E7-15619. 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 ...

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.

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 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.

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]

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]

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.

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]

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 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.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[18]

Florence E. Harmon,

Deputy Secretary.

Footnotes

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).

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.

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).

12.  Pace.

13.  Id.

14.  Id.

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).

17.  15 U.S.C. 78s(b)(2).

18.  17 CFR 200.30-3(a)(12).