Federal Register / Vol. 63, No. 124 / Monday, June 29, 1998 / Notices 35303

Management Relations (‘‘Dunlop Commission’’).

Legislation was introduced in the House and the

Senate that would prohibit parties from entering

into agreements to resolve employment

discrimination claims unless they voluntarily enter

into them after such claims arise.

49Attorney General Letter.

50EEOC Letter.

51Attorney General Letter; EEOC Letter; Liddle

Letter.

52Attorney General Letter. NASD Regulation

responded that the content of private arbitration

agreements is not germane to the proposed rule

change, which simply removes the arbitration

requirement imposed through the signing of the

Form U–4 from the NASD’s rules.

53 the Commission oversees the arbitration

programs of the SROs, like the NASD, through

inspections of the SRO facilities and the review of

SRO arbitration rules. Inspections are conducted to

identify areas where procedures should be

strengthened, and to encourage remedial steps

either through changes in administration or through

the development of rule changes.

54 15 U.S.C. 78o–3(b)(6).

55 15 U.S.C. 78c(f).

56Because Amendment No. 2 is technical in

nature, it is not subject to a notice and comment

requirement.

57 15 U.S.C. 78s(b)(2).

58 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Also on March 3, 1998, the PCX filed proposed

rule change SR–PCX–98–13 (‘‘Companion filing’’),

requesting the Commission to approve a one-year

pilot of the Program. See Securities Exchange Act

Release No. 39825 (April 1, 1998), 63 FR 17250. The

Companion filing originally was to become effective

at the expiration of the temporary, 90-day Program.

On March 12, 1998 the PCX filed Amendment No.

1 to the proposed rule change. See Letter from

Michael D. Pierson, Senior Attorney, Regulatory

Policy, PCX, to Marc McKayle, Attorney, Division

of Market Regulation (‘‘Division’’), Commission

Continued

unequal bargaining power of employers

and employees,49 and because they are

contrary to the fundamental principles

reflected in this nation’s antidiscrimination laws.50 These

commenters argued that the

Commission should only allow

agreements that are truly voluntary and

that are entered into after a dispute has

arisen.51 In addition, one commenter

supported voluntary post-dispute

agreements to arbitrate employment

disputes only to the extent that such

agreements preserve the substantive

protections and remedies afforded by

statute, and argued that the NASD

should amend its proposal to include

such protections.52

The NASD Regulation stated it

considered the above issues and does

not take a position on the desirability of

private arbitration agreements between

members and their employees, but

instead simply determined to remove

from its rules the mandatory

requirement as to claims of statutory

employment discrimination.

IV. Discussion

Under the Act, SROs, like the NASD,

are assigned rulemaking and

enforcement responsibilities to perform

their role in regulating the securities

industry for the protection of investors

and other related purposes. Pursuant to

Section 19(b)(2) of the Act, the

Commission is required to approve a

rule change of an SRO like the NASD if

it determines that the proposal is

consistent with applicable statutory

standards.53 These standards include

Section 15A(b)(6) of the Act, which

provides that the NASD’s rules must be

designed to, among other things,

‘‘promote just and equitable principles

of trade;’’ and ‘‘protect investors and the

public interest.’’ Section 15A(b)(6) also

provides that the NASD’s rules may not

be designed to ‘‘regulate * * * matters

not related to the purposes of the

[Exchange Act] or the administration of

the [NASD].’’

By changing its rule, the NASD will

no longer require associated persons,

solely by virtue of their association or

registration with the NASD, to arbitrate

claims of statutory employment

discrimination. NASD’s proposal is

consistent with the applicable statutory

standards.54 The statutory employment

anti-discrimination provisions reflect an

express intention by legislators that

employees receive special protection

from discriminatory conduct by

employers. Such statutory rights are an

important part of this country’s efforts

to prevent discrimination. It is

reasonable for the NASD to determine

that in this unique area, it will not, as

a self-regulatory organization, require

arbitration.

