[Federal Register Volume 64, Number 212 (Wednesday, November 3, 1999)]
[Notices]
[Pages 59815-59819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28754]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42061; File No. SR-NASD-99-08]
Self-Regulatory Organizations; Order Approving a Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to the Arbitration Process for Claims of Employment Discrimination
October 27, 1999.
On February 1, 1999, the National Association of Securities
Dealers, Inc. (``NASD'') or ``Association''), through its wholly-owned
subsidiary, NASD Regulation, Inc. (``NASD Regulation''), filed with the
Securities and Exchange Commission (``SEC'' or ``Commission''), a
proposed rule change pursuant to section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ Under
its proposal, NASD Regulation has created rules for the resolution of
statutory employment discrimination claims. The proposed rule change
and Amendment No. 1 \3\ to the proposed were published for comment in
the Federal Register on June 4, 1999.\4\ The Commission received four
comment letters on the proposal.\5\ This order approves the proposed
rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Alden S. Adkins, Senior Vice President and
General Counsel, NASD Regulation, to Katherine A. England, Assistant
Director, Division of Market Regulation (``Division''), Commission,
dated May 10, 1999 (``Amendment No. 1''). Amendment No. 1 made
substantive changes to the proposed rule language, including the
provisions for arbitrator qualifications and coordination of claims
filed in court and arbitration.
\4\ Securities Exchange Act Release No. 41461 (May 27, 1999), 64
FR 30081 (File No. SR-NASD-99-08.
\5\ See Letters to Jonathan G. Katz, Secretary, Commission,
from: Jeffery A. Norris, President, Equal Employment Advisory
Council (``EEAC Letter''), date June 24, 1999; Stephen G.
Sneeringer, Chairman of the Arbitration Committee, Securities
Industry Association (``SIA Letter''), dated June 30, 1999; and
Cliff Palefsky, National Employment Lawyers Association (``NELA
Letter''), dated July 7, 1999, and letter from George A. Schieren,
Senior Vice President and General Counsel, Merrill Lynch, Pierce,
Fenner & Smith Inc. (``Merrill Lynch Letter''), to Margaret H.
McFarland, Deputy Secretary, Commission, dated June 30, 1999.
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I. Description of the Proposed
NASD Regulation proposes to amend NASD Rules 10201 and 10202, and
to add new Rule 3080 and new Rule 10210 Series. The proposed rule
change is intended to enhance the dispute resolution process for the
handling of employment discrimination claims, and to expand disclosure
to employees concerning the arbitration of all disputes.
A. Background
In August 1997, the Board of NASD Regulation and the Board of the
NASD (``NASD Boards'') submitted a proposal that removed from the NASD
Code of Arbitration Procedure provisions requiring registered persons
to arbitrate claims of statutory employment discrimination. That rule
change was approved by the Commission, and became effective January 1,
1999.\6\ In conjunction with this rule change, the NASD Boards
recommended certain enhancements to the voluntary arbitration process
for employment discrimination claims. To carry out the Boards' mandate,
NASD Regulation staff assembled a working group, including attorneys
representing employees, general counsels of member firms, and
arbitrators with expertise in employment matters to advise on issues
relating to the arbitration of employment discrimination claims.
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\6\ See Securities Exchange Act Release No. 40109 (June 22,
1998), 63 FR 35299 (June 29, 1998).
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In addition to several issues that were presented to them by NASD
Regulation staff, the working group considered recommendations
contained in a document known as ``A Due Process Protocol for Mediation
and Arbitration of Statutory Disputes Arising Out of the Employment
Relationship'' (``the Protocol''). The Protocol has been adopted by
several dispute resolution forums, and the NASD Boards recommended that
due process procedures similar to those in the Protocol be considered
by the working group for use in the dispute resolution process at the
NASD for claims of employment discrimination.
B. Description of Proposed Amendments.
The Proposed Rule 10210 Series contains special rules applicable to
statutory employment discrimination claims. These rules supplement and,
in some instances, supersede the provisions of the NASD Code that
currently apply to the arbitration of employment disputes.
