[Federal Register: February 3, 2005 (Volume 70, Number 22)]
[Notices]
[Page 5713-5715]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03fe05-106]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51082; File No. SR-NASD-2004-042]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc. Relating to
Foreign Hearing Locations
January 26, 2005.
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 March 9, 2004, National Association of Securities Dealers, Inc.
(``NASD''), through its wholly owned subsidiary, NASD Dispute
Resolution, Inc. (``Dispute Resolution''), filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by Dispute Resolution. NASD amended the proposal on
September 29, 2004,\3\ and November 23, 2004.\4\ 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.
\3\ Letter from Mignon McLemore, Counsel, NASD, to Katherine A.
England, Assistant Director, Division of Market Regulation,
Commission, dated September 29, 2004 (``Amendment No. 1'').
Amendment No. 1 amended the proposed rule language, among other
things, to clarify that the Director of Arbitration may authorize a
higher or additional honorarium only for the use of a foreign
hearing location.
\4\ Form 19b-4 dated November 23, 2004 (``Amendment No. 2'').
Amendment No. 2 amended the proposed rule language, among other
things, to add qualifications for foreign arbitrators to NASD Rule
10315(b)(1).
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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 NASD Rule 10315 to permit arbitrations
to occur in a foreign hearing location and to amend IM-10104 to allow
the Director of Arbitration to authorize a higher or additional
honorarium for the use of a foreign hearing location. Below is the text
of the proposed rule change. Proposed new language is in italics;
proposed deletions are in brackets.
* * * * *
IM-10104. Arbitrators' Honorarium
All persons selected to serve as arbitrators pursuant to the
Association's Code of Arbitration Procedure shall be paid an honorarium
for each hearing session (including a prehearing conference) in which
they participate.
The honorarium shall be $200 for each hearing session and $75 per
day additional honorarium to the chairperson of the panel. The
honorarium for a case not requiring a hearing shall be $125.
The honorarium for travel to a canceled hearing session shall be
$50. If a hearing session other than a prehearing conference is
adjourned pursuant to Rule 10319(d), each arbitrator shall receive an
additional honorarium of $100.
The Director may authorize a higher or additional honorarium for
the use of a foreign hearing location.
* * * * *
10315. [Designation of Time and Place] Determination of Hearing
Location
(a) Designation of Time and Place of Hearing
The Director shall determine the time and place of the first
meeting of the arbitration panel and the parties, whether the first
meeting is a pre-hearing conference or a hearing, and shall give notice
of the time and place at least 15 business days prior to the date fixed
for the first meeting by personal service, registered or certified mail
to each of the parties unless the parties shall, by their mutual
consent, waive the notice provisions under this Rule. The arbitrators
shall determine the time and place for all subsequent meetings, whether
the meetings are pre-hearing conferences, hearings, or any other type
of meetings, and shall give notice as the arbitrators may determine.
Attendance at a meeting waives notice thereof.
(b) Foreign Hearing Location
(1) If the Director and all parties agree, parties may have their
hearing in a foreign hearing location and conducted by foreign
arbitrators, provided that the foreign arbitrators have:
(A) met NASD background qualifications for arbitrators;
(B) received training on NASD arbitration rules and procedures; and
(C) satisfied at least the same training and testing requirements
as those arbitrators who serve in U. S. locations of NASD.
(2) The parties shall pay an additional surcharge for each day of
hearings held in a foreign hearing location. The amount of the
surcharge shall be determined by the Director and must be agreed to by
the parties before the foreign hearing location may be used. This
surcharge shall be specified in the agreement to use a foreign hearing
location and shall be apportioned equally among the parties, unless
they agree otherwise. The foreign arbitrators shall have the authority
to apportion this surcharge as provided in Rules 10205 and 10332.
* * * * *
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
(a) Purpose
Background
Dispute Resolution maintains a roster of qualified neutrals (i.e.,
arbitrators and mediators) in 51 cities in the United States and Puerto
Rico. In accordance with NASD Rule 10315, the Director of Arbitration
sets the hearing location for NASD arbitration cases. For cases
involving public customers, the Director generally designates the
hearing location that is closest to the public customer's residence at
the time of the events in dispute. However, for claimants who reside
outside of the United States, the Director sets the hearing in the NASD
hearing location
[[Page 5714]]
that is most logical for the case. Generally, in instances where the
claimant resides outside the United States, the Director will consider
a number of factors in determining a hearing location, including the
preferences of the parties, the location of counsel or witnesses, and
the availability of transportation routes to cities in the United
States.
NASD's Proposal
To accommodate parties to arbitrations abroad, NASD is proposing to
amend NASD Rule 10315 to permit arbitrations to occur in a foreign
hearing location. NASD is also proposing to amend IM-10104 to allow the
Director to authorize a higher or additional honorarium for the use of
a foreign hearing location. Under the proposal, the foreign hearing
location process will be voluntary.\5\ Parties seeking arbitration will
still file with NASD the claim information, submission agreements, and
other related documents currently required by NASD rules. Once Dispute
Resolution has determined that an arbitration case can be handled using
a foreign hearing location, Dispute Resolution will inform claimants
residing in the United Kingdom or other European countries about the
availability and the additional costs of the appropriate foreign
hearing location. If the claimant wishes to use a foreign hearing
location, Dispute Resolution will seek the agreement of the
respondents.
