Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto by National Association of Securities Dealers, Inc. Relating to the Random Selection of Arbitrators by the Neutral List Selection System, 5497-5499 [E5-397]
Download as PDF
Federal Register / Vol. 70, No. 21 / Wednesday, February 2, 2005 / Notices
Electronic Comments
• Send an e-mail to rulecomments@sec.gov. Please include the
File Number 1–09274 or;
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 1–09274. This file
number should be included on the
subject line if e-mail is used. To help us
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 (https://www.sec.gov/rules/
delist.shtml). Comments are also
available for public inspection and
copying in the Commission’s Public
Reference Room. All comments received
will be posted without change; we do
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
The Commission, based on the
information submitted to it, will issue
an order granting the application after
the date mentioned above, unless the
Commission determines to order a
hearing on the matter.
no public filings with the Commission,
is quoted on the Pink Sheets under the
ticker symbol CMCH, and has recently
been the subject of spam e-mail touting
the company’s shares.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the above
listed company is suspended for the
period from 9:30 a.m. e.s.t. January 31,
2005 through 11:59 p.m. e.s.t., on
February 11, 2005.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
NASD Dispute Resolution proposes to
amend Rule 10308 of the NASD Code of
Arbitration Procedure (‘‘Code’’) to
change the method used by the Neutral
List Selection System (‘‘NLSS’’) 4 to
select arbitrators from a rotational to a
random selection function by
incorporating the random selection
provision of the proposed Customer and
Industry Code revisions.5 Below is the
text of the proposed rule change.
Proposed new language is in italics;
proposed deletions are in [brackets].
*
*
*
*
*
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05–2055 Filed 1–31–05; 11:48 am]
10308. Selection of Arbitrators
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51083; File No. SR–NASD–
2004–164]
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.5
Jonathan G. Katz,
Secretary.
[FR Doc. 05–1911 Filed 2–1–05; 8:45 am]
Self-Regulatory Organizations; Notice
of Filing and Order Granting
Accelerated Approval of Proposed
Rule Change and Amendment No. 1
Thereto by National Association of
Securities Dealers, Inc. Relating to the
Random Selection of Arbitrators by the
Neutral List Selection System
BILLING CODE 8010–01–P
January 26, 2005.
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of Commanche
Properties, Inc.; Order of Suspension
of Trading
January 31, 2005.
It appears to the Securities and
Exchange Commission that the public
interest and the protection of investors
require a suspension of trading in the
securities of Commanche Properties,
Inc. (‘‘Commanche’’). The Commission
is concerned that Commanche may have
unjustifiably relied on Rule 504 of
Regulation D of the Securities Act of
1933 in conducting an unlawful
distribution of its securities which
failed to comply with the resale
restrictions of Regulation D.
Commanche, a company that has made
5 17
CFR 200.30–3(a)(1).
VerDate jul<14>2003
14:19 Feb 01, 2005
Jkt 205001
5497
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 October
28, 2004, the National Association of
Securities Dealers, Inc. (‘‘NASD’’),
through its subsidiary, NASD Dispute
Resolution, Inc. (‘‘NASD Dispute
Resolution’’), filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by NASD. On January 5, 2005, NASD
filed Amendment No. 1 to the proposed
rule change.3 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons and is
approving the proposal on an
accelerated basis.
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Letter from Mignon McLemore, NASD, to
Catherine McGuire, SEC (January 5, 2005).
PO 00000
1 15
2 17
Frm 00086
Fmt 4703
Sfmt 4703
This Rule specifies how parties may
select or reject arbitrators, and who can
be a public arbitrator.
(a) Unchanged.
(b) Composition of Arbitration Panel;
Preparation of Lists for Mailing to
Parties
(1)–(3) Unchanged.
(4) Preparation of Lists.
(A) Except as provided in
subparagraph (B) below, the Neutral List
Selection System shall generate the lists
of public and non-public arbitrators on
a [rotating] random basis within a
designated geographic hearing site and
shall exclude arbitrators based upon
conflicts of interest identified within the
Neutral List Selection System database.
(B) Unchanged.
(5)–(6) Unchanged.
(c)–(f) 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,
NASD included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
4 NLSS is the computer program NASD uses to
select arbitrators on a rotational basis. It has been
in use since November 1998.