(1) Qualifications for Arbitrators Who Hear Employment Discrimination
Cases
In accordance with the Protocol provisions, NASD Regulation
proposes
[[Page 59816]]
the use of a specialized roster of available arbitrators for intra-
industry cases in which statutory discrimination is alleged. Proposed
Rule 10211(a) provides that public (non-industry) arbitrators will be
selected to consider disputes involving a claim of employment
discrimination, including a sexual harassment claim, in violation of a
statute. Proposed Rule 10211(a) incorporates by reference the
definition of ``public arbitrator'' in the list selection rule, Rule
10308. The definition of ``public arbitrator'' in Rule 10308 excludes
not only securities industry employees and their immediate family
members, but also attorneys, accountants, and other professionals who
have devoted 20% or more of their professional work in the preceding
two years to clients who are engaged in the securities business. NASD
Regulation believes that the use of the same definition of public
arbitrators throughout the NASD Code provides for more efficient
administration of the list selection system.
For chairpersons and single arbitrators, NASD Regulation proposes
additional qualifications in Rule 10211(b)(1) that should assist NASD
Regulation to identify specially qualified and impartial arbitrators to
resolve these disputes. In addition, under Rule 10211(b)(2), a
chairperson or single arbitrator may not have represented primarily the
views of employees or employers within the past five years. For this
purpose, NASD Regulation has defined ``primarily'' to mean 50% or more
of the arbitrator's business or professional activities within the
preceding five years. NASD Regulation states that it is important to
the credibility to the forum for the single arbitrator or chairperson
not only to be neutral, but to avoid even the appearance of bias toward
either employees or employers.
Rule 10211(c) provides that parties may agree, after a dispute
arises, to waive any of the special qualifications contained in either
paragraphs (a) or (b) of proposed Rule 10211. Such a waiver is not
valid if it is contained in a predispute arbitration agreement.
(2) Composition of Panels
NASD Regulation proposes that for each involving claims of
employment discrimination, regardless of whether other issues are also
involved, all arbitrators must be qualified as public arbitrators under
Rule 10211.\7\ In addition, proposed Rule 10212(b) provides a higher
dollar threshold for single arbitrator cases than is found elsewhere in
the Code: a single arbitrator will hear claims of $100,000 or less.
NASD Regulation states that this higher threshold reduces the hearing
costs for the parties and results in more efficient allocation of
qualified employment arbitrators. Proposed Rule 10212(c) provides that
claims for more than $100,000 will be assigned to a three-person panel,
unless the parties agree to have their case determined by a single
arbitrator.
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\7\ Arbitrators must qualify under the relevant portion of Rule
10211: paragraph (a) for the second and third arbitrators on a
three-arbitrator panel, and paragraph (b) for the chairperson or
single arbitrator. See Letter from Jean I. Feeney, Assistant General
Counsel, NASD Regulation, to Richard C. Strasser, Assistant
Director, Division, Commission, dated August 20, 1999 (``NASD
Regulation Letter'').
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(3) Discovery
NASD Regulation proposes that the provision on depositions in the
Protocol should be the standard under its own rules. NASD Regulation
proposes that, in considering the need for depositions, arbitrator(s)
should consider the relevancy of the information sought from the
persons to be deposed, and the issues of time and expenses. These
considerations are already provided for in Rule 10321, paragraphs (d)
and (e), which set forth procedures for deciding unresolved issues
either at the pre-hearing conference or by appointment of a selected
arbitrator. The proposed discovery provision relating to depositions is
in proposed Rule 10213.
(4) Attorneys' Fees
Proposed Rule 10215 provides that the arbitrator(s) shall have the
authority to award reasonable attorneys' fee reimbursement, in whole or
in part, as part of the remedy in accordance with applicable law. NASD
Regulation notes that this accords with Title VII of the Civil Rights
Act of 1964, which authorizes a court, in its discretion, to allow the
prevailing party ``a reasonable attorney's fee'' as part of the
costs.\8\ NASD Regulation states that the intent of proposed Rule 1021
is to allow the award of attorneys' fees if applicable law permits such
an award.
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\8\ 42 U.S.C. 2000e-5(k) (1998).
