[Federal Register Volume 62, Number 176 (Thursday, September 11, 1997)]
[Notices]
[Pages 47856-47857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24135]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39024; File No. SR-NASD-97-52]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Granting Approval to Proposed Rule Change Relating
to Extension of the Large and Complex Case Rule and Making Application
of the Rule Voluntary
September 5, 1997.
I. Introduction
On July 22, 1997.\1\ the National Association of Securities
Dealers, Inc. (``NASD'' or ``Association'') submitted to the Securities
and Exchange Commission (``Commission''), pursuant to Section 19(b)(1)
of the Securities Exchange Act of 1934 (``Act'')\2\ and Rule 19b-4
thereunder,\3\ a proposed rule change to amend Rule 10334 of the NADS's
Code of Arbitration Procedure (``Code'') to extend the effectiveness of
Rule 10334 to August 1, 2002, and to make application of Rule 10334
voluntary.
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\1\ The NASD filed Amendment No. 1 to the proposed rule change
on July 25, 1997, the substance of which was incorporated into the
notice. See letter from Elliott R. Curzon, Assistant General
Counsel, NASDR, to Katherine A. England, Assistant Director, Market
Regulation, Commission, dated July 25, 1997 (``Amendment No. 1'').
\2\ 15 U.S.C. 78s(b)(1).
\3\ 17 CFR 240.19b-4.
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Notice of the proposed rule change, together with the substance of
the proposal, was published for comment in Securities Exchange Act
Release No. 38879 (July 28, 1997), 62 FR 41454 (August 1, 1997). No
comments were received on the proposal. This order approve the proposed
rule change.
II. Description
Rule 10334 provides special procedures for large and complex
cases.\4\ Any claim where the amount in controversy is $1 million or
more, or where all parties agree, is eligible for disposition under the
procedures.
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\4\ The rule, in pilot form, became effective for one year on
May 2, 1995, was extended to August 1, 1996, extended again until
August 1, 1997, and temporarily extended until approval of this rule
proposals. See Securities Exchange Act Release Nos. 35314 (February
1, 1995), 60 FR 7241 (February 7, 1995) (original approval of pilot
program); 37154 (April 30, 1996), 61 FR 20301 (May 6, 1996)
(temporary extension until August 1, 1996); 37513 (August 1, 1996),
61 FR 41438 (August 8, 1996) (exentsion until August 1, 1997); and
38879 (July 28, 1997), 62 FR 41454 (August 1, 1997) (temporary
extension).
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Currently, Rule 10334 requires that the parties in any eligible
case participate in an administrative conference with a member of the
staff of the Office of Dispute Resolution (``Office''). The purpose of
the conference is to permit the parties and staff to develop a plan for
administering the case, including planning for discovery and narrowing
the issues to be decided at the hearing. Application of all other
provisions of the Rule to a case is completely voluntary.
Rule 10334 was developed to meet the special needs of parties in
large and complex cases, including the need for arbitrators with
particular experience and the need in some cases for additional
discovery, including the availability of depositions. NASD Regulation's
experience in the two years that Rule 10334 has been effective is that
few parties use the procedures. From May 2, 1995 until January 28,
1997, 880 cases were eligible for treatment under Rule 10334. Parties
agreed to proceed under Rule 10334, however, in only 43 cases.
[[Page 47857]]
NASD Regulation has found that parties are deterred from using
these procedures by the extra compensation paid to arbitrators and the
additional administrative fees required under Rule 10334. At the same
time, NASD Regulation found that one of the most attractive aspects of
Rule 10334 is the availability of a list selection procedure for the
appointment of arbitrators, which is not yet generally available for
other types of arbitration cases.
In addition, the attractiveness of the procedures may be affected
by the required administrative conference with the staff. This
conference may be beneficial in assisting the parties to develop a road
map for a proceeding, even if the parties to not agree to use other
procedures under Rule 10334. However, the requirement that the
administrative conference be conducted in all cases over $1 million,
regardless of whether the parties plan to proceed under Rule 10334,
creates a cost burden to the parties and to the Office.
Accordingly, NASD Regulation is proposing to amend Rule 10334 to
provide for an administrative conference with the staff only if all
parties request such a conference in writing. The procedures will be
available if the parties voluntarily agree to proceed with an
administrative conference and to develop a written agreement to proceed
under Rule 10334. An administrative conference will, however, continue
to be a prerequisite to the use of the special procedures provided by
Rule 10334. In addition, NASD Regulation is proposing to amend Rule
10334 to extend the Rule for five more years to August 1, 2002.
III. Discussion
The Commission believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(6) of the Act \5\ in that
extending the effectiveness of the procedures for large and complex
cases and making their use entirely voluntary will serve the public
interest, by enhancing the satisfaction and perceived fairness of such
proceedings by the parties to the proceedings.\6\ The Commission notes
that providing for a five-year extension of the pilot program will
permit arbitration participants to continue to utilize the procedures.
In addition, an extension of the pilot program will allow the NASD to
gather additional data on the program and to continue to monitor the
usefulness of the large and complex rule to arbitration parties, in
order to see if the pilot program should be approved on a permanent
basis.
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\5\ 15 U.S.C. 78o-3.
\6\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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The Commission also believes that amending Rule 10334 to provide
for an administrative conference with the staff only if all parties
request such a conference in writing \7\ is reasonable under the Act
because the elimination of the requirement for an administrative
conference in all cases should result in reduced costs to the parties
and to NASD Regulation. The Commission also notes that an
administrative conference will continue to be a prerequisite to the use
of the special procedures provided by Rule 10334.
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\7\ The procedures will be available if the parties voluntarily
agree to proceed with an administrative conference and to develop a
written agreement to proceed under Rule 10334.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-NASD-97-52) is approved,
through August 1, 2002.
\8\ 15 U.S.C. 78s(b)(2).
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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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24135 Filed 9-10-97; 8:45 am]
BILLING CODE 8010-01-M