5 NASD Dispute Resolution has filed with the
SEC a proposed rule change to the Code to
reorganize the current rules, simplify the language,
codify current practices, and implement several
substantive changes. The rule filing was submitted
in three parts: Customer Code, Industry Code, and
Mediation Code. The Customer Code was filed on
October 15, 2003, and amended on January 3, 2005
and January 19, 2005 (SR–NASD–2003–158); the
Industry Code was filed on January 16, 2004, and
amended on February 26, 2004 and January 3, 2005
(SR–NASD–2004–011). The Mediation Code was
filed on January 23, 2004, and amended on January
3, 2005 (SR–NASD–2004–013). It does not contain
any provisions concerning the NLSS. The three new
codes will replace the current Code in its entirety.
The Code revision is undergoing SEC staff review
and has not yet been published for comment.
E:\FR\FM\02FEN1.SGM
02FEN1
5498
Federal Register / Vol. 70, No. 21 / Wednesday, February 2, 2005 / Notices
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item III 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
1. Purpose
NASD Dispute Resolution is
upgrading its computer technology, in
what is known as the Mediation and
Arbitration Tracking and Retrieval
Interactive Case System (‘‘MATRICS’’),
which will replace its two case
management systems: CRAFTIS 6 and
NLSS. NASD will implement MATRICS
in a series of releases, in which various
functions from CRAFTIS and NLSS will
be adapted and programmed to operate
within MATRICS.7 NASD has
determined that the NLSS components
of MATRICS are ready to be developed.
Most functions of NLSS will be
transferred to MATRICS.
As part of this computer technology
upgrade, NASD has determined that
MATRICS should select arbitrators on a
random basis, instead of a rotational
basis, like NLSS currently does. NASD
is proposing to switch from rotational to
random for several reasons. First, other
self-regulatory organizations,
governmental entities, and private
alternative dispute organizations select
panels for their arbitration cases by
generating a random list of arbitrators.
For example, the New York Stock
Exchange (NYSE) 8 and the Society of
Maritime Arbitrators 9 offer to the
parties a random list selection
procedure to select panels to decide
claims in their respective arbitration
6 CRAFTIS is the legacy software application that
NASD Dispute Resolution uses to support its case
administration function. It uses an old technology
platform and is not Web-based.
7 A new component for MATRICS, the Web-based
arbitration claim filing system, has already been
developed and became effective on August 5, 2004.
Parties may access the online system at https://
apps.nasd.com/mediation_&_arbitration/
online_filing.asp. The SEC approved the final
version of the system on June 16, 2004. See
Securities Exchange Act Rel. No. 49876 (June 16,
2004), 69 FR 35090 (June 23, 2004).
8 The SEC approved for immediate effectiveness
a NYSE request to extend its pilot program, the
Voluntary Supplemental Procedures for Selecting
Arbitrators (‘‘Voluntary Procedures’’), which allows
parties to, among other things, select arbitrators
using the Random List Selection method. See
Securities Exchange Act Rel. No. 49915 (June 25,
2004), 69 FR 39993 (July 1, 2004).
9 Society of Maritime Arbitrators, Inc.,
Recreational and Small Commercial Vessel Salvage
Arbitration (visited Sept. 29, 2004) .
VerDate jul<14>2003
14:19 Feb 01, 2005
Jkt 205001
forums. The California Department of
Industrial Relations,10 the Federal
Mediation and Conciliation Service,11
and the Federal Emergency Management
Agency 12 also use random list selection.
Some state courts that provide
alternative dispute resolution services
also use random list selection to choose
arbitrators for their hearings.13
Second, in order for a rotational
system to operate effectively and
efficiently, a large amount of computer
code is required to manage and
maintain the arbitrator rotation.
According to NASD, a rotational
selection system works best if the data
that the system uses to generate the lists
remain static. However, the data input
into NLSS changes frequently. For
example, in the last two years, NASD
Dispute Resolution has added eight
hearing locations, and, in that time, has
added approximately 1,000 new
arbitrators to the database. Once these
changes to the data are input into NLSS,
the rotational system attempts to
incorporate them when it generates new
lists. Any attempt to modify the
computer code to accommodate these
changes is time-consuming and costly.
