Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and rule 19b-4 thereunder, notice is hereby given that on September 3, 2002, the New York Stock Exchange, Inc. filed with the Securities and Exchange Commission the proposed rule change as described in items I, II and III below, which items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The proposed rule change consists of amendments to rules 601 (Simplified Arbitration), 607 (Designation of Number of Arbitrators), 612 (Initiation of Proceedings), 617 (Adjournments), 629 (Schedule of Fees), 631 (Schedule for Member Controversies) and 632 (Member Controversies). The text of the proposed rule change is set forth below. New text is italicized; deletions are in brackets.
Rule 601. Simplified Arbitration
(a) Any dispute, claim or controversy, arising between a [public] customer(s) and an associated person or a member subject to arbitration under this Code involving a dollar amount not exceeding $[10,000] 25,000 exclusive of attendant costs and interest, shall be arbitrated as hereinafter provided.
(b) The Claimant shall file with the Director of Arbitration an executed Submission Agreement and a copy of the Statement of Claim of the controversy in dispute and the required non-refundable filing fee and deposit, together with the documents in support of the Claim. Sufficient copies of the Submission Agreement and the Statement of Claim and supporting documents shall be provided to the Director of Arbitration for each party and the Arbitrator. The Statement of Claim shall specify the relevant facts, the remedies sought and whether or not a hearing is demanded.
(c) The Claimant shall pay a non-refundable filing fee and [remit] a hearing deposit as [specified in rule 629 upon the filing of the Submission Agreement.] follows:
The original proposed rule change omitted “(c) ” from the first line of this subparagraph. Commission staff made the correction. Telephone conference between Robert Clemente, Director—Arbitration, NYSE, and Steven Johnston, Special Counsel, Division of Market Regulation (“Division”), Commission on November 4, 2002.
Fees for Simplified Arbitration Customer as Claimant
| Amount in dispute (excluding interest and costs) | Filling fee | Decision on papers | Decision after hearing |
|---|---|---|---|
| $1,000 or less | $15 | $15 | $15 |
| 1,001 to 2,500 | 25 | 25 | 25 |
| 2,501 to 5,000 | 50 | 75 | 100 |
| 5,000 to 10,000 | 75 | 75 | 200 |
| 10,001 to 25,000 | 100 | 100 | 400 |
Industry as Claimant
| Amount in dispute (excluding interest and costs) | Filing fee | Decision on papers | Decision after hearing |
|---|---|---|---|
| $25,000 or less | $500 | $300 | $300 |
(Excluding Interest Decision Decision after and Costs) Filing Fee On Papers Hearing $25,000 or less $500 $300 $600
The final disposition of the [sum] filing fee and hearing deposit shall be determined by the Arbitrator.
(d) The Director of Arbitration shall endeavor to serve promptly by mail or otherwise on the Respondent(s) one (1) copy of the Submission Agreement and one (1) copy of the Statement of Claim. Within twenty (20) calendar days from the receipt of the Statement of Claim, Respondent(s) shall serve each party with an executed Submission Agreement and a copy of Respondent's Answer. Respondent's executed Submission Agreement and Answer shall also be filed with the Director of Arbitration with sufficient copies for the Arbitrator(s) along with any deposit required under the schedule of fees above. The Answer shall designate all available defenses to the Claim and may set forth any related Counterclaim and/or related Third Party Claim the Respondent(s) may have against the Claimant or any other person. If the Respondent(s) has interposed a Third Party Claim, the Respondent(s) shall serve the Third Party Respondent with an executed Submission Agreement, a copy of Respondent's answer containing the Third Party Claim, and a copy of the original Claim filed by the Claimant. The Third Party Respondent shall respond in the manner herein provided for response to the Claim. If the Respondent(s) files a related Counterclaim exceeding $[10,000] 25,000, the Arbitrator may refer the Claim, Counterclaim and/or Third Party Claim, if any, to a panel of three (3) arbitrators in accordance with rule 607 of this Code, or he may dismiss the Counterclaim and/or Third Party Claim, without prejudice to the counter-claimants and/or third party claimants pursuing the Counterclaim and/or Third Party Claim in a separate proceeding. The costs to the Claimant under either proceeding shall in no event exceed the total amount specified [in rule 629] in the schedule above.
There appears to be confusion among various texts of current NYSE rule 601 as to whether this word should be “sufficient” or “additional.” The NYSE intends to use the word “sufficient.” Telephone conversation among Robert Clemente, Director—Arbitration, NYSE and Florence Harmon, Senior Special Counsel, and Steven Johnston, Special Counsel, Division, Commission on October 24, 2002.
(e) to (h) Unchanged.
[(i) Upon the request of the arbitrator, the Director of Arbitration shall appoint two (2) additional arbitrators to the panel which shall decide the matter in controversy.
(j) In any case where there is more than one (1) arbitrator, the majority will be public arbitrators.]
