Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices 7241

12 15 U.S.C. 78s(b)(2) (1982).

13 17 CFR 200.30–3(a)(12) (1994).

1The NASD initially submitted the proposed rule

change on February 15, 1994. Amendment No. 1,

submitted on October 12, 1994, clarified various

aspects of the proposed rule change, altered the

manner in which arbitrators are selected to a panel

and altered the disclosures required with respect to

unsuccessful settlement discussions. Amendment

No. 2, submitted on November 18, 1994, amended

proposed Section 46(g) to clarify that arbitrators

may, at their own initiative, issue an award

accompanied by a statement of reasons or basis of

award and that parties may specifically agree to

require arbitrators to issue a statement of reasons

when they issue an award. Amendment No. 3,

submitted on December 12, 1994, and Amendment

No. 4 were minor technical amendments. See Letter

from Suzanne E. Rothwell, Associate General

Counsel, NASD, to Mark Barracca, Branch Chief,

Over-the-Counter Regulation, SEC (December 9,

1994) (available in Commission’s Public Reference

Room); Letter from Suzanne E. Rothwell, Associate

General Counsel, NASD, to Mark Barracca, Branch

Chief, Over-the-Counter Regulation, SEC (January

31, 1994) (available in Commission’s Public

Reference Room).

2 15 U.S.C. 78s(b)(1) (1988).

3 17 CFR 240.19b–4.

4NASD Manual, Code of Arbitration Procedure,

(CCH) ¶¶ 3701 et. seq.

5NASD Manual, Code of Arbitration Procedure,

Part III, Sec. 43 (CCH) ¶ 3743.

6NASD Manual, Code of Arbitration Procedure,

Part III, Sec. 44 (CCH) ¶ 3744.

7See letter from Cliff Palefsky, Esq., Chairman,

Securities Industry Arbitration Committee, National

Employment Lawyers Association (‘‘NELA’’), to

Jonathan G. Katz, Secretary, SEC, dated December

12, 1994 (‘‘NELA Letter’’); letter from Seth E.

Lipner, Esq., Deutsch & Lipner, to Jonathan G. Katz,

Secretary, SEC, dated December 22, 1994 (‘‘Lipner

Letter’’).

8NASD Manual, Code of Arbitration Procedure,

Part I, Sec. 1 (CCH) ¶ 3701.

9NASD Manual, Code of Arbitration Procedure,

Part II, Secs. 8–11 (CCH) ¶ 3708–3711.

10NASD Manual, Code of Arbitration Procedure,

Part III, Sec. 13 (CCH) ¶ 3713.

Appeals Committee with the discretion

to waive the forum fee established in

CBOE Rule 17.50 if the BCC or the

Appeals Committee determines that the

person charged is guilty of one or more

of the rule violations alleged and the

sole disciplinary sanction imposed by

the BCC or the Appeals Committee is a

fine which is less than the total fine

initially imposed for the violation. By

allowing the BCC and the Appeals

Committee to waive the forum fees, the

Commission believes that the proposal

should enhance the fairness of the

CBOE ’s disciplinary system and help to

ensure that appropriate and equitable

discipline is imposed under CBOE Rule

17.50.

The Commission believes that it is

reasonable for the Exchange to amend

CBOE Rule 17.50 to provide that the

Exchange department which

commenced an action under CBOE Rule

17.50, the person charged, the President

of the Exchange, and the Board may

require a review by the Board of any

determination of the Appeals

Committee under CBOE Rule 17.50 by

proceeding in the manner provided in

CBOE Rule 19.5, ‘‘Review.’’ The

Commission notes that the provision is

similar to the current CBOE rule

governing requests for review of BCC

determinations.

Finally, the Commission believes that

the CBOE’s proposal to make

nonsubstantive changes to CBOE Rule

17.50(g)(1) is consistent with the Act

because it is designed to clarify the rule.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register in order to

establish procedures applicable to

appeals of fines imposed pursuant to

CBOE Rule 17.50(g)(7). By providing

members with a means to appeal such

fines, the Commission believes that the

procedures set forth in Amendment No.

1 should help to ensure that fines are

imposed fairly under CBOE Rule

17.50(g)(7). Accordingly, the

Commission believes it is consistent

with sections 6(b)(5) and 19(b)(2) of the

Act to approve Amendment No. 1 on an

accelerated basis.

