[Federal Register: August 22, 2003 (Volume 68, Number 163)]
[Notices]
[Page 50822-50825]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22au03-106]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48351; File No. SR-PCX-2003-34]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Pacific
Exchange, Inc., and Amendment No. 1 Thereto, Relating to its
Arbitration Program
August 15, 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 July 9,
[[Page 50823]]
2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'' or ``SEC'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the Exchange. On August 13, 2003, the
Exchange filed Amendment No.1 to the proposed rule change.\3\ The
Commission received one comment letter regarding the proposed rule
change in anticipation of its filing.\4\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons. For the reasons described below, the Commission is
granting accelerated approval to the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Kathryn Beck, Senior Vice President, General
Counsel, Chief Regulatory Officer and Corporate Secretary, PCX, to
Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission, dated August 12, 2003. In Amendment No. 1,
PCX altered its description of the proposed rule change to reflect
that a failure to execute required waivers by an industry party to
arbitration would be referred for disciplinary action.
\4\ See letter to the Secretary, SEC, from Raghavan
Sathianathan, dated July 2, 2003. The commenter expressed concerns
regarding PCX's administration of an arbitration in which he was a
co-respondent, alleging that PCX did not follow its arbitration
rules. The commenter asserted that the PCX had lost its right to
make rule changes based on its administration of his arbitration.
PCX submitted a letter in response in which it asserted that the
commenter's case had been administered properly and in accordance
with its rules. PCX also asserted that the proposed rule change
reflects PCX's desire to provide an arbitration forum with a reduced
risk of subsequent legal exposure to the organization. See letter
dated July 30, 2003 from Kathryn Beck, Senior Vice President, PCX,
to Florence Harmon, Senior Special Counsel, Division of Market
Regulation, SEC.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
PCX, on its own behalf and through its wholly-owned subsidiary PCX
Equities, Inc. (``PCXE), pursuant to delegated authority, is proposing
to amend the PCX and PCXE arbitration rules. The proposed rule change
will expand the applicability of the waiver requirements imposed in SR-
PCX-2003-13 \5\ from certain pending PCX arbitrations to all PCX and
PCXE arbitrations. Specifically, the proposed rule changes would
require all parties to an arbitration filed pursuant to PCX or PCXE
Rule 12 (other than those described below) to waive (1) the application
of the California Rules of Court, Division VI of the Appendix, entitled
``Ethics Standards of Neutral Arbitrations in Contractual Arbitration''
(the ``California Standards''), and (2) any claims against the PCX or
PCXE that the conduct of the arbitration violates the California Code
of Civil Procedure Section 1281.92 (``CCCP Claims''). However, the
parties would not be required to waive the CCCP claims in arbitrations
solely between or among members, member organizations and persons
associated therewith (or, as the case may be, solely between ETP
Holders and persons associated therewith) that do not involve consumer-
related or employment-related claims.\6\ Both waivers (where required)
must be made without condition and in the form required by the PCX and
PCXE.\7\ If any party to an arbitration fails to the sign the required
waivers, the PCX will decline jurisdiction over, dismiss and refund
fees paid to PCX or PCXE by the parties for, that arbitration.
Furthermore, it will be considered conduct inconsistent with just and
equitable principles of trade for any member, member organization, ETP
Holder or associated person therewith who is a party to a PCX or PCXE
arbitration to fail to waive the California Standards and the CCCP
Claims, where required.
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\5\ See Securities Exchange Act Release No. 47734 (April 24,
2003), 68 FR 23351 (May 1, 2003).
\6\ PCX and PCXE believe that such arbitrations would not be
considered ``consumer arbitrations'' as that term is used in the
California Code of Civil Procedure.
\7\ Copies of the prescribed waiver forms were filed as Exhibits
A and B to the proposed rule change. These are the same as the
waiver forms that were attached to rule filings previously approved
by the Commission. See Securities Exchange Act Release No. 46881
(November 21, 2002), 67 FR 71224 (November 29, 2002) (waiver of
California Standards); Securities Exchange Act Release No. 47734
(April 24, 2003), 68 FR 23351 (May 1, 2003) (waiver of CCCP Claims).
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Below is the text of the proposed rule change. Proposed new
language is italicized, deleted text is in [brackets].
* * * * *
PCX RULE 12
Arbitration
Matters Subject to Arbitration
Rule 12.1(a)-(g)--No change.
Commentary:
.01 No change.
.02 It may be deemed conduct inconsistent with just and equitable
principles of trade for a member, a member organization or a person
associated with a member or member organization to:
(a) No change.
