Document ID: SEC-2007-0539-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-04-12T04:00Z

[Federal Register: April 12, 2007 (Volume 72, Number 70)]
[Notices]               
[Page 18504-18505]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ap07-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55593; File No. SR-NYSE-2004-56]

 
Self-Regulatory Organizations; New York Stock Exchange Inc. (n/k/
a New York Stock Exchange LLC); Notice of Filing and Order Granting 
Accelerated Approval to Proposed Rule Change Relating to Amendments to 
Exchange Rule 611, ``Disqualification or Other Disability of 
Arbitrators''

April 6, 2007.

I. Introduction

    On October 12, 2004, the New York Stock Exchange Inc. (n/k/a New 
York Stock Exchange LLC) (``NYSE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change amending NYSE Rule 
611 (``Disqualification or other Disability of Arbitrators'') to give 
the Director of Arbitration the authority to remove an arbitrator in 
the event a conflict comes to the attention of the parties or the 
Exchange that, for any reason, was not appropriately disclosed pursuant 
to NYSE rules. On May 26, 2006, the Exchange filed Amendment No. 1 to 
the proposed rule change (``Amendment No. 1'').\3\ The proposed rule 
change, as amended by Amendment No. 1, was published for comment in the 
Federal Register on August 7, 2006.\4\ The Commission received one 
comment on the proposal, as amended.\5\ On January 11, 2007, the NYSE 
filed Amendment No. 2 (``Amendment No. 2''),\6\ and on March 21, 2007, 
the Exchange filed Amendment No. 3 (``Amendment No. 3'') \7\ to the 
proposed rule change. This order approves the proposed rule change, as 
amended, on an accelerated basis, and solicits comment from interested 
persons on the proposed rule change as modified by Amendment Nos. 2 and 
3.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, which supplemented the original filing, 
the Exchange amended the filing to note that the need to remove an 
arbitrator might arise from a failure to disclose information that 
should have been disclosed, or from a conflict that arises after the 
commencement of the hearing. The Exchange also amended the filing to 
eliminate the proposal to provide the Director of Arbitration with 
discretion to limit a party's additional information requests of an 
arbitrator.
    \4\ See Exchange Act Release No. 54233 (July 27, 2006), 71 FR 
44751 (Aug. 7, 2006) (the ``Notice'').
    \5\ See letter from Seth E. Lipner (Aug. 28, 2006) (``Lipner 
Letter'').
    \6\ In Amendment No. 2, which supplemented the original filing, 
the Exchange modified the proposed rule to provide that the Director 
of Arbitration may remove an arbitrator from a panel based on 
information that was not known to the parties when the arbitrator 
was appointed. Amendment No. 2 also limited the reasons for which 
the Director of Arbitration may remove an arbitrator to information 
not known to the parties when the arbitrator was appointed and 
information required to be disclosed pursuant to NYSE Rule 610 that 
was not previously disclosed. The rule, as amended by Amendment No. 
1, had not required the parties to be unaware of the information 
serving as the basis for the Director of Arbitration's decision, and 
had not limited the reasons for removal of the arbitrator.
    \7\ In Amendment No. 3, which supplemented the original filing, 
the Exchange corrected an ambiguity in Amendment No. 2. Amendment 
No. 3 clarified that the Director of Arbitration could remove an 
arbitrator for information that should have been disclosed pursuant 
to NYSE Rule 610, providing for disclosure of conflicts, and that 
either was not known to the parties prior to the commencement of the 
hearing, or that represented a new conflict, arising after the 
commencement of the hearing. The amendment also clarified that the 
Director of Arbitration could also remove an arbitrator where 
circumstances known to the parties before the commencement of the 
hearing developed into a conflict after the commencement of the 
hearing. The rule as amended by Amendment No. 2 did not clearly 
establish these requirements for removal.
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II. Description of the Proposed Rule Change

A. Description of the Proposal

    At present, once an arbitrator has taken the Oath of Arbitrators 
for a particular case, NYSE rules do not provide for the Director of 
Arbitration to remove an arbitrator from serving on that case. Rather, 
NYSE Rule 610 permits the Director of Arbitration to remove an 
arbitrator prior to, but not after, the commencement of the hearing. 
The need to remove a sitting arbitrator could arise if, for example, an 
item that should have been disclosed by the arbitrator pursuant to 
Exchange rules had not been disclosed, or a conflict arises after 
commencement of the hearing. Historically, when this situation has 
arisen, the remedy has been for the arbitrator to recuse himself or 
herself. Nevertheless, the Exchange proposed to amend its rules, 
indicating that it would be prudent to give the Director of Arbitration 
the authority to remove an arbitrator in the event a conflict comes to 
the attention of the parties or the Exchange that for any reason was 
not appropriately disclosed pursuant to NYSE rules and was unknown to 
the parties, or if a conflict arises after the commencement of the 
hearing.