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,12 that the

proposed rule change (File No. SR–

CBOE–94–46) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–2907 Filed 2–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35314; File No. SR–NASD–

94–10]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Procedures

for Large and Complex Arbitration

Cases

February 1, 1995.

On January 31, 1995, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)1

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’)2, and

Rule 19b–4 thereunder.3 The rule

change amends the Code of Arbitration

Procedure (‘‘Code’’)4 by amending Part

III, Sections 43 5 and 44 6 and adding

new Section 46 to provide procedures

for large and complex arbitration cases

as a one year pilot program.

Notice of the proposed rule change,

together with the substance of the

proposal, was provided by issuance of a

Commission release (Securities

Exchange Act Release No. 34998, Nov.

22, 1994) and by publication in the

Federal Register (59 FR 61010, Nov. 29,

1994). Two comment letters were

received.7 This order approves the

proposed rule change.

I. Background

The Code governs arbitration of any

dispute arising out of or in connection

with the business of any NASD member,

or arising out of the employment or

termination of employment of

associated persons with a member, other

than disputes involving the insurance

business of any member which is also

an insurance company, if the dispute is:

(1) Between or among members; (2)

between or among members and

associated persons; (3) between or

among members of associated persons

and public customers, or others; or (4)

between or among members, registered

clearing agencies with which the NASD

has entered into an agreement to use the

NASD’s arbitration facilities and

procedures, and participants, pledges or

other persons using the facilities of a

registered clearing agency.8

The Code contains specialized

procedures for certain categories of

cases. Part II of the Code 9 contains

procedures applicable solely to industry

and clearing controversies. Section 13 of

the Code 10 contains certain specialized

procedures applicable to controversies

involving public customers and

associated persons or members if these

controversies involve a dollar amount

not exceeding $10,000.

The NASD submitted this rule change

because it believes that certain large and

complex cases may require special

management beyond that currently

afforded by the Code. Therefore, the

NASD is adding new Section 46 to the

Code setting forth procedures for

handling and managing large and

complex cases. In part, some of the

procedures contain certain features of

rules adopted by the American

Arbitration Association (‘‘AAA’’) for

processing large and complex cases.

Section 46 also contains certain features

of the arbitration rules of the National

Futures Association. Many of the

procedures in Section 46 also are

provided elsewhere in the Code;

however, the NASD believes that

grouping these procedures together in a
7242 Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices

11See letter dated October 12, 1994, to Mark

Barracca, Esq., Branch Chief, SEC, from Suzanne E.

Rothwell, Associate General Counsel, NASD

(‘‘NASD Letter’’).

12See e.g., NASD Manual, Code of Arbitration

Procedure, Part III, Secs. 29, 32, 33 and 35 (CCH)

¶¶3729, 3732, 3733 and 3735.

single section serves to emphasize the

utility of these procedures for large and

complex cases.

The NASD stated that the procedures

are intended to encourage the parties to

come to an agreement on the rules that

will govern the disposition of the

matter. Under new Section 46, all cases

that are eligible for the procedures

contained in that Section will be

scheduled for an administrative

conference in order to determine

whether the parties can agree on ways

in which the case should be

administered. Beyond the mandatory

administrative conference, however, all

parties to an eligible matter must agree

to continue with a proceeding under the

provisions of Section 46; otherwise, the

Code provisions generally applicable to

arbitration matters will govern the

proceeding. The NASD stated that most

of the provisions of the proposed rules

will allow the parties to adopt an

alternative procedure of their own

creation if they can agree on such

procedures.

Section 46 includes procedures for an

administrative conference, the

appointment of arbitrators, and a

preliminary hearing. The provisions of

the rule change are described in more

detail below.

Finally, the rule change is a one year

pilot program. It will remain in effect for

cases filed within one year from the date

of effectiveness (ninety days after the

date of this order) unless the NASD

Board of Governors authorizes and the

Commission approves its modification

or extension. During the pilot program

the NASD will monitor the

implementation and utility of the rule

change in order to determine whether to

add it permanently to the Code.

II. Substantive Provisions

A. Fees

Sections 43 and 44 of the Code, which

specify the schedule of fees for customer

disputes and industry disputes,

respectively, have been amended to add

subsections specifying that the fees and

deposits for matters submitted for

arbitration under the large and complex

case rules shall be the fees and deposits

otherwise specified for claims over

$5,000,000. As discussed further below

in Section D., parties may be assessed

additional fees to compensate

arbitrators. Parties may condition their

acceptance of the large and complex

case rules on an agreement with the

NASD governing these fees.