[(k)] (i) In his discretion, the arbitrator may, at the request of any party, permit such party to submit additional documentation relating to the pleadings.
[(l)](j) Except as otherwise provided herein, the general arbitration rules of the New York Stock Exchange, Inc. shall be applicable to the proceedings instituted under this Rule.
Rule 607. Designation of Number of Arbitrators
(a)(1) In all arbitration matters involving [public] customers and non-members where the matter in controversy exceeds $[10,000] 25,000, or where the matter in controversy does not involve or disclose a money claim, the Director of Arbitration shall appoint an arbitration panel which shall consist of no less than three (3) arbitrators, at least a majority of whom shall not be from the securities industry, unless the [public] customer or non-member requests a panel consisting of at least a majority from the securities industry.
Rule 612. Initiation of Proceedings
Except as otherwise provided herein, an arbitration proceeding under this Code shall be instituted as follows:
(a) Statement of Claim
The Claimant shall file with the Director of Arbitration an executed Submission Agreement, a Statement of Claim together with documents in support of the claim and the required filing fee and hearing deposit. Sufficient additional copies of the Submission Agreement and the Statement of Claim and supporting documents shall be provided to the Director of Arbitration for each party and each arbitrator. The Statement of Claim shall specify the relevant facts and the remedies sought. The Director of Arbitration shall endeavor to serve promptly by mail or otherwise on the Respondent(s) one (1) copy of the Submission Agreement and one (1) copy of the Statement of Claim.
NYSE authorized Commission staff to clarify omitted rule text. Telephone conversation Robert Clemente, Director—Arbitration, NYSE and Florence Harmon, Senior Special Counsel, and Steven Johnston, Special Counsel, Division, Commission on November 7, 2002.
See footnote 5, above.
(c)(3) Respondent(s) shall serve each party with a copy of any Third Party Claim. The Third Party Claim shall also be filed with the Director of Arbitration with sufficient additional copies for the arbitrator(s), along with any deposit required under [the] rule 629(i) schedule of fees. Third Party Respondent(s) shall answer in the manner provided for response to the Claim, as provided in paragraphs (1) and (2) above.
Rule 617. Adjournments
See footnote 5, above.
(b) A party requesting an adjournment after arbitrators have been appointed shall, if an adjournment is granted, deposit a fee, equal to the initial deposit of hearing session fees for the first adjournment and twice the initial deposit of hearing session fees, not to exceed $[1,000] 1,500, for a second or subsequent adjournment requested by that party. The arbitrators may waive the deposit of this fee or in their awards may direct the return of the adjournment fee.
Rule 629. Schedule of Fees
(a)-(g) Unchanged.
(h) The fee for a pre-hearing conference with an arbitrator shall be:
Schedule for Pre-Hearing Conference with One Arbitrator[(s)]:
(i) Schedule of Fees
For purposes of the schedule of fees the term “claim” includes Claims, Counterclaims, Third-Party Claims or Cross-Claims. Any such claim submitted by a customer is a customer claim. Any such claim submitted by a member, allied member, registered representative, member firm or member corporation against a [public] customer or other non-member is an industry claim.
For claims of $25,000 or less see schedule of fees in Rule 601. Simplified Arbitration.
Customer as Claimant
| Amount of dispute ([exclusive of] excluding interest and expenses) | Hearing deposit | ||
|---|---|---|---|
| Filing fee | [Simplified] | [Hearing] | |
| [$1,000 or less | $15 | $15 | $15 |
| 1,001 to 2,500 | 25 | 25 | 25 |
| 2,501 to 5,000 | 50 | 75 | 100 |
| 5,001 to 10,000 | 75 | 75 | 200 |
| 10,001 to 30,000 | 100 | N/A | 400] |
| [30,001] 25,001 to 50,000 | 120 | [N/A] | 400 |
| 50,001 to 100,000 | 150 | [N/A] | 500 |
| 100,001 to 500,000 | 200 | [N/A] | 750 |
| 500,001 to 5,000,000 | 250 | [N/A] | 1,000 |
| Over 5,000,000 | 300 | [N/A] | 1,500 |
[Rule 631. Schedule for Member Controversies
At the time of filing a Claim, Counterclaim, Third-Party Claim or Cross-Claim, a party shall pay a non-refundable filing fee and remit a hearing session deposit with the New York Stock Exchange, Inc. in the amounts indicated below:
| Amount in dispute | Filing fee | Hearing deposit |
|---|---|---|
| $5,000 or less | $100 | $200 |
| 5,001 to $100,000 | 200 | 750 |
| 100,001 or more | 300 | 1,000 |
Where the claim or controversy does not involve or disclose a money claim or is unspecified, the filing fee will be $300 and the hearing session deposit shall be $1,000 per hearing session.