(b) Fail to waive the California Rules of Court, Division VI of the
Appendix, entitled ``Ethics Standards for Neutral Arbitrators in
Contractual Arbitration'' (the ``California Standards''), if the
member, member organization or person associated with a member or
member organization is a party to an arbitration filed pursuant to this
Rule 12 [if all the parties in the case who are customers have waived
application of the California Standards in that case; or to fail to
waive the California Standards if all associated persons with a claim
alleging employment discrimination, including a sexual harassment
claim, in violation of a statute have waived application of the
California Standards in that case];
(c) fail to waive any claims against the Exchange that the conduct
of the arbitration violates the California Code of Civil Procedure
Section 1281.92 (``CCCP Claims''), if the member, member organization
or person associated with a member or member organization is a party to
an arbitration filed pursuant to this Rule 12 (other than arbitrations
solely between or among members, member organizations and/or persons
associated with a member or member organization that do not involve
consumer-related or employment-related claims) [if all the parties in
the case who are customers have waived the CCCP Claims in that case; or
to fail to waive the CCCP Claims if all associated persons with a claim
alleging employment discrimination, including a sexual harassment
claim, in violation of a statute have waived the CCCP Claims in that
case];
(d) No change.
(e) No change.
.03 No change.
* * * * *
Rule 12.35 [Applicability of Arbitration Rules] Waivers
[(a) Reserved.]
[(b) Arbitrations Filed Prior to May 1, 2003. Arbitration claims
that were filed prior to May 1, 2003 and remain pending will be
administered as follows:]
[(i) The arbitration] Arbitration claims will be administered in
accordance with this Rule[s] 12[.1 through 12.34] only [if]:
[(A) arbitrator(s) have been appointed as of May 1, 2003; and]
[(B)]all parties to the arbitration have waived, without condition
and in the form required by the Exchange, the application of the
California Standards and the CCCP Claims (as defined in Commentary .02
of Rule 12.1); provided, however, that the parties are not required to
waive the CCCP claims in arbitrations solely between or among members,
member organizations and/or persons associated with a member or member
organization that do not involve consumer-related or employment-related
claims. PCX will decline jurisdiction over, dismiss and
[[Page 50824]]
refund fees paid to PCX by the parties for, any arbitration claims in
which any of the parties to arbitration fail to sign both waivers,
where required.
* * * * *
PCXE Rule 12
Arbitration
* * * * *
Rule 12.2(a)-(g)--No change.
(h) It may be deemed conduct inconsistent with just and equitable
principles of trade for an ETP Holder or a person associated with an
ETP Holder to:
(i) fail to submit to arbitration on demand under the provisions of
this Rule[, or];
(ii) to fail to waive the California Rules of Court, Division VI of
the Appendix, entitled ``Ethics Standards for Neutral Arbitrators in
Contractual Arbitration'' (the ``California Standards''), if the ETP
Holder or person associated with an ETP Holder is a party to an
arbitration filed pursuant to this Rule 12 [if all the parties in the
case who are customers have waived application of the California
Standards in that case; or to fail to waive the California Standards if
all associated persons with a claim alleging employment discrimination,
including a sexual harassment claim, in violation of a statute have
waived application of the California Standards in that case]; [or]
(iii) fail to waive any claims against the PCXE that the conduct of
the arbitration violates the California Code of Civil Procedure Section
1281.92 (``CCCP Claims''), if the ETP Holder or person associated with
an ETP Holder is a party to an arbitration filed pursuant to this Rule
12 (other than arbitrations solely between or among ETP Holders and/or
persons associated with an ETP Holder that do not involve consumer-
related or employment-related claims);
(iv) to fail to appear or to provide any document in his or her or
its possession or control as directed pursuant to the provisions of
this Rule; or
(v) to fail to honor an award of arbitrators properly rendered
pursuant to the provisions of this Rule where a timely motion has not
been made to vacate or modify such award pursuant to applicable law.
(i)-(j) No change.
* * * * *
Rule 12.35 Waivers
Arbitration claims will be administered in accordance with this
Rule 12 provided all parties to the arbitration have waived, without
condition and in the form required by the PCXE, the application of the
California Standards and the CCCP Claims (as defined in Rule 12.1(h));
provided, however, that the parties are not required to waive the CCCP
claims in arbitrations solely between or among ETP Holders and/or
persons associated with an ETP Holder that do not involve consumer-
related or employment-related claims. PCXE will decline jurisdiction
over, dismiss and refund fees paid to PCXE by the parties for, any
arbitration claims in which any of the parties to arbitration fail to
sign both waivers, where required.
