any claim alleging employment discrimination, including 
any sexual harassment claims, in violation of a statute, will be 
eligible for arbitration pursuant to either a pre-dispute or a post-
dispute agreement to arbitrate. In contrast, Exchange Rule 600(f) and 
Exchange Rule 347(b) permit claims to be arbitrated only when the 
parties have agreed to arbitrate the claim after it has arisen.
    Rule 347(a) provides that a controversy between a registered 
representative and a member organization ``arising out of the 
employment or termination of employment of such registered 
representative'' shall be arbitrated at the request of any party. These 
employment claims would continue to be covered by NASD DR Rule 
13200(a), which requires the arbitration of disputes arising out of the 
``business activities'' of a member or an associated person and is 
between or among members, members and associated persons, or associated 
persons.\9\ Accordingly, Rule 600 would be amended, as described below, 
to provide that Rule 347 would apply only to claims filed before the 
Effective Date.
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    \9\ Telephone conversation among Jean Feeney, Vice President, 
NASD; Lourdes Gonzalez, Assistant Chief Counsel--Sales Practices, 
Commission; and Michael Hershaft, Special Counsel, Commission (June 
27, 2007).
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    Rule 600A will explicitly retain the Exchange's enforcement 
authority related to arbitration. In appropriate cases, arbitrators 
refer to the Exchange potential violations of the Exchange's Rules or 
the federal securities laws that come to their attention during and in 
connection with a proceeding. Rule 600A will specify that the Exchange 
will retain the ability to take action based on such referrals that may 
come from arbitrators in cases being arbitrated at NASD DR.
    Rule 600A will also retain the substance of current Exchange Rule 
637, regarding the obligation to honor arbitration awards. It will 
provide that any Exchange member organization, or associated person of 
any Exchange member organization, that fails to honor an award of 
arbitrators rendered under the NASD DR Codes of Arbitration Procedure, 
or under the auspices of any other self-regulatory organization, shall 
be subject to disciplinary proceedings in accordance with Exchange Rule 
476. It will also specify that failure to submit a matter to 
arbitration as required by Rule 600A will also subject the member 
organization to Exchange disciplinary action.
    Rule 600A will also specify that the submission of any matter to 
arbitration as provided for under the Rule shall in no way limit or 
preclude any right, action or determination by the Exchange that it 
would otherwise be authorized to adopt, administer or enforce.
    Finally, Supplementary Material added to existing Rule 600, and to 
become effective on the Effective Date, will specify that the current 
NYSE arbitration rules, Rules 600 through 639 and Rule 347, will 
thereafter apply only to arbitrations filed prior to the Effective Date 
and will be otherwise of no force or effect. The Supplementary Material 
will also specify that arbitrations filed with NYSE Arca or NYSE Arca 
Equities on or prior to January 31, 2007 will continue to be governed 
by those organizations' Rule 12. This will ensure that those who filed 
arbitrations under a particular set of arbitration rules will continue 
to have their cases

[[Page 37813]]

administered pursuant to those same rules through to the cases' 
conclusion. The Supplementary Material will also note that on and after 
the date of the consolidation, all outstanding arbitrations filed prior 
to the Effective Date shall, until concluded, be administered by NASD 
DR pursuant to a Regulatory Services Agreement with the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b)(5) \10\ of the Act, which 
requires, among other things, that the rules of an Exchange be designed 
to promote just and equitable principles of trade and to protect 
investors and the public interest. The proposed rule change will 
streamline the arbitration process and provide for a unified and more 
efficient arbitration forum with one set of arbitration rules and 
administrative procedures. This will allow resources to be devoted to 
maintaining and improving the NASD DR program, rather than splitting 
resources between two mainly duplicative programs. As a result of these 
improvements, the proposed rule change will better protect investors 
and the public interest.
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    \10\ 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. 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 Exchange 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 e-mail to [email protected]. Please include File 
Number SR-NYSE-2007-48 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549.

All submissions should refer to File number SR-NYSE-2007-48. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. 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-2007-48 and should be 
submitted on or before August 1, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-13468 Filed 7-10-07; 8:45 am]
BILLING CODE 8010-01-P