B. Comment Summary and NYSE's Response

1. Comments Received
    The proposal was published for comment in the Federal Register on 
August 7, 2006,\8\ and the Commission received one comment.\9\ The 
commenter generally supported the proposed rule change, but expressed 
concern that it would not sufficiently protect against possible 
gamesmanship or delays in seeking to remove arbitrators. In the 
commenter's view, a party who is aware of grounds for removal but does 
not act should be prevented from bringing a later challenge to remove 
the arbitrator.
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    \8\ See Notice, supra note 4.
    \9\ See Lipner Letter, supra note 5.
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2. NYSE's Response to Comments
    The NYSE responded to the commenter's concerns by filing Amendment 
No. 2 to the proposed rule change, providing that the Director of 
Arbitration may remove an arbitrator from an arbitration panel solely 
for information not disclosed pursuant to NYSE Rule 610 or based on 
information not known to the parties when the arbitrator was appointed. 
Subsequently, the NYSE filed Amendment No. 3, correcting an ambiguity 
in the rule, and clearly setting forth that the grounds for removal 
from the panel would be either a new conflict, arising after the 
commencement of the hearing (whether arising from circumstances known 
to the parties prior to the commencement of the hearing but only 
developing into a conflict after the commencement of the hearing, or 
from circumstances arising after the hearing), or, alternatively, an 
undisclosed conflict of which the parties were previously unaware.

[[Page 18505]]

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with Section 6(b) of the Act \10\ in general and 
Section 6(b)(5) of the Act \11\ in particular, which require that the 
rules of the Exchange 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.\12\ The proposed rule change, as amended, enables the 
Director of Arbitration to remove an arbitrator when a conflict arises 
after the commencement of the hearing or when information required to 
be disclosed pursuant to Exchange Rule 610 and of which the parties 
were previously unaware, is not disclosed. Similarly, the proposed rule 
change also permits an arbitrator to be removed where circumstances 
known before the commencement of the hearing develop into a conflict 
after the commencement of the hearing. Enabling the Director of 
Arbitration to remove arbitrators with any of these conflicts if they 
fail to recuse themselves will address circumstances in which an 
arbitrator with a conflict could otherwise continue serving on a panel. 
We believe that allowing the Director of Arbitration to exercise this 
authority will facilitate the removal of arbitrators with either 
previously undisclosed and unknown conflicts or newly-arising conflicts 
(whether from known or unknown circumstances), and will therefore 
enhance the fairness and transparency of the arbitration process. 
Accelerated Approval of the Proposed Rule Change as Modified by 
Amendment Nos. 2 and 3. The Commission finds good cause for approving 
the proposed rule change as modified by Amendment Nos. 2 and 3 to the 
proposed rule change prior to the thirtieth day after the amendment is 
published for comment in the Federal Register pursuant to Section 
19(b)(2) of the Act.\13\ Amendment No. 2 responded to a comment by 
providing that parties aware of conflicts prior to the time that the 
arbitrator was appointed could not delay action on that knowledge. 
Amendment No. 3, which clarified Amendment No. 2, set forth the two 
grounds for removal of an arbitrator after commencement of the hearing: 
first, a conflict arising after the commencement of the hearing; and 
second, a failure to disclose information pursuant to Rule 610 if the 
parties were previously unaware of the undisclosed information. The 
Commission finds that, given the concerns the commenter raised with 
respect to the possibility that the arbitration process might be 
manipulated by parties seeking to remove an arbitrator based on 
information known to a party at an earlier date but acted upon only 
after the party assessed the arbitrator, it is appropriate and 
responsive for the Exchange to amend the proposed rule change to 
provide that an arbitrator cannot be removed after taking the oath of 
arbitration for a particular case based on a conflict of which the 
parties were previously aware. In essence, the rule provides that 
parties who come into knowledge of a conflict may not delay before 
requesting removal of an arbitrator. Similarly, the Commission believes 
that it is appropriate to permit the Director of Arbitration to remove 
an arbitrator for whom a conflict arises after commencement of the 
hearing, as the NYSE rules do not presently provide for such removal. 
Accordingly, the Commission finds good cause to accelerate approval of 
the proposed rule change, as amended.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change as modified by Amendment 
Nos. 2 and 3, including whether Amendment Nos. 2 and 3 are consistent 
with the Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2004-56 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-2004-56. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro/shtml
). 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 in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NYSE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2004-56 and should be submitted on or before May 3, 
2007.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\14\ that the proposed rule change (SR-NYSE-2004-56), as amended, be, 
and hereby is, approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6935 Filed 4-11-07; 8:45 am]

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