Also, maintaining a selection system
that is purely rotational is cumbersome
because additional code is needed to
track the histories of each selection to
ensure that all arbitrators have an equal
opportunity to appear in the rotation,
which directly affects list selection.
Last, NASD understands that, under a
random selection system, it is possible
for a particular arbitrator to be selected
for consecutive lists more frequently
than another arbitrator. However, a
statistical comparison of one arbitrator’s
selection to another, using a large
sample of eligible arbitrators and lists
generated, should show that one
arbitrator is not being selected for lists
more frequently than any other.14 While
NASD acknowledges this anomaly in a
random selection system, NASD
believes that the benefits of such a
system, such as ease of design, cost-
efficient maintenance, and overall
fairness of random selection (as well as
the increased perception of fairness)
will strengthen the operation of the
forum.15
NASD Dispute Resolution believes
that the proposed rule change ultimately
will protect investors and benefit the
public by providing parties and
arbitrators with an automated system,
MATRICS, which will help the forum
operate more efficiently while
maintaining the core goal of providing
arbitrators who have an equal
probability of being listed for service on
any given list of proposed arbitrators. In
an effort to sustain the progress made on
the MATRICS upgrades, NASD proposes
to amend Rule 10308(b)(4) with a
delayed implementation date, so that
the developers can program this
component for MATRICS using the
random selection method of generating
arbitrator lists in order to be ready when
this phase of MATRICS becomes
operational. NASD is, therefore,
requesting accelerated review and
approval for this proposed rule change
to allow the programmers to begin
creating the code, so that they will
remain on development schedule while
the Commission is reviewing the Code
revisions.16 According to the technology
development plan, NASD is scheduled
to complete the arbitrator selection
function of MATRICS in the third
quarter of 2005. For the developers to
meet this goal, NASD must amend the
rule now to introduce the concept of
random selection in order to provide the
developers with the lead-time necessary
to create the software and implement it
on the MATRICS platform.17 While the
software is being created, NLSS will
continue to generate lists of arbitrators
on a rotating basis. Subject to
Commission approval of this rule,
NASD will upgrade MATRICS with the
random selection function, phase out
NLSS, and replace it with MATRICS.
10 California Department of Industrial Relations,
State Mediation and Conciliation Services, How to
Request an Arbitration List (visited Sept. 1, 2004)
.
11 Federal Mediation and Conciliation Service,
Arbitration FAQs (visited Sept. 1, 2004) .
12 Federal Emergency Management Agency,
Arbitration Guidelines For The Cerro Grande Fires
(visited Sept. 1, 2004) .
13 See, e.g., U.S. Bankruptcy Court for the Middle
District of Tenn. (ADR Program); Nev. Sup. Ct. Arb.
R. 6; and Minn. R. 5530.0900 (2004).
14 In fact, the same comparative analysis
conducted under a rotational method should yield
a statistically similar result.
15 NASD will hire an outside consultant to audit
the random selection system after it has been
operational for one year and independently verify
that the random selection system is operating as
described in this proposed rule change. NASD will
also keep statistics on the arbitrators selected by the
random selection system who appear on an
arbitrator list in order to monitor the effectiveness
of the random selection system. See supra note 3.
16 The proposed Customer Code and Industry
Code revisions, which have already been filed with
the SEC, contain a random selection provision. See
supra note 4.
17 The alternative would result in duplicative
effort and wasted resources, because programmers
would have to develop and program MATRICS to
select arbitrators under the current rules, and then
discard that programming and create new software
once the Code revision has been approved.
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
E:\FR\FM\02FEN1.SGM
02FEN1
Federal Register / Vol. 70, No. 21 / Wednesday, February 2, 2005 / Notices
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A of the Act,18 in general,
and with Section 15A(b)(6) 19 of the Act,
in particular, in that the proposal is
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. NASD
Dispute Resolution believes that the
proposed rule change ultimately will
protect investors and benefit the public
by providing parties with an automated
system that will help the forum operate
more efficiently.
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.