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(5) Awards
Proposed Rule 10214 provides that arbitrator(s) will be empowered
to award any relief that would be available in court under applicable
law, and sets forth the information that must be contained in the
arbitrators' award. This information includes a summary of the issues,
the damages or other relief requested and awarded, a statement of any
other issues resolved, and a statement regarding the disposition of any
statutory claims.
NASD Regulation has not used the Protocol's phrase ``opinion and
award'' in Proposed Rule 10214, but instead has used the term
``award,'' which is also used elsewhere in the NASD Code. This avoids
confusion that might result from use of the term ``opinion,'' which
could mislead parties into expecting a judicial type of decision,
including a detailed explanation, rather than the customary type of
arbitration award that contains the specific elements listed in the
proposed rule. Consistent with current NASD Regulations practice,
however, parties may request that the arbitrator(s) provide reasons for
their decision, and the arbitrator(s) have discretion to grant or deny
the request.
(6) Coordination of Claims Filed in Court and in Arbitration
Several commenters on the rule change to allow statutory
discrimination claims to be filed in court predicted that the change
could lead to splitting or bifurcation of cases: the discrimination
claims would proceed in court, while other arbitrable employment claims
would proceed in arbitration.\9\ Some commenters believed bifurcation
of statutory and common law claims could impose a financial burden on
employees and members, delay the resolution of claims, and cause
scheduling and discovery disputes.\10\
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\9\ See Securities Exchange Act Rel. No. 40109 (June 22, 1998),
63 FR 35299 (June 29, 1998).
\10\ Id.
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NASD Regulation proposes a new rule to address coordination of
claims. Proposed Rule 10216 provides that, if the parties agree to
resolve all related matters in court, then the matter need not be
submitted to arbitration. Moreover, if a discrimination claim is filed
in court and related claims subject to mandatory arbitration are filed
in arbitration, a respondent in the arbitration would have the option
to move to combine all claims in court. As described more fully below,
the rule provides several other opportunities for a party to move to
compel that a claim be consolidated with other claims in court. Any
claims not accepted by the court under any of these methods, however,
would continue to be arbitrable.
If the respondent does not agree to consolidate all claims in
court, and an arbitration claims is then filed, proposed Rule 10216
provides several methods for coordinating claims filed in court and in
arbitration. Paragraph (a)(1)(A) of proposed Rule 10216 addresses the
situation in which an
[[Page 59817]]
associated person files a statutory discrimination claim in court and
files related claims in arbitration against some or all of the same
parties. In that situation, any respondent who is named in both
proceedings may move to compel the associated person to bring the
related arbitration claims in the same court proceeding, to the full
extent to which the court will accept jurisdiction over those claims.
As noted above, any claims not accepted by the court would remain in
arbitration.
Paragraph (a)(1)(B) of proposed Rule 10216 requires a respondent
that wishes to exercise this option to notify the claimant in writing
that it is exercising this option. This notice is intended to motivate
parties to discuss their options and consider consolidating all claims
in one forum before either party incurs further expenses.
Paragraph (a)(2)(A) of proposed Rule 10216 provides that if a party
has a pending claim in arbitration against an associated person who
thereafter assets a related statutory employment discrimination claim
in court against the party, that party has the option to assert all
arbitration claims and counterclaims in court. This is intended to
cover the situation in which arbitration claims is filed before the
statutory discrimination claim is filed in court. Paragraph (a)(2)(C)
of proposed Rule 10216 provides that a party may not exercise this
option after the first hearing has begun on the arbitration claim. This
is intended to avoid disruption of the arbitration proceeding when it
is farther along in the process.
Paragraph (b) of proposed Rule 10216 provides that the time for
consolidating claims in court is extended if the claimant files an
amended statement of claim adding new claims not asserted in the
original statement of claim. In that situation, a respondent has an
opportunity to move to compel the claimant to assert all related claims
in the same court proceeding, even if those related claims were
asserted in the original statement of claim.
Paragraph (c) of proposed Rule 10216 provides that if a party
elects to require a current or former associated person to assert all
related claims in court, the party also must assert in the same court
proceeding all related claims the party has against the associated
person, to the full extent to which the court will accept jurisdiction
over the related claims.
