[Federal Register Volume 72, Number 140 (Monday, July 23, 2007)]
[Notices]
[Pages 40184-40187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-14165]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56071; File No. SR-NYSEArca-2007-59]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change and Amendment No. 1 Thereto Relating to 
Amendments to Rule 12 To Provide Guidance Regarding New and Pending 
Arbitration Claims in Light of the Consolidation of NYSE Regulation 
Into NASD DR

July 13, 2007.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on June 26, 2007, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by NYSE Arca. On July 13, 2007, the NYSEArca 
filed Amendment No. 1 to the proposed rule change.\4\ 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\ 4 In Amendment No. 1, which supplemented the original 
filing, the Exchange clarified the applicability of Rule 12 as it 
was in effect on or prior to January 31, 2007.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca proposes to amend NYSE Arca Rule 12.
    NYSE Regulation, Inc. (``NYSE Regulation'') administers an 
arbitration program for NYSE Arca. As part of the consolidation of the 
member firm regulation function of 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: (i) All arbitrations filed 
with NYSE Arca after January 31, 2007 and prior to the later of the 
effective date of the consolidation or approval of this proposed rule 
change (the ``Effective Date''), shall continue to be governed by the 
Code of Arbitration contained in the 600 series of the New York Stock 
Exchange LLC Rules (``NYSE Arbitration Rules''); (ii) arbitrations 
filed on or prior to January 31, 2007 shall continue to be governed by 
NYSE Arca Rule 12 as it was in effect on or prior to January 31, 2007; 
and (iii) from and after the Effective Date, disputes between NYSE Arca 
Option Trading Permit (``OTP'') holders and NYSE Arca OTP firms, 
associated persons, and/or their customers will be arbitrated under the 
NASD DR Codes of Arbitration Procedure. The text of the proposed rule 
change is set forth below. Proposed new language is in italics; 
proposed deletions are in brackets.
* * * * *

Rule 12 Arbitration

    (a) General. All arbitrations filed with NYSE Arca after January 
31, 2007 and

[[Page 40185]]

prior to [insert later of effective date of the consolidation or 
approval of this proposed rule change] shall be governed by the Code of 
Arbitration contained in the 600 series of the New York Stock Exchange, 
L.L.C. Rules (``NYSE Arbitration Rules''), as the same may be in effect 
from time to time, except that arbitrations filed on or prior to 
January 31, 2007 shall be governed by NYSE Arca Rule 12 as it was in 
effect on or prior to January 31, 2007 [as may be specified in this 
Rule 12]. The term ``member'' as used in this Rule 12 and in the NYSE 
Arbitration Rules shall mean and refer to OTP Holders and OTP Firms. 
From and after [insert later of effective date of the consolidation or 
approval of this proposed rule change] (i) any dispute, claim or 
controversy between or among OTP Holders and/or OTP Firms and/or 
associated persons shall be arbitrated pursuant to the NASD Dispute 
Resolution, Inc. (``NASD DR'') Codes of Arbitration Procedure; and, 
(ii) any dispute, claim or controversy between a customer or non-member 
and an OTP Holder and/or OTP Firm and/or associated person arising in 
connection with the business of such OTP Holder and/or OTP Firm 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 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. NYSE Arca 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 NYSE 
Arca's Rules or the federal securities laws.
    (c) Failure to Arbitrate or to Pay an Arbitration Award. Any OTP 
Holder and/or OTP Firm and/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 NYSE Arca Rule 10.
    (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 NYSE Arca that it would otherwise be 
authorized to adopt, administer or enforce. [(b) Jurisdiction. Any 
dispute, claim or controversy arising out of or in connection with the 
business of any member of NYSE Arca, or arising out of the employment 
or termination of employment of associated person(s) with any member 
may be arbitrated under this Rule 12 except that: (1) A dispute, claim, 
or controversy alleging employment discrimination (including a sexual 
harassment claim) in violation of a statute may only be arbitrated if 
the parties have agreed to arbitrate it after the dispute arose; and 
(2) any type of dispute, claim, or controversy that is not permitted to 
be arbitrated under the NYSE Arbitration Rules, such as class action 
claims, shall not be eligible for arbitration under this Rule 12.
    (c) Predispute Arbitration Agreements. The requirements of NYSE 
Arbitration Rules shall apply to predispute arbitration agreements 
between NYSE Arca members and/or associated persons and their 
customers.
    (d) Referrals. If any matter comes to the attention of an 
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 NYSE 
Arca's Rules or the federal securities laws, the arbitrator may refer 
the matter to NYSE Regulation, Inc. for disciplinary investigation.
    (e) Payment of Awards. Any member or associated person who fails to 
honor an award of arbitrators appointed in accordance with this Rule 12 
shall be subject to disciplinary proceedings in accordance with Rule 10 
(Disciplinary Proceedings, Other Hearings, and Appeals).
    (f) Other Actions. The submission of any matter to arbitration 
under this Chapter shall in no way limit or preclude any right, action 
or determination by NYSE Arca 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 Arca 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. NYSE Arca 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.\5\ NYSE Arbitration currently administers an arbitration 
program for NYSE Arca, governed by what is referred to as ``Rule 12.'' 
\6\
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    \5\ The NYSE has proposed a separate filing related to the 
consolidation of NYSE Arbitration into NASD DR. See Securities 
Exchange Act Release No. 55818 (May 25, 2007), 72 FR 30898 (June 4, 
2007) (SR-NYSE 2007-48). On June 21, 2007, the NYSE filed Amendment 
No. 1 to this proposed rule change. See Securities Exchange Act 
Release No. 56015 (July 5, 2007), 72 FR 37811 (July 11, 2007).
    \6\ Although Rule 12 has subsequently been amended, for purposes 
of administering NYSE Arca 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 
Rule 12 or NYSE Regulation rules, will be administered by NASD DR 
pursuant to a Regulatory Services Agreement with the New York Stock 
Exchange LLC (``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