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 the 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 Number SR–NASD–
2004–164 and should be submitted on
or before February 22, 2005.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission has reviewed
carefully the proposed rule change as
amended and finds that it is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
association and, in particular, the
requirements of Section 15A(b)(6) 20 of
the Act.21 Section 15A(b)(6) requires,
among other things, that the rules of a
Electronic Comments
national securities association are
• Use the Commission’s Internet
designed to prevent fraudulent and
comment form (https://www.sec.gov/
manipulative acts and practices, to
rules/sro.shtml); or
promote just and equitable principles of
• Send an E-mail to ruletrade, and, in general, to protect
comments@sec.gov. Please include File
investors and the public interest. The
Number SR–NASD–2004–164 on the
Commission believes that the proposed
subject line.
rule change ultimately will protect
investors and benefit the public by
Paper Comments
providing parties with an automated
• Send paper comments in triplicate
case management system that will help
to Jonathan G. Katz, Secretary,
the NASD Dispute Resolution
Securities and Exchange Commission,
arbitration forum operate more
450 Fifth Street, NW., Washington, DC
efficiently.22
20549–0609.
The Commission finds good cause for
All submissions should refer to File
approving the proposed rule change as
Number SR–NASD–2004–164. This file
amended prior to the thirtieth day after
number should be included on the
subject line if e-mail is used. To help the the publication of notice of filing thereof
in the Federal Register. Accelerated
Commission process and review your
approval will provide NASD Dispute
comments more efficiently, please use
only one method. The Commission will Resolution with the certainty it needs to
post all comments on the Commission’s
20 15 U.S.C. 78o–3(b)(6).
Internet Web site (https://www.sec.gov/
21 The Commission has considered the proposed
III. 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:
rule’s impact on efficiency, competition and capital
formation. 15 U.S.C. 78c(f).
22 See supra note 15.
18 15
U.S.C. 78o–3.
19 15 U.S.C. 78o–3(b)(6).
VerDate jul<14>2003
14:19 Feb 01, 2005
Jkt 205001
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
5499
upgrade its computer technology to
select arbitrators on a random, rather
than a rotational, basis and to ultimately
replace NLSS with MATRICS.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–NASD–2004–
164) as amended be, and hereby is,
approved on an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.23
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–397 Filed 2–1–05; 8:45 am]
BILLING CODE 8010–01–P
DEPARTMENT OF STATE
[Public Notice 4985]
30-Day Notice of Proposed Information
Collection: DS 4053, Department of
´ ´
State Mentor-Protege Program
Application, OMB Control Number
1405–XXXX
Notice of request for public
comment and submission to OMB of
proposed collection of information.
ACTION:
SUMMARY: The Department of State has
submitted the following information
collection request to the Office of
Management and Budget (OMB) for
approval in accordance with the
Paperwork Reduction Act of 1995.
• Title of Information Collection:
´ ´
Department of State Mentor-Protege
Program Application,
• OMB Control Number: 1405–XXXX.
• Type of Request: New Collection.
• Originating Office: Bureau of
Administration, A/SDBU.
• Form Number: DS 4053.
• Respondents: Small and large forprofit companies planning to team
´ ´
together in an official mentor-protege
capacity to improve the likelihood of
winning DOS contracts.
• Estimated Number of Respondents:
20 respondents per year.
• Estimated Number of Responses: 10
per year.
• Average Hours Per Response: 21.
• Total Estimated Burden: 210.
• Frequency: On Occasion.
• Obligation to Respond: Voluntary.
DATES: Submit comments to the Office
of Management and Budget (OMB) for
up to 30 days from February 2, 2005.
ADDRESSES: Direct comments and
questions to Alex Hunt, the Department
of State Desk Officer in the Office of
23 17
E:\FR\FM\02FEN1.SGM
CFR 200.30–3(a)(12).
02FEN1
Agencies
[Federal Register Volume 70, Number 21 (Wednesday, February 2, 2005)]
[Notices]
[Pages 5497-5499]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-397]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51083; File No. SR-NASD-2004-164]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 Thereto by National Association of Securities Dealers, Inc. Relating
to the Random Selection of Arbitrators by the Neutral List Selection
System
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 October 28, 2004, the National Association of Securities Dealers,
Inc. (``NASD''), through its subsidiary, NASD Dispute Resolution, Inc.