Paragraph (d) of proposed Rule 10216 provides that a respondent
named in both court and arbitration proceedings may choose to remain in
arbitration, even if another respondent has exercised its option to
consolidate the proceedings against it in court. Any remaining party
may seek a stay of the arbitration proceeding, and the proceeding will
be stayed unless the arbitration panel determines that the stay will
result in substantial prejudice to one or more of the parties. The
presumption in favor of a stay of the arbitration proceeding is
designed to avoid the situation in which parties must proceed in two
forums at the same time. Nevertheless, a party may object to the stay
and have the matter considered by an arbitrator.
If no panel has been appointed yet, a single arbitrator will be
appointed to consider the application for a stay, using the Neutral
List Selection System to select the arbitrator. That arbitrator is not
required to have the special employment arbitrator qualifications
described in Rule 10211, since there would be no statutory employment
discrimination claims in arbitration at this point. Instead, the single
arbitrator would be appointed under the provisions of Rule 10202. Under
that rule, the single arbitrator is either an industry arbitrator or a
public arbitrator, depending on the claims involved.A single public
arbitrator may later appear on a list of arbitrators to be chosen for
any hearing on the merits in the same arbitration.
Paragraph (f) of proposed Rule 10216 clarifies that, if an
associated person files a claim in court that includes matters that are
subject to arbitration, either by the rules of the NASD or by private
agreement, the defending party may move to compel arbitration of the
claims that are subject to mandatory arbitration. This is a statement
of current practice and is intended to apply where the defending party
has not exercised an option under other provisions of proposed Rule
10216 to combine all claims in court.
(7) Disclosure Issues
NASD Regulation also proposes a model disclosure statement that
would be given to persons who signing the Form U-4 to apply for
registration. This disclosure statement would explain the nature and
effect of the arbitration clause contained in the Form U-4. It would
not address any private arbitration agreement that an applicant might
enter into with a member firm. Rather, firms would be responsible for
either making proper disclosure to their employees about their private
arbitration agreement, or risk an adverse decision in later litigation
concerning any inadequacy in the disclosure.
Proposed Rule 3080, entitled ``Disclosure to Associated Persons
When Signing a Form U-4,'' was modeled on the disclosure given to
customers when signing predispute arbitration agreements with member
firms, as required by Rule 3110(f) and proposed amendments to that rule
contained in File No. SR-NASD-98-74. The introductory language of the
proposed rule requires members to provide each associated person,
whenever the associated person is asked to sign a new or amended Form
U-4, with specified disclosure language. The specified disclosure
language explains that the Form U-4 contains a predispute arbitration
clause, and indicates in which Item of the Form U-4 the clause is
located.\11\
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\11\ The member will be responsible for updating the item number
of new disclosure statements if it changes in later versions of the
Form U-4.
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Subparagraph (1) of proposed Rule 3080 paraphrases the arbitration
clause in the Form U-4 and discloses that an associated person is
giving up the right to sue in court, except as provided by the rules of
the arbitration forum in which a claim be filed. Subparagraph (2)
incorporates the language of Rule 10201 regarding an exception to the
arbitration requirement for claims of statutory employment
discrimination, and indicates that the rules of other arbitration
forums may be different. Subparagraph (3) through (7) track the
language of the proposed amendments to Rule 3110(f)(1), which sets
forth similar disclosures to customers. Those subparagraphs inform
associated persons that arbitration awards are generally final and
binding, that discovery is generally more limited in arbitration than
in court, that arbitrator(s) do not have to explain the reasons for
their awards, that the panel of arbitrators may include either public
or industry (non-public) arbitrators,\12\ and that rules of some
arbitration forums may impose time limits for bringing a claim in
arbitration.
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\12\ The language of subparagraph (6) differs slightly from that
of proposed Rule 3110(f)(1)(E) because, following adoption of the
present proposed rule change, the panel composition for statutory
employment discrimination claims will differ from the panel
composition for customer claims.
