[Federal Register: August 10, 2007 (Volume 72, Number 154)]
[Notices]
[Page 45077-45079]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10au07-131]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56208; File No. SR-NYSE-2007-48]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 Thereto Relating to Proposed Amendments to Rule 600 To Provide
Guidance Regarding New and Pending Arbitration Claims in Light of the
Consolidation of NYSE Regulation Into NASD DR
August 6, 2007.
I. Introduction
On May 23, 2007, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change amending NYSE Rule 600 and proposing new NYSE Rule
600A. On June 4, 2007, the Commission published for comment the
proposed rule change in the Federal Register.\3\ The Commission
received one comment on the proposal.\4\ On June 21, 2007, the NYSE
filed Amendment No. 1 to revise the proposed rule change.\5\ On July
11, 2007, the Commission published for comment the proposed rule
change, as amended, in the Federal Register.\6\ The Commission received
no comments on the proposed rule change, as amended. This order
approves the proposed rule change, as amended, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 55818 (May 25,
2007), 72 FR 30898 (June 4, 2007).
\4\ See letter from Jill Gross and Nathan Perrone, Pace Investor
Rights Project, dated June 25, 2007 (``Pace'').
\5\ Amendment No. 1 replaced and superseded the original filing
in its entirety.
\6\ See Securities Exchange Act Release No. 56015 (July 5,
2007), 72 FR 37891 (July 11, 2007).
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II. Description of the Proposal
NYSE proposes to amend current Rule 600 and adopt a new Rule 600A.
The purpose of the proposed rule change is to provide guidance
regarding both new and pending arbitration claims in light of the
consolidation of the member firm regulation function of NYSE
Regulation, Inc. (``NYSE Regulation'') with the National Association of
Securities Dealers, Inc. (``NASD'').\7\ On July 30, 2007,\8\ NYSE
Regulation ceased to provide an arbitration program, and its
arbitration department (``NYSE Arbitration'') was consolidated with
that of NASD Dispute Resolution, Inc. (``NASD DR'').\9\ Because the
consolidation has already occurred, the effective date of this rule
change will be when the Commission approves this proposed rule change
(SR-NYSE-2007-48) (``Effective Date''). As a result, on
[[Page 45078]]
and after July 30, 2007, all arbitration claims filed prior to the
Effective Date, and previously subject to NYSE Regulation rules and
administration, will be administered by NASD DR pursuant to a
Regulatory Services Agreement with the NYSE.
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\7\ On July 26, 2007, the Commission approved a proposed rule
change filed by NASD to amend NASD's Certificate of Incorporation to
reflect its name change to Financial Industry Regulatory Authority
Inc., or FINRA, in connection with the consolidation of the member
firm regulatory functions of NASD and NYSE Regulation. See
Securities Exchange Act Release No. 56146 (July 26, 2007), 72 FR
42190 (Aug. 1, 2007) (SR-NASD-2007-053).
\8\ The consolidation of the member firm regulatory functions
did not occur until July 30, 2007, when definitive agreements were
signed by the NYSE and NASD. Id.
\9\ NASD DR is now doing business as FINRA DR. NASD DR now
administers NYSE Arbitration, which is governed by NYSE Regulation
Rules 600 through 639. NASD DR also administers an arbitration
program for NYSE Arca, Inc. (``NYSE Arca'') and NYSE Arca Equities,
Inc. (``NYSE Arca Equities''), respectively governed by NYSE Arca
and NYSE Arca Equities Rule 12.
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The proposed amendments provide that NYSE Arbitration Rules 600
through 639, and Rule 347, will only apply to NYSE arbitration cases
pending prior to the Effective Date, and that, thereafter, disputes
between NYSE member organizations, associated persons, and/or their
customers will be arbitrated under the NASD DR Codes of Arbitration
Procedure.
The rules governing the administration of any particular
arbitration will depend on the date the case was filed. This will
ensure that any person that filed an arbitration under a particular set
of arbitration rules will continue to have the case administered
pursuant to those rules through to the case's conclusion. There are two
categories of cases. First, NYSE arbitration cases filed before the
Effective Date will continue to be governed by existing NYSE Regulation
arbitration rules, as will pending NYSE Arca and NYSE Arca Equities
cases filed on or after February 1, 2007.\10\ Second, those NYSE Arca
and NYSE Arca Equities cases filed on or prior to January 31, 2007 are
(and will continue to be) governed by Rule 12.\11\
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\10\ See Securities Exchange Act Release No. 55142 (January 19,
2007), 72 FR 3898 (January 26, 2007) (SR-NYSEArca-2006-54) and
Securities Exchange Act Release No. 55141 (January 19, 2007), 72 FR
3897 (January 26, 2007) (SR-NYSEArca-2006-55).
\11\ The Commission also is considering rule filings that would
consolidate the NYSE Arca arbitration program into NASD DR. See
Securities Exchange Act Release No. 56071 (July 13, 2007), 72 FR
40184 (July 23, 2007) (SR-NYSEArca-2007-59); and Securities Exchange
Act Release No. 56070 (July 13, 2007), 72 FR 40188 (July 23, 2007)
(SR-NYSEArca-2007-60).
