[Federal Register Volume 63, Number 174 (Wednesday, September 9, 1998)]
[Notices]
[Pages 48289-48290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24094]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40385; File No. SR-NYSE-98-20]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to an
Interpretation of Article IV, Section 14 of the Exchange Constitution
August 31, 1998.
I. Introduction
On July 10, 1998, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') submitted to 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 to interpret Article IV, Section 14 of the
Exchange Constitution to provide that decisions of the Director of
Arbitration regarding jurisdiction and hearing situs are not subject to
review by the Exchange's Board of Directors (``Board'').
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Notice of the proposed rule change, together with the substance of
the proposal, was published for comment in Securities Exchange Act
Release No. 40229 (July 17, 1998), 63 FR 40150 (July 27, 1998). No
comments were received on the proposal. This order approves the
proposed rule change.
Description
The Exchange proposes to interpret Article IV, Section 14 of the
Exchange Constitution so that decisions of the Director of Arbitration
on issues of jurisdiction and hearings situs are not subject to review
by the Exchange's Board at the request of a member, member
organization, allied member or approved person. Article IV, Section 14
of the Exchange Constitution provides that where the Board has
delegated its powers to an officer or employee, ``a member, member
organization, allied member or approved person affected by a decision
of any officer or employee .*.*. may require a review by the Board of
such decision.'' \3\ No explicit exception is made for actions taken by
the Director of Arbitration. Article IV, Section 13 also provides the
Board with authority to interpret the Constitution.
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\3\ The NYSE notes that in the past, members have requested, and
the Board has granted, review of the Director of Arbitration's
decisions on jurisdiction and hearing situs.
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Article XI, Section 1 of the Exchange Constitution and Exchange
Rule 600 establish the jurisdiction of the Exchange's arbitration
forum.\4\ The Director of Arbitration is ``charged with the duty of
performing all ministerial duties in connection with matters submitted
for arbitration.'' \5\ These duties include making the initial
decisions regarding jurisdiction and hearing situs.\6\ When a claim is
submitted for arbitration at the Exchange, the Director of Arbitration
determines whether the claim submitted falls within the parameters of
the Exchange's jurisdiction. Exchange Rule 613 deals with the situs of
a hearing and provides that ``[t]he time and place for the initial
hearing shall be determined by the Director of Arbitration and each
hearing thereafter by the arbitrators.''
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\4\ ``Any controversy between parties who are members, allied
members or member organizations and any controversy between a
member, allied member or member organization and any other person
arising out of the business of such member, allied member or member
organization, or the dissolution of a member organization, shall at
the instance of any such party, be submitted for arbitration in
accordance with the provisions of this Constitution and such rules
as the Board may from time to time adopt.'' (Article XI, Sec. 1).
``All dispute, claim or controversy between a customer or non-
member and a member, allied member, member organization and/or
associated person arising in connection with the business of such
member, allied member, member organization and/or associated person
in connection with his activities as an associated person shall be
arbitrated under the Constitution and Rules of the New York Stock
Exchange, Inc. as provided by any duly executed and enforceable
written agreement or upon the demand of the customer or non-
member.'' Exchange Rule 600.
\5\ Exchange Rule 635.
\6\ Exchange Rules 600 and 613.
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The Exchange believes that Exchange Rule 621 and applicable law
provide for the review of the Director's decisions by arbitrators or
the courts. Under Exchange Rule 621, arbitrators are empowered to
interpret and determine the applicability of all provisions of the
Arbitration Rules; thereby the Exchange believes arbitrators can
overturn decisions of the Director of Arbitration regarding situs of
the first hearing. In
[[Page 48290]]
addition, the NYSE states that decisions of the Director of Arbitration
regarding jurisdiction are subject to review by the courts.\7\ The
Exchange also notes that interlocutory procedural decisions are rarely
appealable in judicial and arbitral processes, but instead are reserved
for consideration as part of any overall review of the lowest court's
or arbitrator's decision.\8\ The Exchange notes that any review by the
Board of staff action is in the nature of an interlocutory appeal,
which the arbitrators and the courts may subsequently review. All this
may result in an unnecessary delay in the final resolution of an
arbitration claim.
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\7\ See Spear, Leeds & Kellogg v. Central Life Assurance Co., 85
F.3d 21 (2d Cir. 1996).
\8\ This reservation occurs in part because interlocutory
appeals are frequently employed by parties simply to gain tactical
advantage in the dispute. In addition, a substantive resolution of
the conflict will often moot the procedural issues.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b).\9\ Specifically, the
Commission believes the proposal is consistent with the Section 6(b)(5)
of the Act \10\ in that it promotes just and equitable principles of
trade by providing members, member organizations and the public with a
fair and impartial forum for the resolution of their disputes.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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The Commission believes that the proposed rule change provides for
adequate review by arbitrators or by the courts of the Director's
decision as to whether a claim submitted to arbitration falls within
the Exchange's jurisdiction, or as to the hearing situs of the
arbitration; therefore, review by the Board is not necessary. The
Commission believes it is reasonable for arbitrators to review the
Director's decision as to the hearing situs, under their authority to
interpret and determine the applicability of the arbitration rules.\12\
In addition, the Commission notes that decisions as to jurisdiction are
subject to review by the courts. The Commission also notes that the
proposed rule change allows for a more efficient arbitration
process.\13\
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\12\ See Exchange Rule 621.
\13\ The Commission also notes that the Board has the authority
to interpret the Constitution.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-NYSE-98-20) is approved.
\14\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-24094 Filed 9-8-98; 8:45 am]
BILLING CODE 8010-01-M