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II. Summary of Comments
The Commission received four comment letters on the proposed rule
change.\13\ Three commenters generally supported the proposed rule
change, believing that it will help ensure the efficient resolution of
statutory discrimination claims in a manner fair to all parties.\14\
The remaining
[[Page 59818]]
commenter believed the proposal was an unnecessary departure from an
arbitration system that has worked well in the past.\15\
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\13\ See supra note 3.
\14\ See Letters from EEAC, Merrill Lynch, and NELA. However,
NELA stated that the Protocol should be adopted without
modification. See NELA Letter.
\15\ See SIA Letter.
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A. The Commission's Solicitation of Comments
The Commission specifically solicited comment on the following
aspects of proposed Rule 10216: (1) Whether the proposed rule strikes a
fair balance in permitting respondents to choose when to bifurcate
claims; (2) whether the provision permitting respondents to choose when
to bifurcate is necessary to give employers an incentive to allow
employees to bring statutory claims in court; (3) whether the
bifurcation provisions unreasonably burden individual claimants; and
(4) whether the presumptive stay unduly infringes upon the parties'
bargain to arbitrate.\16\
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\16\ See notice of the proposed rule change.
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Two commenters responded to the Commission's questions.\17\ Both
commenters stated that the proposal strikes a fair balance in
permitting respondents to chose when to bifurcate claims. One of these
commenters noted that the provision preserves the effectiveness of the
NASD's general arbitration rule for employers and employees, while the
other comment focused on the costs of litigation and on its view that
claimants already have procedural advantages in bringing their case.
Both commenters also stated that without the choice of when to
bifurcate, employers would be more likely to require their employees to
sign pre-dispute arguments mandating arbitration of all claims.\18\ In
response to the third question, the commenters stated their views that
allowing respondents to coordinate related claims in court does not
place an unreasonable burden on claimants because the proposed rule
furthers the goals of providing fair and efficient arbitration of
statutory employment disputes.\19\ Finally, both commenters argued that
the presumptive stay does not unduly infringe on the parties bargain to
arbitrate, and that parties should not be burdened with simultaneously
litigating claims in two different forums.\20\
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\17\ See Letters from EEAC and Merrill Lynch.
\18\ Id.
\19\ Id.
\20\ Id.
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B. Qualifications of Arbitrators and Composition of Arbitration Panels
One commenter contends that the proposed requirements for
qualification of single arbitrators and panel chairs will severely
limit the pool of available arbitrators.\21\ That commenter recommends
that section 10211(b)(2) be deleted. Another commenter argues that the
use of ``public arbitrators,'' only as defined in Rule 10308,
discriminates against attorneys who primarily represent employers in
employment discrimination cases.\22\ With respect to the composition of
the panel, one commenter suggests that only single arbitrators who have
no affiliation with securities industry employers be used in order to
improve the fairness, reduce the cost, and increase the efficiency of
the arbitration process.\23\
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\21\ See EEAC Letter.
\22\ See SIA Letter.
\23\ See NELA Letter.
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C. Discovery
The Commission received three comments on the discovery provisions
contained in proposed Rule 10213.\24\ Two commenters believe that the
proposed rule would be adequate,\25\ although one of those commenters
suggested that: (1) The rule contains a presumption of one deposition
per side, with arbitrator(s) retaining the authority to order
additional depositions of an indispensable witness who is unavailable
to attend a hearing; and (2) the rule contain a specific procedure
requiring panel approval of the particular deposition the parties
intend to take.\26\
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\24\ See letters from EEAC, Merrill Lynch, and the SIA.
\25\ See Letters from EEAC and Merrill Lynch.
\26\ See Merrill Lynch Letter.
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The remaining commenter argues that the proposed rule should set
more specific limitations and guidance as to how and when depositions
should be used.\27\ This commenter recommends the adoption of language
concerning depositions in SR-NASD-99-07,\28\ which discourages the use
of depositions and generally advises arbitrator(s) to permit
depositions under limited circumstances.\29\
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\27\ See SIA Letter.
\28\ Securities Exchange Act Release No. 41833 (September 2,
1999), 64 FR 49256 (September 10, 1999) (order approving proposed
rule change relating to the creation of a Discovery Guide for use in
NASD arbitrations).