B. Applicability

Section 46(a) specifies that the

procedures for large and complex cases

will be applicable to disputes, claims or

controversies (‘‘eligible matters’’) in

which the claim or counterclaim is at

least $1 million, including punitive or

exemplary damages, but exclusive of

interest costs or fees, or in other cases

in which the parties agree that the

matter should be subject to the

procedures. This provision permits

parties with claims of less than $1

million to have their matter heard

pursuant to these procedures if, in their

judgment, it would be advantageous to

do so.

Section 46(a) requires an eligible

matter to be scheduled for an

administrative conference. As noted

above, unless all parties agree, the large

and complex case rules will not govern

arbitration of the matter following the

administrative conference. The

procedures for an administrative

conference, discussed in detail below,

bring the parties together to consider the

various issues involved in managing the

matter and to determine if any

agreement can be reached on such

issues. If the parties fail to agree on

procedures, they are not required to

continue under the large and complex

case rules; the rules are not intended to

apply to cases if a party does not wish

for them to apply. In order to assist

parties in deciding whether to proceed

under the large and complex case rules,

the NASD will provide all parties with

an educational pamphlet.11 The

pamphlet will discuss issues that parties

should address in a written document

prior to submitting a matter for

resolution under the large and complex

case rules, including, among other

issues, arbitrator selection and

compensation, discovery and whether

an award will include a statement of

reasons. Thus, the rule change does not

permit a selection of the large and

complex case rules in a predispute

arbitration agreement. Rather, it

specifically provides that any agreement

to proceed under such rules will be

made at or after an administrative

conference.

If all parties agree to continue the

proceedings under the large and

complex case rules, Subsection (a)

provides that the agreement becomes

binding on the parties once the last

arbitrator is appointed. This

requirement reflects the NASD’s view

that parties devote substantial resources

to formulate procedures to govern a

particular matter. In addition,

substantial effort and commitment is

required to appoint arbitrators. A party

could be severely disadvantaged if it

devoted time and resources to

arbitrating a matter under the large and

complex case rules, only to confront

unilateral rejection of the agreed-upon

procedures later in the process.

In this regard, the NASD has stated

that if, at any point after such an

agreement under Section 46 (a)(2) and

(a)(3) becomes binding, a member of the

NASD or an associated person refuses to

proceed with the arbitration of the

matter and, instead seeks to dismiss the

action and refile it in court, another

arbitration forum, or with the NASD as

an ordinary arbitration action, the

NASD would regard this action as a

violation of the member’s obligation to

arbitrate such matters under the Code

subjecting the member of associated

person to potential disciplinary action.

Further, the NASD has stated that any

failure by any party to proceed after the

agreement becomes binding may be

addressed under various provisions of

the Code which permit the arbitrators to

issue orders, penalize parties and make

awards without the attendance or

participation of a party.12

C. Administrative Conference

Section 46(b) provides for an

administrative conference of the parties

to an eligible matter to discuss, among

other things, the claim and amount in

dispute, arbitrator preferences,

procedures, discovery, scheduling and

settlement. In its filing with the

Commission, the NASD indicated that

this provision is intended to bring the

parties together to air and discuss all

issues related to the arbitration, to

exchange information on procedural

and scheduling matters, and to reach

agreement on as many procedural and

scheduling issues as possible in order to

facilitate the orderly and expeditious

resolution of the matter. The filing notes

that if it becomes apparent that one or

more parties are not amenable to

proceeding under the large and complex

case rules, the administrative

conference will have served its purpose

and the matter may proceed under the

other provisions of the Code.

The NASD expects that parties will

have reviewed the NASD’s pamphlet

before the administrative conference.