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Proposed Exchange Rule 600A(a) provides detailed guidance
concerning claims involving member organizations and/or associated
persons that are asserted on and after the Effective Date. First, any
dispute, claim or controversy between or among member organizations
and/or associated persons shall be arbitrated pursuant to the NASD DR
Codes of Arbitration Procedure. Second, any dispute, claim or
controversy between a customer or a non-member and a member
organization and/or associated person arising in connection with the
business of such member organization and/or in connection with the
activities of an associated person shall be arbitrated pursuant to NASD
DR Codes of Arbitration Procedure as provided by any duly executed and
enforceable written agreement, or upon the demand of the customer or
non-member. This obligation to arbitrate shall extend only to those
matters that are permitted to be arbitrated under NASD DR Codes of
Arbitration Procedure.
In almost all cases the change from NYSE to NASD DR arbitration
rules should not result in material, substantive differences to persons
participating in the arbitration process. However, one difference is
the treatment of employment discrimination claims. NASD DR rules
provide that any claim alleging employment discrimination, including
any sexual harassment claims, in violation of a statute, will be
eligible for arbitration pursuant to either a pre-dispute or a post-
dispute agreement to arbitrate. In contrast, Exchange Rule 600(f) and
Exchange Rule 347(b) permit claims to be arbitrated only when the
parties have agreed to arbitrate the claim after it has arisen.
Rule 347(a) provides that a controversy between a registered
representative and a member organization ``arising out of the
employment or termination of employment of such registered
representative'' shall be arbitrated at the request of any party. These
employment claims will continue to be covered by NASD DR Rule 13200(a),
which requires the arbitration of disputes arising out of the
``business activities'' of a member or an associated person and is
between or among members, members and associated persons, or associated
persons. Accordingly, Rule 600 will be amended to provide that Rule 347
will apply only to claims filed before the Effective Date.
Proposed Rule 600A(b) will explicitly retain the Exchange's
enforcement authority related to arbitration. Proposed Rule 600A(c)
also will retain the substance of current Exchange Rule 637, regarding
the obligation to honor arbitration awards and will specify that
failure to submit a matter to arbitration as required by Rule 600A will
subject the member organization to Exchange disciplinary action.
Finally, proposed Rule 600A(d) will specify that the submission of any
matter to arbitration as provided for under the Rule will in no way
limit or preclude any right, action or determination by the Exchange
that it would otherwise be authorized to adopt, administer or enforce.
III. Summary of Comment Received
The Commission received one comment on the proposal.\12\ The
commenter supported the proposed rule change because it would reduce
confusion for investors. The commenter also noted that the regulatory
consolidation is beneficial for investors with claims up to $50,000
because existing NASD rules provide greater investor choice and lower
forum costs than the NYSE.\13\
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\12\ Pace.
\13\ Id.
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The commenter also urged NASD to adopt a rule, similar to a pending
NYSE rule, that would permit one arbitrator to hear claims up to
$200,000, instead of $50,000 under existing NASD rules.\14\ As this
additional point related to matters not covered by the proposed rule
change, it is beyond the scope of the proposed rule change.
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\14\ Id.
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IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as amended, is consistent with the requirements of section
6(b)(5) \15\ of the Act, which requires, among other things, that the
rules of an Exchange be designed to promote just and equitable
principles of trade and to protect investors and the public interest.
The Commission believes that the proposed rule change will streamline
the arbitration process and provide for a unified and more efficient
arbitration forum with one set of arbitration rules and administrative
procedures. This will allow resources to be devoted to maintaining and
improving the NASD DR program, rather than splitting resources between
two mainly duplicative programs. The Commission also believes the
proposed rule change will provide for a clear and orderly transition.
As a result, the proposed rule change will better protect investors and
the public interest.\16\
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\15\ 15 U.S.C. 78f(b)(5).
\16\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition and
capital formation. See 15 U.S.C. 78c(f).
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The Commission finds good cause to approve the proposed rule
change, as amended, prior to the thirtieth day after the proposal was
published for comment in the Federal Register. This approval allows the
proposed rule change to take effect without delay. Because the proposed
rule change will provide for a clear and orderly transition from NYSE
Arbitration to NASD DR, accelerated approval is necessary to provide
clarity to investors regarding the appropriate forums for pending and
future arbitration claims. In light of the recent consolidation,
accelerated approval of the proposed rule change also will allow NASD
DR
[[Page 45079]]
and NYSE Regulation to ensure that their arbitration programs are fully
consolidated in a timely and efficient manner, without any further
delay or uncertainty.
For these reasons, the Commission finds good cause, consistent with
section 19(b)(2) of the Act, to grant accelerated approval to the
proposed rule change.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act
\17\ that the proposed rule change, as modified by Amendment No. 1 (SR-
NYSE-2007-48), be, and hereby is, approved on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15619 Filed 8-9-07; 8:45 am]
BILLING CODE 8010-01-P