\29\ Id.
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D. Attorneys' Fees
One commenter believes that the proposal correctly limits awards of
attorneys' fees to cases in which there is a statutory basis for such
an award.\30\ One commenter, however, thinks that language of proposed
Rule 10215 wrongly suggests that an award of attorneys' fees is
required in employment discrimination cases.\31\ That commenter
recommended modifying the proposal by deleting proposed Rule 10215, and
adding the phrase ``including reasonable attorneys' fees where
appropriate'' to proposed Rule 10214 to clarify the arbitrator's
authority.\32\
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\30\ See EEAC Letter.
\31\ See SIA Letter.
\32\ Id.
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E. Miscellaneous Provisions
Finally, one commenter suggests the adoption of the Protocol's
requirement that arbitrator(s) are bound by applicable statutes, and
that arbitrator(s) should issue a written opinion.\33\
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\33\ See NELA Letter.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the provisions of Section 15A(b) \34\ of the Act, in general, and
furthers the objectives of section 15A(b)(6) \35\ in particular, in
that it is designed to promote just and equitable principles of trade,
and to protect investors and the public interest.\36\ The Commission
believes that the proposed rule change will protect the public interest
by improving the arbitration process for those individuals who
arbitrate claims of statutory employment discrimination. The public
interest will be further protected by the expanded disclosure contained
in the Form U-4 concerning the arbitration of all disputes.
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\34\ 15 U.S.C. 78o-3(b).
\35\ 15 U.S.C. 78o-3(b)(6).
\36\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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In June of 1998, the Commission approved the NASD's proposal to
remove the requirement to arbitrate statutory claims of employment
discrimination.\37\ The Commission stated in its order approving the
NASD's rule change that ``[i]t is reasonable for the NASD to determine
that in this unique area, it will not, as a self-regulatory
organization, require arbitration.'' \38\ That rule change does not
affect the obligations of NASD member firms and associated persons
under NASD rules to arbitrate other employment-related claims, as well
as any business-related claims involving investors or other persons.
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\37\ See supra note 6.
\38\ Id.
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Moreover, statutory employment discrimination claims will continue
to be resolved in the NASD's forum under private employment agreements
between the parties or through post-dispute submissions. The current
rule
[[Page 59819]]
proposal strengthens the NASD's procedures for administering statutory
employment discrimination claims by amending appropriate provisions,
including those governing the composition of arbitration panels,
discovery, and awards. The proposal also introduces predictable methods
for determining how disputes involving both statutory employment
discrimination claims filed in court and arbitrable claims will be
resolved. In addition, it also provides for clear disclosure to
employees about arbitration.
The rules were drafted by the NASD over a two-year period with the
contributions of organizations who represent interests of both
employers and employees within the securities industry, as well as
arbitrators who practice in this area. The proposal includes many of
the provisions of the Protocol, and equitably accommodates competing
concerns.
The comments on the qualifications for arbitrators in the proposal
point out the sharp differences of opinion the NASD worked to bridge in
its proposal. One commenter objected to the exclusion of industry
arbitrators from the panels, another objected to the additional
requirements for those who serve as single arbitrators or panel
chairpersons because of the resulting exclusion of certain employment
experts from serving in those roles,\39\ while yet another commenter
objected that the proposal permits the use of arbitrators with too much
affiliation with the industry.
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\39\ The Commission notes that the additional requirements for
chairpersons and single arbitrators do not prevent individuals from
serving as one of the other two arbitrators on a three person panel,
provided that they qualify as public arbitrators. The Commission
further notes that the commenter's concerns about the exclusion of
industry arbitrators is addressed, in part, by the NASD's
determination to exclude plaintiffs' attorneys from serving as panel
chairpersons or single arbitrators (Rule 10211(b)(2)), and the
Commission will not interfere with that balancing determination.
Moreover, the proposal also allows the parties, after their dispute
has arisen, to waive any of the qualifications under the rule and to
agree on the use of other arbitrators.
