[Federal Register: August 1, 2003 (Volume 68, Number 148)]
[Notices]
[Page 45299-45300]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01au03-112]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48225; File No. SR-NASD-2003-101]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to Time Limits for Submission of Claims in Arbitration
July 25, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 19, 2003, the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association''), through its wholly-owned subsidiary,
NASD Dispute Resolution, Inc. (``NASD Dispute Resolution'') 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. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend the Rule 10304 of the NASD Code of
Arbitration Procedure governing time limits for submission of claims in
arbitration. Below is the text of the proposed rule change. Proposed
new language is in italics; proposed deletions are in brackets.
* * * * *
10000. Code of Arbitration Procedure
* * * * *
Rule 10304. Time Limitation Upon Submission
(a) No dispute, claim, or controversy shall be eligible for
submission to arbitration under this Code where six (6) years have
elapsed from the occurrence or event giving rise to the act or dispute,
claim or controversy. The panel will resolve any questions regarding
the eligibility of a claim under this Rule. [This Rule shall not extend
applicable statutes of limitations, nor shall it apply to any case
which is directed to arbitration by a court of competent jurisdiction.]
(b) Dismissal of a claim under this Rule does not prohibit a party
from pursuing the claim in court. By requesting dismissal of a claim
under this Rule, the requesting party agrees that if the panel
dismisses a claim under the Rule, the party that filed the dismissed
claim may withdraw any remaining related claims without prejudice and
may pursue all of the claims in court.
* * * * *
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 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 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
Rule 10304 of the NASD Code of Arbitration Procedure (``Code'')
provides that a claim is ineligible for arbitration in the NASD forum
if six or more years have elapsed from the occurrence or event giving
rise to the claim. The rule does not provide expressly whether the
eligibility of a claim is determined by arbitrators or by the courts.
Under current NASD practice, arbitrators resolve questions concerning
whether a particular claim
[[Page 45300]]
falls within the six year time limit. However, this issue has generated
a significant amount of collateral litigation, with a number of courts
ruling that, in absence of more specific guidance from NASD, courts
should determine the eligibility of a claim under the rule. Collateral
litigation over the eligibility rule has been expensive and time-
consuming, and has caused uncertainty and confusion among forum users.
In December 2002, the United States Supreme Court ruled in Howsam
v. Dean Witter Reynolds, Inc.,\3\ that the issue of whether a claim is
time-barred under Rule 10304 is presumptively a matter for arbitrators
to decide. To conform the Code to the Court's ruling, and to provide
additional notice and guidance to parties on this issue, NASD proposes
to amend Rule 10304 to state explicitly that eligibility determinations
are made by the arbitrators.
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\3\ 537 U.S. 79 (Dec. 10, 2002).
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Rulings that claims are ineligible under Rule 10304 have also
generated significant collateral litigation. Some courts, relying on
the election of remedies doctrine, have held that claims ineligible in
arbitration may not be litigated in court. To make express that, under
NASD rules, the ineligibility of a claim under Rule 10304 is not
intended to prevent a party from filing the claim in court, NASD
proposes to further amend Rule 10304 to make clear that dismissal of a
claim on eligibility grounds is without prejudice to the parties'
judicial rights and remedies.
In addition, the current eligibility rule provides that the rule
does not apply to claims ordered to arbitration by a court. This
provision is now inconsistent with the Supreme Court's decision in
Howsam that eligibility is an issue for the arbitrators, and not the
courts, to resolve, as the effect of the provision would be that the
eligibility rule could not be applied either by the court or the
arbitrators to any claims compelled to arbitration by a court.
Therefore, NASD proposes to delete this provision from Rule 10304.
Finally, because this provision was intended to protect parties
from having to litigate related claims in two forums at the same time,
NASD also proposes to amend Rule 10304 to provide that by requesting
dismissal of a claim on eligibility grounds in the NASD forum, the
requesting party is agreeing that the claimant may withdraw all related
claims without prejudice and may pursue all of the claims in court.
This provision will provide significant protection against involuntary
bifurcation of claims, but will continue to allow arbitrators to decide
questions of eligibility under the Rule.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\4\ which requires, among
other things, that the Association's rules must 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. NASD believes that, by clarifying the scope
and application of Rule 10304, the proposed rule change will reduce the
cost and delay caused by collateral litigation, and streamline the
administration of arbitrations in NASD's forum.
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\4\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASD 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
Written comments were neither solicited nor received.
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 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, 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 at 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-2003-101 and
should be submitted by August 26, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-19557 Filed 7-31-03; 8:45 am]
BILLING CODE 8010-01-P