[Federal Register Volume 63, Number 34 (Friday, February 20, 1998)]
[Notices]
[Pages 8727-8729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4342]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39664; File No. SR-NASD-98-07]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. Relating to Extension of Time to Answer
Arbitration Complaints
February 13, 1998.
Pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of
1934 (``Act''),\1\ notice is hereby given that on February 2, 1998,\2\
the National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') 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 the NASD.
The Association has designated the proposed rule change as constituting
a ``non-controversial'' rule change under paragraph (e)(6) of Rule 19b-
4 under the Act \3\ which renders the proposal effective upon receipt
of this filing by the Commission.\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)(3)(A).
\2\ The NASD filed a technical amendment on February 11, 1998 to
change the operative date of the proposed rule filing from March 1,
1998 to March 16, 1998. See letter from Jean I. Feeney, Assistant
General Counsel, NASD Regulation, to Katherine A. England, Assistant
Director, Market Regulation, Commission, dated February 6, 1998.
\3\ 17 CFR 240.19b-4(e)(6).
\4\ The Association has represented that this proposed rule
change: (1) Will not significantly affect the protection of
investors or the public interest; (ii) will not impose any
significant burden on competition, and (iii) will not become
operative for 30 days after the date of this filing, unless
otherwise accelerated by the Commission. The Association also has
provided at least five business days notice to the Commission of its
intent to file this proposed rule change, as required by Rule 19b-
4(e)(6) under the Act. Id.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD Regulation is proposing to amend Rule 10314 of the NASD's Code
of Arbitration Procedure (``Code'') to recognize and conform to current
practice and to reduce the administrative burden on NASD Regulation
staff. Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
10314. Initiation of Proceedings
Except as otherwise provided herein, an arbitration proceeding
under this Code shall be instituted as follows:
(a) Unchanged.
(b) Answer-Defenses, Counterclaims, and/or Cross-Claims
(1) Within twenty (20) business 45 calendar days from receipt of
the Statement of Claim, Respondent(s) shall serve each party with an
executed Submission Agreement and a copy of the Respondent's Answer.
Respondent's executed Submission Agreement and Answer shall also be
filed with the Director of Arbitration with sufficient additional
copies for the arbitrator(s) along with any deposit required under the
schedule of fees. The Answer shall specify all available defenses and
relevant facts thereto that will be relied upon at the hearing and may
set forth any related Counterclaim the Respondent(s) may have against
the Claimant, any Cross-Claim the Respondents(s) may have against any
other named Respondents(s) and any Third-Party Claim against any other
party or person based upon any existing dispute, claim, or controversy
subject to arbitration under this Code.
(2)(A)--(B) Unchanged.
(c) A Respondent, Responding Claimant, Cross-Claimant, Cross-
Respondent, or Third-Party Respondent who fails to file an [a] Answer
within [twenty (20) business] 45 calendar days from receipt of service
of a Claim, unless the time to answer has been
[[Page 8728]]
extended pursuant to subparagraph (5) below, may, in the discretion of
the arbitrators, be barred from presenting any matter, arguments, or
defenses at the hearing.
(3)--(4) Unchanged.
(5) The time period to file any pleading, whether such be
denominated as a Claim, Answer, Counterclaim, Cross-Claim, Reply, or
Third-Party Pleading, may be extended for such further period as may be
granted by the Director of Arbitration or with the consent of the
initial claimant. Extensions of the time period to file an Answer are
disfavored and will not be granted by the Director except in
extraordinary circumstances.
(c)--(d) Unchanged.
* * * * *
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 Association 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 test of these statements may be examined at the places
specified in Item IV below. The Association 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 of Rule Change
NASD Regulation is proposing to amend Rule 10314 of the Code to
recognize and conform to current practice and to reduce the
administrative burden on NASD Regulation staff. Currently, Rule 10314
requires respondents to answer an arbitration claim within twenty
business days of receiving it. NASD Regulation's Office of Dispute
Resolution (``Office'') routinely grants requests for extension of the
time to answer for two weeks. Requests for extension generally arise
because respondents need additional time to develop a complete answer
to the claim. Complete answers are encouraged. In fact, under Rule
10314(b)(2)(A), to party who pleads only a general denial as an answer
may, upon objection by a party, be barred by the arbitrators from
presenting any facts of defenses at the hearing. In addition, under
Rule 10314(b)(2)(B), a party who fails to specify all available
defenses and relevant facts in the answer may, upon objection by a
party, be barred by arbitrators from presenting such facts or defenses
at the hearing.