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Further, a commenter stated that the additional qualifications
required for single arbitrators and panel chairs will severely limit
the pool of available arbitrators. In response, NASD Regulation stated
that it will have enough qualified arbitrators on its roster.\40\ The
Commission believes that the NASD's proposal resolves these differing
views in a fair manner, and should enable the NASD to identify
qualified and impartial arbitrators to resolve these disputes.
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\40\ In 1998, 107 claims of employment discrimination were filed
with NASD Regulation and, as of August 10, 1999, 40 claims of
discrimination have been filed. Approximately 58% of the more than
6,700 arbitrators on the NASD Regulation roster are classified as
public arbitrators, and at least 40 arbitrators have already been
identified as meeting the additional standards of proposed Rule
10211(b). Due to the fact that many cases are settled or withdrawn
before a hearing commences, the NASD believes that there will be
enough qualified employment arbitrators. See NASD Regulation Letter,
supra note 7.
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Another commenter contends that only single arbitrators, rather
than a panel, should be used for discrimination cases to reduce the
cost and increase the efficiency of the process. The Commission notes,
however, that proposed Rule 10212(b) already provides a higher dollar
threshold for single arbitrator cases than is found elsewhere the NASD
Code. The Commission believes that this threshold should help reduce
the hearing costs for the parties in smaller cases.
With respect to discovery provisions of the proposed rule, two
commenters urged a more restrictive use of depositions.\41\ However,
the Commission supports NASD Regulation's adoption of the Protocol's
view that ``necessary pre-hearing depositions consistent with the
expedited nature of arbitration should be available'' in employment
discrimination cases. The Commission notes that arbitrators are as
capable of resolving disputes concerning depositions as they are for
difficult factual and legal issues. Under the proposal, arbitrators
must consider the relevance of the information sought, the expeditious
nature of arbitration, and the expense of discovery, prior to
permitting the use of depositions.
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\41\ As previously noted, one commenter urged the adoption of
the language found in the new Discovery Guide for use in NASD
arbitrations. The Commission notes, however, that the Discovery
Guide only contains suggested guidance on the use of depositions.
The policies and procedures set forth in Discovery Guide are
discretionary and may be changed by the arbitrators so long as they
are consistent with the rules of the forum. See supra note 28.
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One commenter argues that arbitrators should issue a written
opinion detailing their reasoning for the award. However, the
Commission has previously stated that arbitrators are not required to
write opinions, although they may voluntarily prepare them.\42\
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\42\ See Securities Exchange Act Release No. 26805 (May 10,
1989), 54 FR 21144 (May 16, 1989).
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Another commenter contends that the provisions for attorneys' fees
in the proposed rule suggests that an award of attorneys' fees is
mandatory. NASD Regulation has stated, however, that the intent of
proposed Rule 10215 is to allow the award of attorney's fees only if
applicable law permits such an award. There is no difference between
the NASD's proposed Rule 10215 and the commenter's suggestion, noted
above, that Rule 10214 be amended to include the attorneys' fees
reference. As the NASD noted, attorneys' fees may be awarded under
current practice under the Code of Arbitration Procedure that is used
for all of its cases. The NASD has proposed, and the Commission is
today approving, the specific provision governing attorneys fees in
cognizance of the special attention to them under the civil rights
laws, and in the discussions of the arbitration of these claims that
the NASD has sponsored. We also note that awards of attorney's fees by
arbitrators remain available to all parties in other cases administered
under the Code of Arbitration Procedure, if applicable law permits such
an award.
The Commissions did not receive any negative comments with respect
to the bifurcation provisions contained in proposed Rule 10216. These
provisions appear to strike a fair balance in administering statutory
discrimination and other employment disputes.
Finally, the Commission observes that the NASD's proposal includes
opportunities for the parties to talk with one another, when
determining where to file a claim (including fee savings and
reimbursements for employees) and in putting together a mutually
acceptable arbitration panel. Providing opportunities for the parties
to talk with one another early in the process allows parties to resolve
their disputes earlier, and with less cost.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (SR-NASD-99-08) is approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-28754 Filed 11-2-99; 8:45 am]
BILLING CODE 8010-01-M