The fee for a pre-hearing conference with an arbitrator in a member controversy shall be as follows:
| Amount in dispute | Conference fee |
|---|---|
| $5,000 or less | $150 |
| 5,001 to 100,000 | 300 |
| 100,001 or more | 500 |
Rule 632. Member Controversies
Any controversy between parties who are members, allied members, member firms or member corporations shall be submitted for arbitration to members of the Board of Arbitration, unless non-members are also parties to the controversy. If the amount ([exclusive of] excluding interest and costs) involved in the controversy is less than $[10,000] 25,000 the controversy shall be heard by one arbitrator. If such amount is $[10,000] 25,000 or more the controversy shall be heard by [at least] three (3) [but not more than five (5)] arbitrators unless the parties consent to one arbitrator. If non-members are also parties to such controversies, the arbitrators shall be appointed in accordance with rule 607 unless the non-member(s) consent to arbitration before members of the Board of Arbitration.
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. The text of these statements may be examined at the places specified in item IV below and is set forth in sections A, B and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for the Proposed Rule Change
1. Purpose
The proposed rule changes are intended to:
- Increase the ceiling for claims eligible for submission under the Simplified Arbitration procedures from $10,000 to $25,000 (rules 601, 607 and 629).
- Clarify that both a filing fee and hearing deposit must be submitted with the filing of a claim in arbitration (rule 612).
- Increase the maximum adjournment fee from $1,000 to $1,500 to conform to the maximum hearing deposit upon which adjournment fees are based (rule 617).
- Increase pre-hearing conference fees in claims over $25,000 from $300 to $450 (rule 629(h)).
- Incorporate filing fees and hearing deposits for disputes between members into the schedule of fees for “Industry as Claimants” (rules 629(i) and 631).
- Increase the ceiling from $10,000 to $25,000 for claims between members to be decided by one arbitrator. In addition eliminate reference to a panel “of no more than five arbitrators” (rule 632).
The proposed amendments to rules 601, 607 and 629 increase the ceiling on claims eligible for submission under the Simplified Arbitration procedures from $10,000 to $25,000. Under the Simplified Arbitration procedures, one arbitrator is appointed to decide the dispute based upon the parties' submissions, unless the customer requests a hearing. These proposed amendments conform to amendments to the Uniform Code of Arbitration adopted by the Securities Industry Conference on Arbitration (“SICA”) and adopted by other SROs.
NASD rule 10302(a).
In addition, the amendments simplify the rules by placing the fee schedule for Simplified Arbitration in rule 601 rather than referring to rule 629. The proposed amendment to rule 607 conform the rule to the increase in the claims eligible for submission under the Simplified Arbitration procedure (rule 601). These amendments do not impact the cost to customers who submit their claims to arbitration.
The proposed amendments to rules 612 and 617 are housekeeping in nature and not substantive changes. The amendments to rule 612 clarify that both a filing fee and hearing deposit must be submitted with the filing of a claim in arbitration. The amendments to rule 617 increase the maximum adjournment fee from $1,000 to $1,500. This is to conform the adjournment fees to the maximum hearing deposit, upon which adjournment fees are based.
In addition, the Exchange is proposing to increase pre-hearing conference fees in claims over $25,000 from $300 to $450 (rule 629(h)). The increase in pre-hearing conference fees is warranted by the increased frequency and complexity of pre-hearing conferences. This increase conforms to the pre-hearing conference fees assessed by other SROs.
NASD rule 10332(k).
The proposed amendments to rule 629(i) eliminate the need for rule 631 by incorporating the fees and deposits for disputes between members into the schedule of fees for “Industry Claimants” under rule 629. These amendments will increase the cost to members in disputes with other members and provides for a more equitable distribution of the cost of arbitration of member to member disputes with all other disputes initiated by a member or associated person. These amendments also simplify the fee schedules by deleting rule 631 (Schedule for Member Controversies) and consolidating that fee schedule with the Schedule of Fees for Industry Claimants (rule 629).
The proposed amendments to rule 632 increase the ceiling from $10,000 to $25,000 for claims between members that are heard and decided by one arbitrator. In addition, the proposed amendment eliminates the clause that provided for an arbitration panel of no more than five arbitrators. The Exchange has not impaneled five arbitrators on a case since the mid-1980s when the general rules were amended to provide for a panel of no less than three arbitrators. A panel of five arbitrators is unnecessarily burdensome and provides no benefit to the process.
2. Statutory Basis
The proposed changes are consistent with section 6(b)(5) of the Act in that they promote just and equitable principles of trade by insuring that members and member organizations and the public have a fair and impartial forum for the resolution of their disputes.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose 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
The Exchange has neither solicited nor received written comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 35 days of the date of 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 changes, or
(B) Institute proceedings to determine whether the proposed rule changes should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 the filing will also be available for inspection and copying at the principal office of the New York Stock Exchange. All submissions should refer to SR-NYSE-2002-43 and should be submitted by December 11, 2002.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29403 Filed 11-19-02; 8:45 am]
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