[Federal Register Volume 62, Number 68 (Wednesday, April 9, 1997)]
[Notices]
[Pages 17273-17274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9065]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38466; File No. SR-NASD-97-22]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To Amend 
the Damage Ceilings for Claims Under the Standard Arbitration and 
Simplified Arbitration Procedures

April 2, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on March 
27, 1997, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items has been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.

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

    NASD Regulation, Inc. (``NASDR'') is proposing to amend the Code of 
Arbitration Procedure (``Code'') of the NASD to: (1) Raise the ceiling 
for disputes to be eligible for resolution by a single arbitrator under 
simplified arbitration procedures from $10,000 to $25,000; and (2) 
raise the ceiling for disputes eligible for resolution by a single 
arbitrator under standard arbitration procedures from $30,000 to 
$50,000.

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 self-regulatory organization 
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. The self-regulatory organization 
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
    In its January 1996 Report on Securities Arbitration Reform, the 
NASD's Arbitration Policy Task Force (``Task Force'') recommended that 
the ceiling for cases eligible for resolution by a single arbitrator 
under simplified arbitration procedures should be raised from $10,000 
to $30,000. The Task Force also recommended that the ceiling for cases 
eligible for resolution by a single arbitrator under standard 
arbitration procedures should be raised from $30,000 to $50,000. The 
Task Force recommended that these changes apply to all NASD 
arbitrations--public customer and intra-industry. The Task Force 
stated, and NASDR concurs, that raising the threshold, which will cause 
a larger percentage of cases to be resolved under the simplified 
arbitration procedures, will ``strike an appropriate balance between 
the desire for faster and less expensive arbitration on the one hand 
and more expansive procedures on the other.'' \1\
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    \1\ See Report of the Arbitration Policy Task Force on 
Securities Arbitration Reform, at 73.
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    NASDR has consulted with the Securities Industry Conference on 
Arbitration (``SICA'') and the New York Stock Exchange (``NYSE'') on 
the appropriate threshold for simplified and single-arbitrator 
proceedings. While SICA and the NYSE agree with the Task Force's 
rationale, they are concerned that setting the threshold for simplified 
arbitrations too high could disadvantage customer claimants by limiting 
their procedural rights \2\ under the Code in cases that have 
significant economic value to the customer. In view of these concerns, 
NASD is instead proposing to set the threshold for simplified 
arbitration at $25,000, instead of $30,000. SICA approved of the 
adjusted thresholds at its October 17, 1996 meeting.
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    \2\ Under the simplified arbitration procedures for matters 
between a public customer and an associated person or member, cases 
are resolved without a hearing (so-called ``paper cases'') by a 
single public arbitrator. A public customer may, however, demand a 
hearing, or the arbitrator may call a hearing, in which case the 
arbitrator will hold a hearing and the parties will have the benefit 
of all of the available forms of discovery. See Rule 10302. Under 
the standard arbitration procedures for all matters involving public 
customers, cases in which the claims are more than $10,000 but less 
than $30,000 may be heard by a single public arbitrator. These cases 
are not decided on the papers; rather, the arbitrator holds a 
hearing. However, any party may demand a three person panel. See 
Rule 10308.
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    Accordingly, NASD is proposing to amend Rules 10202, Composition of 
Panels (former Section 9) and 10308, Designation of Number of 
Arbitrators (formerly Section 19) \3\ of the Code to establish the 
threshold for single arbitrator cases at $50,000. NASDR is also 
proposing to amend Rules 10203, Simplified Industry Arbitration 
(formerly Section 10) and 10302, Simplified Arbitration (formerly 
Section 13) of the Code to establish the threshold for simplified 
arbitrations at $25,000. In addition, NASD is proposing to amend each 
of those rules to state that the threshold amount is ``exclusive of 
attendant costs and interest.''
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    \3\ NASDR will shortly be filing a proposed rule change to amend 
Rule 10308 to implement the list selection process for the selection 
of arbitrators recommended by the Task Force. The list selection 
rule filing will further substantially amend Rule 10308, but will 
not be implemented until NASD has developed the technology and 
procedures to administer the process and developed a pool of 
arbitrators sufficient to provide lists of arbitrators in accordance 
with the requirements of the rule. Accordingly, NASD is amending 
Rule 10308 in the interim until the list selection rule is filed, 
approved and implemented.
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    Under the proposed rule change to Rules 10302(d) and 10308(b), 
claims involving public customers and exceeding $25,000, exclusive of 
attendant costs and interest, will be heard by a three member 
arbitration panel, rather than a panel of no less than three and no 
more than five arbitrators. Under the proposed rule change to Rule 
10302 (f) and (h)(3), the Director of Arbitration will ``appoint,'' 
rather than ``select,'' the public arbitrator for simplified 
arbitration. The proposed rule change amends Rule 10308(a) to state 
that a majority of the arbitrators on a three member arbitration panel 
(for claims that are less than or equal to $50,000 but where a party or 
arbitrator requested a panel of three arbitrators) shall be public 
arbitrators, rather than stating that a majority of the three 
arbitrator panel ``shall not be from the securities industry.'' The 
proposed rule change also includes several technical changes designed 
to correct inconsistencies in the rule language and which were also 
adopted by SICA.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the

[[Page 17274]]

Act \4\ in that raising the thresholds for simplified arbitration and 
for standard arbitrations using a single arbitrator will permit such 
cases to be resolved more quickly and at lower cost to the parties and 
is consistent with the NASD's longstanding goal of providing the 
investing public with a fair, efficient and cost-effective forum for 
the resolution of disputes.
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    \4\ 15 U.S.C. Sec. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-97-22 and should 
be submitted by April 30, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-9065 Filed 4-8-97; 8:45 am]
BILLING CODE 8010-01-M