[[Page 40186]]

categories of cases. First, NYSE Arca cases filed on or prior to 
January 31, 2007 are and would continue to be governed by Rule 12 as it 
was in effect on that date. Second, NYSE Arca cases filed after January 
31, 2007, but prior to the Effective Date will continue to be governed 
by existing NYSE Regulation arbitration rules.\8\
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    \8\ See Securities Exchange Act Release No. 55142 (January 19, 
2007), 72 FR 3898 (January 26, 2007) (SR-NYSEArca-2006-54) and 
Securities Exchange Act No. 55141 (January 19, 2007), 72 FR 3897 
(January 26, 2007)(SR-NYSEArca-2006-55).
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    Rule 12, as amended, would provide detailed guidance concerning 
claims involving OTP Holders and/or OTP Firms and/or associated persons 
that are asserted on and after the Effective Date.\9\ First, any 
dispute, claim or controversy between or among OTP Holders and/or OTP 
Firms 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 an OTP Holder and/or 
OTP Firm, and/or associated person arising in connection with the 
business of such OTP Holder and/or OTP Firm 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. This obligation to arbitrate shall extend only to those 
matters that are permitted to be arbitrated under NASD DR Codes of 
Arbitration Procedure.
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    \9\ It is proposed that the provisions in the current Rule 
12(b)-(f) be deleted because these sections would be replaced by the 
proposed Rule 12 provisions described herein.
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    In almost all cases the change from NYSE rules or NYSE Arca rules 
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, NYSE 
Rule 600(f), NYSE Rule 347(b) and current NYSE Arca Rule 12(b) permit 
claims to be arbitrated only when the parties have agreed to arbitrate 
the claim after it has arisen.
    Proposed Rule 12(b) would explicitly retain NYSE Arca's enforcement 
authority related to arbitration. In appropriate cases, arbitrators 
would refer to NYSE Arca potential violations of NYSE Arca's rules or 
the federal securities laws that come to their attention during and in 
connection with a proceeding. Rule 12(b) would specify that NYSE Arca 
would retain the ability to take action based on such referrals that 
may come from arbitrators in cases being arbitrated at NASD DR.
    Proposed Rule 12(c) also would provide that any OTP Holder and/or 
OTP Firm, and/or associated person of any OTP Holder and/or OTP Firm, 
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 NYSE Arca Rule 10. Proposed Rule 12(c) 
also would specify that failure to submit a matter to arbitration as 
required by Rule 12 also would subject the OTP Holder and/or OTP Firm 
and/or associated person to Exchange disciplinary action.
    Proposed Rule 12(d) would 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 NYSE Arca that 
it would otherwise be authorized to adopt, administer or enforce.
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, after a transitional period, 
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 among 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-NYSEArca-2007-59 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 20549-1090.

    All submissions should refer to File Number SR-NYSEArca-2007-59. 
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

[[Page 40187]]

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 NYSE Arca. 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-NYSEArca-2007-59 and should 
be submitted on or before August 13, 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. E7-14165 Filed 7-20-07; 8:45 am]
BILLING CODE 8010-01-P