* * * * *
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 PCX included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change.\8\ The
text of these statements may be examined at the places specified in
Item III below. PCX has prepared summaries, set forth in sections A, B
and C below, of the most significant aspects of such statements.
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\8\ The discussion in this section represents the Exchange's
views on the situation in California and does not in any way
represent a Commission position on this issue.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
PCX states that it makes every effort to serve investors who bring
their claims to PCX by providing a fair, efficient, and economical
arbitration forum. Recent changes in California law and the attendant
litigation, however, have caused PCX to reevaluate how it administers
its arbitration programs. Specifically, California recently adopted (1)
Section 1281.92 of the California Code of Civil Procedure (``CCCP
1281.92''), which prohibits private arbitration providers from
administering arbitrations, or providing any other services related to
arbitration, if any party or attorney for a party has, or has had
within the preceding year, any type of financial interest in the
arbitration provider, and (2) the California Standards, which require
arbitration providers to implement and maintain substantial new
recordkeeping and disclosure requirements. Since their adoption, CCCP
1281.92 and the California Standards have become the subject of
controversy or, in some cases, litigation regarding their
interpretation and application to arbitration programs administered by
self-regulatory organizations.\9\ To minimize any potential financial
and litigation risk associated with these new provisions, PCX and PCXE
have decided to require parties to PCX and PCXE arbitrations to waive
the California Standards and CCCP Claims in order for the arbitrations
to continue pursuant to PCX and PCXE Rule 12.
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\9\ See, e.g., Brief of the Securities and Exchange Commission,
Amicus Curiae, in Support of Plaintiffs' Motion for Declaratory
Judgment, NASD Dispute Resolution, Inc. and New York Stock Exchange,
Inc., v. Judicial Council of California, C023486 (No. District of
California, September 18, 2002) (arguing that the California
Standards conflict with, and thus are preempted by, the Commission's
regulation of SRO arbitration under the Exchange Act and by the
Federal Arbitration Act). The brief is available on the Commission
Web site at: www.sec.gov/litigation/briefs/nasddispute.pdf. See also
Securities Exchange Act Release No. 46881 (Nov. 21, 2002), 67 FR
71224 (Nov. 29, 2002) (describing the controversy regarding new
California arbitration provisions).
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Once this proposed rule filing is effective, PCX and PCXE will
notify parties to PCX and PCXE arbitrations of the rule change and
provide them with the waiver forms and the opportunity to speak with
PCX staff if they desire more information regarding the waivers.
Industry parties to the arbitrations will be required to execute the
waiver agreements. An industry party's failure to sign the waiver as
required by the proposed rule change will be referred for disciplinary
action.
2. Statutory Basis
PCX believes that this proposal is consistent with Section 6(b) of
the Act,\10\ in general, and furthers the objectives of Section
6(b)(5),\11\ which requires that an exchange have rules that are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, and, in general, to protect investors and
the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
PCX 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.
[[Page 50825]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received by PCX. However, the SEC received one comment letter on
the proposed rule change.\12\
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\12\ See n. 4, supra.
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III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal 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 such filing will also be available for
inspection and copying at the principal office of the PCX. All
submissions should refer to File No. SR-PCX-2003-34 and should be
submitted by September 12, 2003.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change, as Amended
The PCX requests that the Commission find good cause to accelerate
effectiveness of this proposed rule change, as amended, pursuant to
Section 19(b)(2) of the Act.\13\ After careful review, the Commission
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange, and, in particular, the requirements of
Section 6 of the Act.\14\ Specifically, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act, which requires
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, as well as to remove
impediments to and perfect the mechanism of a free and open market,
and, in general, to protect investors and the public interest.\15\ The
Commission believes that the proposed rules are designed to provide
investors with a mechanism to help resolve their disputes with broker-
dealers in an expeditious manner, and are designed to help ensure the
certainty and finality of arbitration awards. Additionally, the
Commission finds good cause for approving the proposed rule change
prior to the 30th day after the date of publication of notice thereof
in the Federal Register. Accelerated approval is appropriate in that it
will permit the PCX to make its forum for the resolution of such
disputes available immediately.
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\13\ 15 U.S.C. 78s(b)(2).
\14\ In approving the proposal, the Commission has considered
the rule's impact on efficiency, competition, and capital formation.
15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
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V. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-PCX-2003-34), as amended, is
hereby approved on an accelerated basis.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-21541 Filed 8-21-03; 8:45 am]
BILLING CODE 8010-01-P