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\5\ NASD Rule 10315(b)(1).
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Under the proposal, all foreign arbitrators selected by NASD to
conduct arbitrations in foreign hearing locations must satisfy certain
requirements. First, they must meet NASD background qualifications for
arbitrators.\6\ Second, they must receive training on NASD arbitration
rules and procedures.\7\ Finally, they must satisfy at least the same
training and testing requirements as those arbitrators who serve in U.
S. locations of NASD.\8\
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\6\ NASD Rule 10315(b)(1)(A).
\7\ NASD Rule 10315(b)(1)(B).
\8\ NASD Rule 10315(b)(1)(C).
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The first foreign hearing location for NASD arbitrations will be in
London. Dispute Resolution has formed a relationship with the Chartered
Institute of Arbitrators (``CIArb''), which is based in London and
maintains a worldwide roster of neutrals, specializing in, among other
areas, providing dispute resolution services for banking, finance,
business, commercial, and international issues. NASD believes that a
partnership between CIArb and NASD will provide NASD's international
constituents with access to a local roster of experienced neutrals \9\
as well as the convenience and cost efficiency of conducting hearing
sessions within a reasonable distance from their place of business or
residence.
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\9\ CIArb's neutrals are required to complete a rigorous
training program and to pass testing and interview requirements
before being qualified for appointment to cases. The CIArb's
training requirements exceed any standards currently employed by a
United States forum. CIArb's neutrals must meet NASD's background
qualification requirements. NASD, upon approval of its National
Arbitration and Mediation Committee, agreed to accept the CIArb
training and testing requirements for arbitrators as a substitute
for NASD training and testing. In addition, NASD conducted training
for CIArb neutrals on NASD arbitration rules and procedures.
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Furthermore, under the proposal, as a condition of using a foreign
hearing location, the parties must agree to accept the special Foreign
Hearing Location Surcharge to cover the additional daily cost for the
foreign arbitrators' service in that location.\10\ While this surcharge
will initially be apportioned equally among the parties, unless they
agree otherwise, the foreign arbitrators will have the authority to
apportion the surcharge as provided for in NASD Rules 10205 and
10332.\11\
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\10\ NASD Rule 10315(b)(2). CIArb neutrals have agreed to serve
in NASD cases at daily rates that are lower than their normal
charges. However, those reduced rates are still significantly higher
than the arbitrator honorarium rates paid by NASD. To cover the
additional cost of the foreign neutral fee, NASD will assess the
daily Foreign Hearing Location Surcharge for parties agreeing to use
the London hearing location. This surcharge will be used solely to
pay additional honorarium to the foreign neutrals rather than to
cover any other NASD expenses. The amount of the surcharge may vary
depending on factors such as the daily rates for neutrals in a
foreign hearing location and the currency exchange rates.
\11\ NASD Rule 10315(b)(2). NASD Rule 10205 (Schedule of Fees
for Industry and Clearing Controversies) and NASD Rule 10332
(Schedule of Fees for Customer Disputes) provide that arbitrators,
in their awards, shall determine who shall pay forum fees.
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Finally, the NASD Dispute Resolution Business Development staff,
with the cooperation of the administrative staff of the groups
providing the foreign arbitrators, will administer all cases designated
for hearing in a foreign location.\12\ The Code, with the addition of
the Foreign Hearing Location Surcharge, will govern all case
administration.
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\12\ NASD will add information about CIArb neutrals to the
Neutral List Selection System so that the background disclosures
provided to parties and the arbitrator selection process will be the
same as in other hearing locations.
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Conclusion
The proposed rule change will provide those parties residing in
foreign locations with the option of holding their arbitration hearings
closer to home, using local arbitrators, and saving the expenses of
traveling to the U.S. to resolve their disputes. The voluntary aspect
of the proposed rule change will allow these parties to decide in each
matter whether a foreign hearing location or U.S. hearing location is
preferable. NASD believes that the expenses saved by the parties will
offset the Foreign Hearing Location Surcharge.
(b) Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act, which requires, among other
things, that the Association's rules 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 because it will expand access to its arbitration forum
internationally while maintaining the same protections that apply to
the process in the United States.
(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, as amended.
(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 such 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. Comments may be submitted by any of
the following methods:
[[Page 5715]]
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2004-042.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609. All submissions should refer to File Number
SR-NASD-2004-042. This file number should be included on the subject
line if e-mail is used. To help the Commission process and review your
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies
of such filing also will be available for inspection and copying at the
principal office of NASD. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File No. SR-
NASD-2004-042 and should be submitted on or before February 24, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-402 Filed 2-2-05; 8:45 am]
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