Among the topics to be addressed in the

pamphlet are the issues that parties

should address in a written agreement

under Section 46 (a)(2) and (a)(3) prior

to submitting a matter for resolution

under the large and complex case rules,
Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices 7243

13The NASD has indicated that it intends to

identify arbitrators qualified to preside over such

cases on the basis of training, experience, varied

knowledge and expertise. Qualifications for

inclusion in the pool may be based on, among

others, the following factors: (1) Attendance and

successful completion of course(s) relating to large

and complex cases; (2) experience and regular

service as an arbitrator; (3) knowledge or expertise

in the subject matter or technical aspects of the

dispute; (4) length of service as an Association

arbitrator; and (5) professional and business

expertise.

including: (1) Arbitrator selection; (2)

additional fees for arbitrator

compensation; (3) whether the parties

will use the prehearing discovery rules

included in these large and complex

case rules, whether they will use the

prehearing discovery rules elsewhere in

the Code, or some other prehearing

procedures; and (4) whether the parties

are contracting for the arbitrators to

provide a written statement of reasons.

The pamphlet also will disclose that, if

the parties fail to address any of these

issues, the issues may need to be

resolved by the arbitration department

or the arbitrators, as appropriate under

the assignment of responsibilities under

the large and complex case rules and

other Code provisions. The pamphlet

also will highlight the fact that a

significant feature of the large and

complex rules is that arbitrators are

authorized to dismiss the case, or any

part of it, on the written submissions of

the parties without any oral hearing.

D. Appointment of Arbitrators

Section 46(c) provides for the

appointment of a panel of three

arbitrators to hear eligible matters. At

least one arbitrator must be an attorney.

The NASD intends to establish a pool

of separately qualified arbitrators to hear

many of the cases under the large and

complex case rules.13 The NASD also

indicated that it will also draw from its

regular pool of arbitrators as necessary

to fill panels for eligible matters.

Moreover, in order to attract arbitrators

to serve on panels hearing eligible

matters, Section 46 contains a

mechanism to provide additional

compensation for those arbitrators.

Section 46(c)(4) provides that prior to

the selection of the arbitrators, the

parties may agree to pay, and that the

Director of Arbitration has discretion to

assess, compensation to be paid to the

arbitrators by the parties in addition to

the honorarium specified by the Board

of Governors. The additional

compensation would reflect the

magnitude and complexity of the matter

arbitrated under the alternate large and

complex case rules. Under the

provision, the amount of any such

additional compensation also must be

decided before the selection of the

arbitrators. Section 46(a)(4) requires

parties to pay arbitrator fees prior to the

first hearing or the next scheduled

hearing, as applicable.

Under the procedures established by

the NASD, the staff member assigned to

conduct the administrative conference

must discuss the availability of

arbitrators with the parties at the

administrative conference and obtain

the agreement of the parties on how to

proceed if availability is a problem. The

parties may, for instance, make further

proceedings under the large and

complex case rules contingent upon the

availability of specially qualified

arbitrators or upon specific

compensation arrangements.

Finally, while the rules contemplate

that eligible matters will be heard by

panels of three arbitrators, at least one

of whom is an attorney, Section 46(c)(1)

permits the parties to agree to submit a

matter to a single mutually acceptable

arbitrator.

A panel may be appointed in one of

three ways: (1) Pursuant to the usual

procedures in Section 19 of the Code, if

the parties cannot agree on another

method; (2) pursuant to a procedure set

forth in Section 46(c)(3); or (3) pursuant

to a procedure agreed to by the parties.

The procedure set forth in Section

46(c)(3) provides that each party

simultaneously will be provided with

two lists of arbitrators: the first list will

be composed of securities industry

arbitrators and the second list will be

composed of public arbitrators. The lists

will include certain biographical

information, with other information

available on request. Within 20 days of

the transmittal of these lists, each party

may challenge peremptorily or for cause

any or all arbitrators on the lists and

must rank the remaining arbitrators on

its lists in order of preference with

‘‘one’’ (1) indicating the most preferred

arbitrator. Any party failing to

challenge, rank and return the lists will

be considered to have accepted all listed

arbitrators.

After receiving the lists from the

parties the Director of Arbitration will

prepare two consolidated lists (one of

public arbitrators and one of industry

arbitrators) of the arbitrators by

combining the parties’ lists of

acceptable arbitrators and consolidating

the rankings. Under the provision, this

is accomplished by preparing a

combined list composed solely of those

arbitrators acceptable to all parties and

then adding the number rankings

assigned by each party together to

achieve a consolidated rank.

