[Federal Register Volume 61, Number 249 (Thursday, December 26, 1996)]
[Notices]
[Pages 68081-68082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32772]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38060; File NO. SR-NASD-96-47]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by NASD Regulation, Inc. Relating to the Policy and Practice
Concerning the Application of the Eligibility Provision in Rule 10304
of the NASD Code of Arbitration Procedure
December 18, 1996.
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 December
17, 1996, NASD Regulation, Inc. (``NASD Regulation'') 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 NASD Regulation. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.\1\
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\1\ NASD Regulation originally submitted this proposed rule
change in SR-NASD-96-37 on October 15, 1996. That rule filing was
submitted for immediate effectiveness under Section 19(b)(3)(A) of
the Act. SR-NASD-96-37 was withdrawn simultaneously with the filing
of this rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD Regulation amended its policy and practice concerning the
application of the eligibility provision in Rule 10304 of the Code of
Arbitration Procedure (``Code'') of the National Association of
Securities Dealers, Inc. (``NASD'' or ``Association'') to the effect
that arbitrators, not the NASD Regulation staff, shall determine
whether a dispute is eligible for arbitration. Below is the test of the
policy and practice change.
Pursuant to Rule 10304 of the Code, ``[n]o dispute, claim or
controversy shall be eligible for submission to arbitration under this
code where six (6) year as have elapsed from the occurrence or event
giving rise to the act or dispute, claim or controversy.'' Effective
August 1, 1996,\2\ the NASD Regulation staff will no longer make
preliminary determinations concerning the eligibility of a claim for
arbitration. The NASD Regulation staff instead will address questions
concerning the eligibility of a claim according to the following
procedures:
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\2\ NASD Regulation has been enforcing the amended policy and
practice described in SR-NASD-96-37, and in this filing, since
August 1, 1996, up to and during the filing of notice in SR-NASD-96-
37, and is continuing to enforce the policy at this time.
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1. Upon the filing or receipt of a claim, the staff reviews the
claim to determine if the claimant has identified when the transaction
at issue occurred or when the claim arose. If not identified, the
Statement of Claim is retained but the claimant is asked for additional
information about the age of the claim.
2. If a claim identifies when the transaction at issue occurred or
when the claim arose, it is served on the respondents. It is then the
respondent's determination whether to challenge the eligibility of the
claim.
3. Any motions to dismiss the claim on eligibility grounds and any
responses thereto are forwarded to the arbitrators for a decision.
4. For those cases filed prior to August 1, 1996 where the staff
has made a preliminary eligibility ruling in response to a respondent's
motion, the moving papers will be forwarded to the arbitrators with a
remainder that the arbitrators must review the issue de novo and must
not accord the staff's preliminary ruling any weight.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD Regulation 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. NASD Regulation 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
NASD Regulation is soliciting comment on its amended policy and
practice concerning the application of the eligibility provision in
Rule 10304 of the Code to the effect that arbitrators, not the NASD
Regulation staff, shall determine whether a dispute is eligible for
arbitration under Rule 10304.\3\
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\3\ This policy is intended to be temporary. NASD Regulation
intends the policy to remain in effect until an amendment to Rule
10304 can be developed and approved. The NASD's Arbitration Policy
Task Force Report on Securities Arbitration Reform recommended
suspending the eligibility rule. NASD Regulation, in consultation
with the Securities Industry Conference on Arbitration (SICA) and
others, is considering other alternatives to suspending the
eligibility rule. The policy will not be included in the NASD Manual
because NASD Regulation intends to propose a new arbitration
eligibility rule within a few months.
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Until recently, the NASD Regulation staff made preliminary
eligibility determinations, both before and after a claim had been
served, in cases where a bright line test could be applied. Before a
claim was served the staff would, upon examination of the allegations
in the Statement of Claim, determine if the occurrence or event giving
rise to the act or dispute, claim or controversy took place more than
six (6) years prior to the filing of the Statement of Claim. If the
staff determined that this was the case, it would advise the claimant
that the claim was ineligible for arbitration. Once a claim had been
served and the staff had previously made a preliminary eligibility
determination upon the motion of a party, upon the request of a party
the arbitrators could review the preliminary staff determination and
accept or reject it. The other self-regulatory organization (``SRO'')
arbitration forums have also followed this practice.