With respect to the bifurcation issue

raised by the commenters, the Supreme

Court, in Dean Witter Reynolds, Inc. v.

Byrd, 470 U.S. 213, 217 (1985),

acknowledge the appropriateness of

bifurcation between federal statutory

and pendant state law claims.

With respect to the issue raised by

commenters of whether the rule should

be effective immediately or have a

delayed effective date, notwithstanding

this rule change by the NASD, other

SROs continue to have rules that will

require employees of their members to

arbitrate statutory discrimination

claims. The NASD’s decision to move

the effective date from one year after

approval of the proposed rule change to

January 1, 1999 is a reasonable

compromise. The January 1, 1999 date

will permit other SROs to change their

rules as the NASD has done, so that

employees of member firms of other

SROs will not be required to arbitrate

these claims.

With respect to other comments that

suggested that the NASD should enact

other rules concerning employer/

employee arbitration agreements or

extend this rule to other causes of

action, these issues are left to the NASD

to consider in the first instance.

In approving this rule, the

Commission notes that it has considered

the proposed rule’s effects upon

efficiency, competition, and capital

formation.55

Amendment No. 2 is a technical

amendment; it changes the rule

language to clarify that sexual

harassment is a form of sex

discrimination prohibited under Title

VII (as well as certain state statutes).

This change will make it clear to the

securities industry that sexual

harassment claims are encompassed

within the term ‘‘employment

discrimination’’ claims. In addition, as

discussed more fully above,

Amendment No. 2 also amends the

effective date of the proposal to an

earlier date, while at the same time still

allowing enough time for members and

member firms to consider and

implement the changes.56

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,57 that the

proposed rule change, as amended, (SR–

NASD–97–77) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.58

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–17150 Filed 6–26–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40108; File No. SR–PCX–

98–14]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to Amendment

No. 2 To Extend the Supervisory

Specialist Pilot Program

June 22, 1998.

I. Background

On March 3, 1998, the Pacific

Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

a proposed rule change pursuant to

Section 19(b)(2) of the Securities

Exchange Act of 1934 (‘‘Act’’),1 and

Rule 19b–4 thereunder,2 to establish a

temporary, 90-day, Supervisory

Specialist Pilot Program (‘‘Program’’).3
35304 Federal Register / Vol. 63, No. 124 / Monday, June 29, 1998 / Notices

(‘‘Amendment No. 1’’). In Amendment No. 1, the

PCX provided a basis for the accelerated

effectiveness of the proposal pursuant to Section

19(b)(2) of the Act, explaining that the Program was

designed to permit specialist firms greater control

over the impact of sharply escalating seat prices,

while preserving the quality of the Exchange’s

markets and services to the public and its members.

4Securities Exchange Act Release No. 39784

(March 24, 1998), 63 FR 15472.

5See letter from Michael D. Pierson, Senior

Attorney, Regulatory Policy, PCX, to Richard

Strasser, Assistant Director, Division, Commission

(June 18, 1998) (‘‘Amendment No. 2’’).

6See letter from Daniel H. Turner, President,

Rubicon Securities, Inc. to Jonathan G. Katz,

Secretary, Office of the Secretary, Commission (May

12, 1998).

7See letters from Matthew D. Wayne, Counsel to

PBL, Inc., Vanasco & Wayne, to Jonathan G. Katz,

Secretary, Office of the Secretary, Commission

(April 14, 1998), and John A. Brown, Chairman

(retired), M.J.T. Securities, Inc., to Jonathan G. Katz,

Secretary, Office of the Secretary, Commission (June

2, 1998).

8U.S.C. 78f(b)(5).

9Securities Exchange Act Release No. 39825

(April 1, 1998) 63 FR 17250.

10 15 U.S.C. 78s(b)(2).

11CFR 200.30–3(a)(12).