Party A Party B

Consolidated

rank

Arbitrator #1 ...... 1 3 4

Arbitrator #2 ...... 3 2 5

Arbitrator #3 ...... 4 1 5

Arbitrator #4 ...... 2 5 7

Arbitrator #5 ...... 5 4 9

In order to ensure that a panel has at

least one attorney, the Director will

extend the first invitations to the highest

ranking attorneys on either list. If each

attorney accepts, the NASD will select

the attorney who received a higher

ranking from a party. Once an attorney

has been named to the panel, the

Director will continue to extend

invitations to arbitrators in the order of

their consolidated rank until the panel

has been filed by the required number

of public and industry arbitrators.

Under the provision, if a panel cannot

be appointed from the consolidated

lists, the remainder of the panel will be

appointed under the regular arbitration

provision in Section 19 of the Code.

Finally, pursuant to Section

46(c)(3)(E), if a challenge for cause is

successful after the appointment of the

panel is complete, Section 46(c)(3)(E)

permits the Director of Arbitration to

reopen the selection process at the point

where the last arbitrator was appointed

and continue the process as through the

challenged arbitrator had never been

appointed.

E. Preliminary Hearing

Section 46(d) provides that the

arbitrators will convene a preliminary

hearing promptly following the

appointment of the panel. Once the

arbitrators convene the preliminary

hearing, the Director of Arbitration will

appoint a single arbitrator to preside

over the preliminary hearing and the

presiding arbitrator will have the power

to act on behalf of the panel on any

appropriate matter arising before or after

the preliminary hearing. The presiding

arbitrator will also have unlimited

discretion to refer any such matter to the

full panel for consideration. Matters

which may be brought to the presiding

arbitrator for resolution include:

stipulations as to uncontested facts,

exchanging and premarking exhibits to

be offered at the hearing, and the

schedule, form, scope and use of sworn

statements and depositions. In addition,

the presiding arbitrator may consider

any other matter ripe for resolution at

the prehearing stage, including

encouraging medication or other nonadjudicative resolution of the matter.
7244 Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices

14By contrast, Section 32 of the Code provides

that an arbitrator may ‘‘issue subpoenas, direct

appearances of witnesses and production of

documents, set deadlines for compliance, and issue

any other ruling which will expedite the arbitration

proceedings.’’ NASD Manual, Code of Arbitration

Procedure, Part III, Sec. 32 (CCH) ¶ 3732.

15Any such modification or extension must be

filed as a proposed rule change with the

Commission pursuant to section 19(b)(1) of the Act

and Rule 19b–4 thereunder.

16The Commission approved a proposed rule

change to Sections 1, 8 and 9 of the Code in 1993

that provides that disputes, claims, or controversies

arising out of the employment or termination of

employment of an associated person are eligible for

submission to arbitration. See Securities Exchange

Act Release No. 32802 (Aug. 25, 1993), 58 FR 45932

(Aug. 31, 1993). That proposed rule change was

prompted by two court decisions interpreting the

Code so as not to cover employment disputes. The

California Court of Appeals held that Section 8 of

the Code did not cover employment disputes, but

only covered disputes arising out of or in

connection with business transactions. Higgins v.

Superior Court of Los Angeles County, 1 Cal. Rptr.

2d 57 (1992). The Seventh Circuit concluded that

the NASD Code of Arbitration as then drafted, did

not require the arbitration of employment disputes

between an NASD member and its associated

person. Farrand v. Lutheran Brotherhood, 993 F.2d

1253 (7th Cir. 1993). NELA did not comment on

that proposed rule change.

F. Settlement of Eligible Matters

Section 46(e) also provides for the

parties to give arbitrators information

about their settlement efforts. The

provision states that if an eligible matter

is not settled prior to the first hearing

date, the parties must submit either a

joint statement or individual statements

to the arbitrators, setting out a record of

the dates and duration of any

discussions and the fact that the

discussions did not result in settlement,

but must not include any statement

disclosing the dollar value of any

settlement offer or proposal discussed

by the parties. The NASD indicated that

this subsection is included because it

might provide arbitrators with

additional information concerning the

issues in dispute. The prohibition

against disclosing dollar amounts

discussed is intended to avoid

suggesting dollar values for any award

ultimately made by the arbitrators.