NASD Regulation has determined that because the practice of having
the staff make preliminary eligibility determinations is not expressly
provided for in the Code, questions may arise concerning the legal
effect of these determinations. Accordingly, NASD Regulation amended
the existing policy and practice to eliminate staff eligibility
determinations.
The amended policy, which is consistent with the Code and plain
language of Rule 10304, will require the staff, upon the filing or
receipt of a claim, to review the claim to determine if the claimant
has identified when the transaction at issue occurred or when the claim
arose. If not identified, the Statement of Claim is retained but the
claimant is asked for additional information about the age of the
claim. By requiring that claims identify when the transaction at issue
occurred or arose, NASD Regulation is facilitating the ability of the
arbitrators to determine if the claim is eligible.
[[Page 68082]]
If a claim identifies when the transaction at issue occurred or
when the claim arose, or is amended to provide such information, it is
served on the respondents. Once the claim is served, the respondents
can decide whether or not the challenge the eligibility of the claim.
If a respondent submits a motion to dismiss on eligibility grounds, the
claimants will have an opportunity to respond, and the motion and the
responses will be forwarded to the arbitrators for a decision.
NASD Regulation has also determined that where a case was filed
prior to August 1, 1996, and the staff has made a preliminary
eligibility ruling in response to a respondent's motion, the moving
papers will be forwarded to the arbitrators with a reminder that the
arbitrators must review the issue de novo and must not accord the
staff's preliminary ruling any weight.
NASD Regulation notes, as described above, that eligibility
determinations have always involved an element of staff discretion.
Thus, adoption of the policy set forth above is not a substantive
change in Rule 10304 or its interpretation; it is a change in the
manner in which the staff exercises its discretion to administer the
arbitration process under the Rule.
2. Statutory Basis
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b) (6) of the Act \4\ in
that amending the policy for applying the eligibility provision of the
Code serves the public interest by enhancing the perception of fairness
of such proceedings by the parties to such proceedings. Unless
otherwise expressly provided for in the Code, dispositive motions
should be decided by the arbitrators because the arbitrators are the
designated adjudicators of all issues of fact, law and procedure in an
arbitration. To the extent the parties to such proceedings express
increased satisfaction with the resolution of eligibility issues, the
goal of providing the investing public with a fair, efficient and cost-
effective forum for the resolution of disputes will have been advanced.
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\4\ 15 U.S.C. 780-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Regulation does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
NASD Regulation proposed rule change SR-NASD-96-37 was filed for
immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act on
October 15, 1996. The Commission published notice of the filing of SR-
NASD-96-37 in the Federal Register \5\ and received thirteen comment
letters in response.\6\ Filing SR-NASD-96-37 is being withdrawn
simultaneously with the submission of this rule filing, which is
substantively the same as SR-NASD-96-37.
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\5\ Securities Exchange Act Release No. 37875 (October 28,
1996), 61 FR 56594 (November 1, 1996).
\6\ Comment letters were received from A.G. Edwards & Sons,
Inc.; Scot D. Bernstein, Esq.; Gail E. Boliver, Esq.; Michael R.
Casey, Esq.; Dean Witter, Discover & Co.; Philip J. Hoblin, Jr.,
Esq.; Investor Advocates; C. Thomas Mason, III; Merrill Lynch;
Public Investors Arbitration Bar Association; Harold W. Sellner;
Smith Barney; and the Securities Industry Association.
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Because there is insufficient time to adequately address the
comment letters received in response to SR-NASD-96-37 at this time,
NASD Regulation will respond to them when addressing the comment
letters received in response to this filing.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the publication of this notice in the 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. 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
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 will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-96-47 and should
be submitted by January 16, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-32772 Filed 12-24-96; 8:45 am]
BILLING CODE 8010-01-M