The practice of granting extensions of time to answer, burdens the
staff with processing requests and responses, and it undermines the
certainty of the deadlines specified in the Rule. The NASD believes the
Code should reflect the current reality that most claims are not
answered within the 20 business day period that currently is specified.
Accordingly, the NASD has determined that Rule 10314 of the Code
should be amended to extend the time to answer a claim to 45 calendar
days and to eliminate routine extensions.\5\ Under the proposed
amendment, extensions are disfavored and will be granted only in
extraordinary circumstances or with the consent of the initial
claimant. The term ``extraordinary circumstances'' is not defined;
however, the NASD intends that the circumstances that would qualify for
an extension would be limited to unusual and unforeseeable personal or
professional conflicts that would make filing on time extremely
difficult or burdensome. Extending the time period to 45 calendar days
provides approximately the same amount of time to answer as is
currently the case, since 20 business days equal 28 calendar days, and
a two-week routine extension (14 calendar days) would bring the total
to 42 calendar days.
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\5\ The proposed rule change will not apply to simplified
arbitration claims filed under Rule 10302 of the Code. Answers to
claims involving less than $10,000 will continue to be due within 20
days of receipt of the Statement of Claim.
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The Securities Industry Conference on Arbitration (``SICA'') \6\
considered the proposed rule change at its October 16, 1997 meeting,
but declined to adopt it as part of the Uniform Code of Arbitration.
The other self-regulatory organization (``SRO'') members of SICA noted
that, because of the small number of claims they process, they do not
experience significant burdens related to administering extensions of
time to answer. SICA members also believe that the proposed change
would not reduce the number of extension requests and that it may
result in additional delays. Notwithstanding their reluctance to adopt
the proposed change, the members of SICA understood NASD Regulation's
position that the proposed amendment will eliminate the administrative
costs associated with granting extension in the time to answer claims.
Accordingly, SICA recommended that NASD Regulation adopt the change on
a pilot basis. The NASD has determined to adopt the rule without a
sunset provision, but the NASD will monitor the impact of the proposed
rule change.
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\6\ SICA is a group composed of representatives of the self-
regulatory organizations that provide dispute resolution forums,
public investors, and the securities industry. Staff of the SEC
attend as non-voting invitees. SICA was established with the
encouragement of the SEC to develop uniform rules for securities
arbitration (the ``Uniform Code of Arbitration'') and to provide a
forum for the various dispute resolution forums and users of those
forums to communicate about issues relating to securities industry
dispute resolution SICA member forums are encouraged to adopt the
provisions of the SICA Uniform Code of Arbitration, but are not
required to do so.
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2. Statutory Basis of Rule Change
NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) of the Act,\7\
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. The NASD believes that the
proposed rule change protects the public interest by making the time
period within which to answer uniform for all parties, whether or not
they are knowledgeable enough to seek an extension of time, and by
eliminating further extensions of time, absent extraordinary
circumstances, in order to make the arbitration process move more
expeditiously.
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\7\15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Association 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
The proposed rule change has been filed by the Association as a
``non-controversial'' rule change under Rule 19b-4(e)(6) under the
Act.\8\ Consequently, because the foregoing proposed rule change: (1)
Does not significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) does not become
[[Page 8729]]
operative until March 16, 1998, more than 30 days from February 2,
1998, the date on which it was filed, and the NASD provided the
Commission with written notice of its intent to file the proposed rule
change at least five days prior to the filing date, it has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(e)(6) thereunder.
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\8\ 17 CFR 240.19b-4(e)(6).
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At any time within 60 days of this filing, the Commission may
summarily abrogate this proposal if it appears to the Commission that
such action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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, N.W., Washington, D.C. 20549.
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
NASD. All submissions should refer to the file number in the caption
above (SR-NASD-98-07) and should be submitted by March 13, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4342 Filed 2-19-98; 8:45 am]
BILLING CODE 8010-01-M
