[Federal Register Volume 63, Number 143 (Monday, July 27, 1998)]
[Notices]
[Pages 40150-40151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40229; File No. SR-NYSE-98-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to an 
Interpretation of Article IV, Section 14 of the Exchange Constitution

July 17, 1998.
    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 July 10, 
1998, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have 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

    The Exchange proposes to interpret Article IV, Section 14 of the 
Exchange Constitution to provide that decisions of the Director of 
Arbitration regarding jurisdiction and hearing situs are not subject to 
review by the Exchange's Board of Directors.

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 its 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
    The purpose of the proposed resolution is to interpret Article IV, 
Section 14 of the Exchange Constitution so that decisions of the 
Director of Arbitration on issues of jurisdiction and hearings situs 
are not subject to review by the Exchange's Board at the request of a 
member, member organization, allied member or approved person. This 
section of the Exchange Constitution provides that where the Board has 
delegated its powers to an officer or employee, ``a member, member 
organization, allied member of approved person affected by a decision 
of any officer or employee * * * may require a review by the Board of 
such decision.'' No explicit exception is made for actions taken by the 
Director of Arbitration. Moreover, this provision is not applicable to 
persons other than members, member organizations, or allied members of 
approved persons affected by a decision of the Director of Arbitration. 
However, Exchange Rule 621 and applicable law provide for the review of 
the Director's decisions by arbitrators or the courts. In addition, the 
Board has the authority to interpret the Constitution.\1\
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    \1\ Article IV, Section 13.
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    The Director of Arbitration is ``charged with the duty of 
performing all ministerial duties in connection with matters submitted 
for arbitration.'' \2\ These duties include making the initial 
decisions regarding jurisdiction and hearing situs.\3\ Exchange Rule 
613 deals with the situs of a hearing and provides that ``[t]he time 
and place for the initial hearing shall be determined by the Director 
of Arbitration and each hearing thereafter by the arbitrators.''
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    \2\ Exchange Rule 635.
    \3\ Exchange Rules 600 and 613.
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    Article XI, Section 1 of the Exchange Constitution and Exchange 
Rule 600 establish the jurisdiction of the Exchange's arbitration 
forum.\4\ When a claim is submitted for arbitration at the Exchange, 
the Director of Arbitration, as part of the ``ministerial duties in 
connection with matters submitted for arbitration,'' determines whether 
the claim submitted falls within the parameters of the Exchange's 
jurisdiction.
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    \4\ ``Any controversy between parties who are members, allied 
members or member organizations and any controversy between a 
member, allied member or member organization and any other person 
arising out of the business of such member, allied member or member 
organization, or the dissolution of a member organization, shall at 
the instance of any such party, be submitted for arbitration in 
accordance with the provisions of this Constitution and such rules 
as the Board may from time to time adopt.'' (Article XI, Sec. 1).
    ``Any dispute, claim or controversy between a customer or non-
member and a member, allied member, member organization and/or 
associated person arising in connection with the business of such 
member, allied member, member organization and/or associated person 
in connection with his activities as an associated person shall be 
arbitrated under the Constitution and Rules of the New York Stock 
Exchange, Inc. as provided by any duly executed and enforceable 
written agreement or upon the demand of the customer or non-
member.'' Exchange Rule 600.
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    The arbitrators are empowered to interpret and determine the 
applicability of all provisions of the Arbitration Rules \5\ and 
thereby the Exchange believes they can overturn decisions of the 
Director of Arbitration regarding situs of he first hearing. Decisions 
of the Director Arbitration regarding jurisdiction are subject to 
review by the courts.\6\
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    \5\ See Exchange Rule 621.
    \6\ Spear, Leeds & Kellogg v. Central Life Assurance Co., 85 
F.3d 21 (2d Cir. 1996).
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    The NYSE notes that in the past, members have requested, and the 
Board has granted, review of the Director of Arbitration's decisions on 
jurisdiction and hearing situs.
    The Exchange notes that interlocutory procedural decisions are 
rarely appealable in judicial and arbitral

[[Page 40151]]

processes. Generally, they are reserved for consideration as part of 
any overall review of the lowest court's or arbitrator's decision. This 
reservation occurs in part because interlocutory appeals are frequently 
employed by parties simply to gain tactical advantage in the dispute. 
In addition, a substantive resolution of the conflict will often moot 
the procedural issues.
    Inasmuch as this review by the Board of staff action is in the 
nature of an interlocutory appeal, the arbitrators and the courts may 
subsequently review the Board's decision. This may result in an 
unnecessary delay in the final resolution of an arbitration claim.
    The Exchange notes that as a matter of statutory interpretation, 
when two statutes speak to the same subject matter, and one is general 
and the other is specific, the specific is usually interpreted to 
qualify or control the general. In this case, the Exchange Constitution 
and Rules, as well as the statutory framework within which alternative 
dispute resolution processes operate, create a specific scheme for 
review of administrative decisions of the Director of Arbitration.\7\ 
The Exchange believes that this specific scheme obviates the need for 
review of the Director's decisions under the Exchange Constitution's 
general scheme for Board review of staff actions. Accordingly, the 
Exchange believes it is well within the norms of statutory construction 
for the Board to interpret the specific scheme for the review of the 
decisions of the Director to displace the general scheme.
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    \7\ See NYSE Rule 621; see also Federal Arbitration Act, 9 
U.S.C. 1 et seq.
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2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b)(5) of the Act \8\ in that it promotes just and equitable 
principles of trade by insuring that members and member organizations 
and the public have a fair and impartial forum for the resolution of 
their disputes.
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    \8\ 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 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 is 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 is consistent with the Act. 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 
Exchange. All submissions should refer to File No. SR-NYSE-98-20 and 
should be submitted by August 17, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19984 Filed 7-24-98; 8:45 am]
BILLING CODE 8010-01-M