G. Management of Proceedings

Section 46(f) sets out general and

specific powers granted to the

arbitrators to enable them to manage the

proceedings. The arbitrators may,

without limitation, delegate their

powers under subsection (f) to a single

arbitrator to be exercised either in the

preliminary hearing or at any other time

prior to the hearing. The large and

complex case rules specifically permit

arbitrators to rule on dispositive

motions, such as motions to dismiss on

any grounds, including the applicability

of a statute of limitations, or motions for

summary judgment on specific issues

such as liability or damages, or on the

whole matter. As noted above, the

pamphlet will highlight this provision

so that parties may determine whether

they wish to utilize the large and

complex case rules or whether they

wish to agree specifically to amend the

panel’s ability to rule on dispositive

motions.

A significant difference between the

large and complex case rules and the

rules for other cases administered under

current Code provisions concerns the

prehearing procedures, or ‘‘discovery’’

process. The large and complex case

rules rely to a significant extent on the

parties to bargain for setting the scope

of discovery. Absent a specific

agreement by the parties in the

agreement under Section 46 (a)(2) and

(a)(3) to proceed under these rules,

parties are to use the procedures in

Section 46(f). These procedures differ

from the present Code in that

depositions and interrogatories are

intended to be limited to determining

and preserving testimony and facts

relevant to the determination of the

matter, not for conducting discovery.14

Further, interrogatories are limited to

twenty questions, including parts and

subparts. The pamphlet will highlight

these and other differences between

discovery under the large and complex

case rules and discovery under current

provisions of the Code and will advise

parties that they may agree to modify

the discovery rules contained in Section

46(f).

Finally, Section 46(f) authorizes

arbitrators to conduct special

proceedings as necessary to resolve any

such matters before them. Special

proceedings may take any form

specified by the arbitrators, and may be

conducted in person, via teleconference,

on written submissions alone, or by any

other method.

H. Form Award

Section 46(g) specifies that the award

in an eligible proceeding shall be in the

form prescribed in Section 41 of the

Code. Arbitrators may at their own

initiative issue an award that is

accompanied by a statement of reasons

or basis of the award. Although not

specifically addressed by Section 41, it

has been the position of the NASD that

arbitrators are permitted under that

Section to issue a statement of reasons

or basis for the award and arbitrators

have issued such statements in many

cases.

In addition, the Section provides for

arbitrators to issue a statement of

reasons or basis of the award if the

parties specifically so agree.

Accordingly, even in situations where

the arbitrators would not otherwise

issue a statement accompanying the

award, the arbitrators would

nonetheless do so where all of the

parties have specifically agreed that a

statement of the reasons or basis of the

award should accompany the award.

I. Sunset Provision

Section 46(h) of the proposed rule

change specifies that the large and

complex cases rules will remain in

effect for one year following the

effective date, unless the Board of

Governors authorizes their modification

or extension.15

III. Comment Letters

The Lipner Letter states that there

were both positive and negative aspects

to the large and complex case rules, and

recommended certain changes to the

rule change to enhance the equitable

nature of the arbitration process.

NELA’s comments were limited to the

arbitration of employment disputes.

NELA opposes the rule change in the

context of employment disputes. As a

general matter, NELA objects not only to

the proposed rule change but to

mandatory arbitration of complex

employment.16 The NELA Letter states

that employment disputes typically turn

on legal issues rather than factual

issues. NELA believes that it is

inappropriate for a panel composed of a

majority of non-lawyers to decide these

issues. Furthermore, the NELA Letter

states that arbitration does not provide

the opportunity for the development of

employment law. The Commission

believes that, whatever the merit of

these arguments, they are not germane

to the instant rule change.

The NELA Letter also states that the

large and complex case rules ‘‘are

clearly designed to give the defendants

all of the advantages of litigation in

defending the cases while fatally

disadvantaging the party with the

burden of proof.’’ As noted above,

parties will be able to modify all

provisions of Section 46 with an

agreement under Section 46 (a))(2) and

(a)(3) (other than the mandatory

administrative hearing), and if parties

do not agree upon procedures to govern

the matter, than Section 46 will not

govern the arbitration of the matter.

The NELA Letter also objects to the

level of fees imposed upon large and

complex cases. The NELA Letter states

that the level of fees is exorbitant given

that the employee does not have the

option of going to court. The

Commission notes that Section 46(a)(4)

grants the Director of Arbitration the
Federal Register / Vol. 60, No. 25 / Tuesday, February 7, 1995 / Notices 7245

17U.S.C. 78o–3.

authority to waive forum fees and grants

the arbitrators the discretion to

apportion all fees and charges assessed

on the parties other than hearing session

deposits.