The proposed rule change was

published for comment in the Federal

Register on March 31, 1998.4 Under the

Program, eligible PCX specialist firms

may operate two specialist posts, on the

PCX Equities Floors only, based upon

one Exchange membership. On June 18,

1998, the PCX filed Amendment No. 2,

proposing to extend the 90-day pilot,

due to expire on June 22, 1998, for an

additional 90 days to give PCX an

adequate opportunity to respond to

concerns regarding the filing raised in

comment letters, and to prevent the

disruption of specialist firms already

operating under the Program.5 For the

reasons discussed below, the

Commission is approving the proposed

rule change on an accelerated basis.

II. Proposed Rule Change

In an effort to streamline the way

business is conducted on the Exchange’s

Equities Floors, and to provide

Exchange specialist firms with greater

control over the management and costs

of their operations, the Exchange

proposed to adopt the Supervisory

Specialist Pilot Program. Under the

Program, a specialist firm may operate

two specialist posts based upon one

Exchange membership, provided that

both posts will be staffed by Specialists

who have been qualified by the

Exchange as Registered Specialists

under the rules of the Exchange. The

Program permits one specialist post to

be staffed by a Member who is

registered as the supervising specialist

(‘‘Supervisory Specialist’’), while the

other post is staffed by an Associated

Person of the specialist firm who is

otherwise qualified to act as a

Registered Specialist (the ‘‘Associate

Specialist’’). Under the Program, the

Supervisory Specialist acts as

supervising specialist over the Associate

Specialist. Program participants are

restricted to Exchange Members with

seats on the Equity floor, and no more

than two specialist posts may be

operated per membership.

III. Comments

The Commission has received three

comment letters on the proposal. One

comment letter supports the Exchange’s

rationale for the Program.6 The others

oppose the Program. The two opposing

letters claim that the Program will dilute

the value of Exchange seats as an

investment property.7 Furthermore, the

dissenters argue that such a change to

the Exchange’s seat operations requires

approval by a majority vote of the PCX

Membership, as well as the PCX Board

of Directors, pursuant to the Article V,

Section 1 of the PCX Constitution.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act. In

particular, the Commission seeks

comment on whether the proposal is

consistent with the PCX Constitution.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with 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, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the PCX. All submissions

should refer to File No. SR–PCX–98–14

and should be submitted by July 20,

1998.

V. Commission Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

After careful review, the Commission

finds that the proposed rule change is

consistent with the Act and the rules

and regulations thereunder applicable to

a national securities exchange. In

particular, the Commission believes the

proposal is consistent with the

Exchange Act Section 6(b)(5) 8

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protest investors

and the public. In originally approving

the program for a 90-day pilot, the

Commission preliminarily found that

the Program could enhance liquidity in

equity securities traded on the Exchange

members by given specialist firms the

opportunity to become specialists in

more stock without incurring additional

membership costs. Since then the

Commission has received comment

letters expressing concerns with certain

aspects of the Program. By approving

the Program for a further limited period

of time, but without extending it to

additional firms, the Commission will

prevent disruption to the firms already

enrolled in the Program while enabling

the Commission to determine whether

its preliminary determinations remain

correct in light of the comment letters.

Approval of the 90-day extension has no

bearing on, and should not be

interpreted to suggest that the

Commission ultimately will approve

PCX’s Companion filing (SR–PCX–98–

13),9 requesting approval of the pilot for

one year.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. First, the Commission

notes that the extension is only for 90

days. Second, the approval of the 90-day

extension is granted on the condition

that the PCX will not enlist any

additional specialist firms to the

Program during this period. As a result,

the extension will merely preserve the

status quo to give the PCX additional

time to respond to the comment letters

and to give the Commission time to

consider that response.

VI. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (SR–PCX–98–14)

is hereby approved on an accelerated

basis through September 21, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–17233 Filed 6–26–98; 8:45 am]

BILLING CODE 8010–01–M