Document ID: SEC-2007-0102-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-01-23T05:00Z

[Federal Register: January 23, 2007 (Volume 72, Number 14)]
[Notices]               
[Page 2914-2915]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja07-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55108; File No. SR-NASD-2006-101]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 
Thereto To Provide for the Payment of a $200 Honorarium Per Case for 
Each Arbitrator Who Considers Contested Motions for the Issuance of 
Subpoenas

January 16, 2007.

I. Introduction

    On August 23, 2006, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend IM-10104 of the NASD 
Code of Arbitration Procedure (``Code'') to provide for the payment of 
a $200 honorarium per case for each arbitrator who considers contested 
motions for the issuance of subpoenas. On November 13, 2006, NASD filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on December 8, 2006.\4\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, NASD clarified provisions of the 
proposed rule change.
    \4\ See Exchange Act Release No. 54857 (Dec. 1, 2006), 71 FR 
71213 (Dec. 8, 2006).
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II. Description

    The purpose of the proposed rule change is to provide for the 
payment of a $200 honorarium per case for each arbitrator who considers 
contested motions for the issuance of subpoenas. NASD previously 
amended IM-10104, to provide arbitrators with an honorarium of $200 to 
decide discovery-related motions without a hearing session.\5\ The 
revised rule, however, does not address whether a contested motion 
concerning a subpoena constitutes a discovery-related motion. As a 
result, NASD has received questions regarding the appropriate payment, 
if any, for arbitrators who decide subpoena issues. These questions 
have focused on whether, under the rule, arbitrators should be paid to 
decide contested motions requesting the issuance of a subpoena.
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    \5\ See Exchange Act Release No. 51931 (June 28, 2005) (File No. 
SR-NASD-2005-052), 70 FR 38989 (July 6, 2005).
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    The issue of whether arbitrators should receive an honorarium for 
deciding contested subpoena motions has become even more significant 
with the Commission's recent approval of amendments to NASD Rule 10322 
which, among other changes, permit only arbitrators to issue subpoenas 
in NASD arbitrations.\6\
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    \6\ See Exchange Act Release No. 55038 (Jan. 3, 2007) (File No. 
SR-NASD-2005-079). Previously, Rule 10322 allowed arbitrators and 
any counsel of record to the proceedings to issue subpoenas as 
provided by law.
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    In proposing the current rule change, NASD recognized that 
arbitrators may spend a considerable amount of time and effort deciding 
contested subpoena motions \7\ and stated it believes that arbitrators 
should be compensated for this work. NASD anticipated that if its 
proposed changes to Rule 10322 were approved, under most circumstances, 
the chairperson would be the only arbitrator considering subpoena 
requests based on the documents supplied by the parties. If the entire 
panel decided a contested motion, each arbitrator who participates in 
the subpoena ruling would receive an honorarium of $200. The $200 
honorarium paid to an arbitrator would provide payment for all 
contested subpoena motions in a case (i.e., the honorarium would be 
paid on a per case basis, regardless of the number of contested 
subpoena motions considered by an arbitrator or panel during the 
case).\8\ Furthermore, the

[[Page 2915]]

maximum amount that would be paid by the parties, collectively, for any 
one case would be $600, irrespective of any changes to the composition 
of the panel.\9\ NASD believes that structuring the honorarium in this 
manner will limit the arbitration costs for parties while at the same 
time compensating arbitrators for the time that they spend considering 
contested subpoena requests.
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    \7\ For purposes of this rule, a contested motion is defined as 
a motion to issue a subpoena, the draft subpoena, a written 
objection from the party opposing the issuance of the subpoena, and 
any other documents supporting a party's position. Arbitrators will 
not be entitled to receive the honorarium if a motion for a subpoena 
is uncontested.
    \8\ This differs from other discovery-related motions, for which 
an arbitrator receives an honorarium for each motion considered. See 
IM-10104(e). If the panel has received the honorarium for 
considering a contested subpoena request and subsequently receives a 
number of new contested subpoena requests, however, the chairperson 
may call a prehearing conference to hear and decide these matters, 
for which the participating arbitrator(s) would receive the normal 
prehearing honorarium. See IM-10104(a) and (b).
    \9\ In situations where more than three different arbitrators 
consider contested subpoena requests, NASD will pay the additional 
honorarium. For example, if all three members of a panel have 
decided a contested subpoena request and the chairperson is 
thereafter replaced by another arbitrator, NASD would pay the $200 
honorarium to the replacement chairperson for deciding any later 
contested subpoena requests, because the parties already would have 
incurred $600 in costs relating to the requests. Likewise, if there 
have been three different chairpersons in the same proceeding, each 
of whom has considered a contested subpoena request, NASD would pay 
the $200 honorarium should a fourth chairperson consider a contested 
subpoena request. NASD does not anticipate that either of these 
situations will occur frequently.
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III. Discussion and Findings

    The Commission finds that the proposed rule change is consistent 
with the provisions of Sections 15A(b)(5) \10\ and 15A(b)(6) \11\ of 
the Exchange Act, which require, among other things, that NASD's rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility or system that the NASD operates or controls, and that NASD's 
rules be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest. The Commission 
believes that the proposed rule change is consistent with the 
provisions of the Exchange Act noted above because the rule change 
provides that the panel will have the ability to allocate the 
honorarium for deciding a discovery-related motion equitably among the 
parties.\12\ Moreover, the Commission believes the proposed rule change 
will encourage arbitrators to decide contested subpoena requests 
without scheduling a prehearing conference, thereby expediting the 
arbitration process for parties.
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    \10\ 15 U.S.C. 78o-3(b)(5).
    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act \13\ that the proposed rule change (SR-NASD-2006-101), as 
amended, be, and hereby is, approved.
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    \13\ 15 U.S.C. 78f(b)(5).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-864 Filed 1-22-07; 8:45 am]

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