The Lipner Letter objects to Section

46(b)(8)(C), which provides that one

purpose of the administrative

conference is to develop a statement of

the legal authorities related to the

matters in dispute to be brought to the

attention of the arbitrators. The Lipner

Letter views this provision as

transforming the arbitration process into

one that is more akin to litigation. The

Commission believes that this provision

recognizes that legal issues are argued

routinely in arbitration and that this

provision may assist parties in

formulating and assessing the strength

of their claims. It is a reasonable

approach for the NASD to adopt.

Both the NELA Letter and the Lipner

Letter object to Section 46(f)(3), which

permits arbitrators to rule on dispositive

motions, such as motions to dismiss on

any grounds, including the applicability

of a statute of limitations, or motions for

summary judgment. Both commenters

argue that permitting such motions and

the attendant legal briefing is

inconsistent with the nature of the

arbitration process. The Commission

believes that parties should be cognizant

of this feature of the large and complex

case rules before they agree to arbitrate

pursuant to the large and complex case

rules. The Commission believes that the

pamphlet will alert parties to this

provision. As noted above, parties will

be able to modify this provision under

an agreement under Section 46 (a)(2)

and (a)(3), and, if no agreement is

reached, then the large and complex

arbitration rules will not govern the

arbitration of the matter.

The NELA Letter objects to Section

46(f)(2), which limits depositions and

interrogatories to determining and

preserving testimony and facts relevant

to the determination of the matter,

rather than for conducting discovery.

NELA believes that not permitting

depositions for discovery is a significant

disadvantage to employees and causes

the arbitration process to be skewed in

favor of employers. The Commission is

not unmindful of the concerns

expressed by NELA. However, the

Commission believes that parties may

either modify these procedures through

the agreement reached under Section 46

(a)(2) and (a)(3) to permit depositions

for purposes of discovery, or failing

agreement, may arbitrate in accordance

with the rules governing arbitration

elsewhere in the Code. Moreover,

experience with this provision of the

pilot rules can be evaluated in the event

that the NASD determines to propose

these rules for permanent inclusion in

the Code. The Commission also intends

to monitor cases arbitrated under the

large and complex case rules to

determine whether parties are being

disadvantaged by the limited scope of

discovery.

IV. Discussion and Findings

The Commission finds that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) of

the Act 17 because it may encourage the

arbitration of large and complex cases in

a manner consistent with the objective

of a just, efficient and cost-effective

resolution of those cases, and will

provide parties with the flexibility to

formulate their own procedures. The

flexibility will serve the public interest

by permitting parties to tailor arbitration

proceedings in a manner which

enhances their ability to pursue their

claims.

It is therefore ordered, pursuant to

section 19(b)(2) of the Act, the File No.

SR–NASD–94–10 be, and hereby is

approved for a one year period

beginning May 2, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–2972 Filed 2–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35301; File No. SR–NYSE–

95–01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

New York Stock Exchange, Inc.,

Relating to Domestic Listing Standards

January 31, 1995.

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 January 18, 1995,

the New York Stock Exchange, Inc.

(‘‘NYSE’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) 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 NYSE is proposing amendments

to its domestic listing standards. These

listing standards are contained in

Paragraph 102.01 of the Exchange’s

Listed Company Manual. The text of the

proposed rule change is available at the

Office of the Secretary, NYSE, and at the

Commission.

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

The purpose of the proposed rule

change is to create alternatives for two

existing Exchange listing standards and

to amend two additional standards.

According to the Exchange, the NYSE

already has, and intends to maintain,

the highest listing requirements among

U.S. markets. Current listing

requirements measure, among other

things, demonstrated earning power and

shareholder distribution, as well as

tangible net worth and market

capitalization of publicly-held shares.

The rule change would provide

alternatives to the existing demonstrated

earning power and shareholder

distribution tests. In addition, the

proposal would increase the existing

requirements for tangible net worth and

public market capitalization.

Demonstrated Earning Power

Under the Exchange’s demonstrated

earning power standard, the existing

requirement calls for:

Demonstrated earning

power—income before federal income taxes and under

competitive conditions:

Latest fiscal year .................. $2,500,000

Each of the preceding two

fiscal years ........................ $2,000,000