(``NASD Dispute Resolution''), filed with the Securities and Exchange
Commission (``SEC'' or ``Commission''), the proposed rule change as
described in Items I and II, below, which Items have been prepared by
NASD. On January 5, 2005, NASD filed Amendment No. 1 to the proposed
rule change.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons and is
approving the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Mignon McLemore, NASD, to Catherine McGuire,
SEC (January 5, 2005).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
NASD Dispute Resolution proposes to amend Rule 10308 of the NASD
Code of Arbitration Procedure (``Code'') to change the method used by
the Neutral List Selection System (``NLSS'') \4\ to select arbitrators
from a rotational to a random selection function by incorporating the
random selection provision of the proposed Customer and Industry Code
revisions.\5\ Below is the text of the proposed rule change. Proposed
new language is in italics; proposed deletions are in [brackets].
---------------------------------------------------------------------------
\4\ NLSS is the computer program NASD uses to select arbitrators
on a rotational basis. It has been in use since November 1998.
\5\ NASD Dispute Resolution has filed with the SEC a proposed
rule change to the Code to reorganize the current rules, simplify
the language, codify current practices, and implement several
substantive changes. The rule filing was submitted in three parts:
Customer Code, Industry Code, and Mediation Code. The Customer Code
was filed on October 15, 2003, and amended on January 3, 2005 and
January 19, 2005 (SR-NASD-2003-158); the Industry Code was filed on
January 16, 2004, and amended on February 26, 2004 and January 3,
2005 (SR-NASD-2004-011). The Mediation Code was filed on January 23,
2004, and amended on January 3, 2005 (SR-NASD-2004-013). It does not
contain any provisions concerning the NLSS. The three new codes will
replace the current Code in its entirety. The Code revision is
undergoing SEC staff review and has not yet been published for
comment.
---------------------------------------------------------------------------
* * * * *
10308. Selection of Arbitrators
This Rule specifies how parties may select or reject arbitrators,
and who can be a public arbitrator.
(a) Unchanged.
(b) Composition of Arbitration Panel; Preparation of Lists for
Mailing to Parties
(1)-(3) Unchanged.
(4) Preparation of Lists.
(A) Except as provided in subparagraph (B) below, the Neutral List
Selection System shall generate the lists of public and non-public
arbitrators on a [rotating] random basis within a designated geographic
hearing site and shall exclude arbitrators based upon conflicts of
interest identified within the Neutral List Selection System database.
(B) Unchanged.
(5)-(6) Unchanged.
(c)-(f) 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, NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any
[[Page 5498]]
comments it received on the proposed rule change. The text of these
statements may be examined at the places specified in Item III 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
1. Purpose
NASD Dispute Resolution is upgrading its computer technology, in
what is known as the Mediation and Arbitration Tracking and Retrieval
Interactive Case System (``MATRICS''), which will replace its two case
management systems: CRAFTIS \6\ and NLSS. NASD will implement MATRICS
in a series of releases, in which various functions from CRAFTIS and
NLSS will be adapted and programmed to operate within MATRICS.\7\ NASD
has determined that the NLSS components of MATRICS are ready to be
developed. Most functions of NLSS will be transferred to MATRICS.
---------------------------------------------------------------------------
\6\ CRAFTIS is the legacy software application that NASD Dispute
Resolution uses to support its case administration function. It uses
an old technology platform and is not Web-based.
\7\ A new component for MATRICS, the Web-based arbitration claim
filing system, has already been developed and became effective on
August 5, 2004. Parties may access the online system at https://
apps.nasd.com/mediation_&_arbitration/online_filing.asp. The SEC
approved the final version of the system on June 16, 2004. See
Securities Exchange Act Rel. No. 49876 (June 16, 2004), 69 FR 35090
(June 23, 2004).
---------------------------------------------------------------------------
As part of this computer technology upgrade, NASD has determined
that MATRICS should select arbitrators on a random basis, instead of a
rotational basis, like NLSS currently does. NASD is proposing to switch
from rotational to random for several reasons. First, other self-
regulatory organizations, governmental entities, and private
alternative dispute organizations select panels for their arbitration
cases by generating a random list of arbitrators. For example, the New
York Stock Exchange (NYSE) \8\ and the Society of Maritime Arbitrators
\9\ offer to the parties a random list selection procedure to select
panels to decide claims in their respective arbitration forums. The
California Department of Industrial Relations,\10\ the Federal
Mediation and Conciliation Service,\11\ and the Federal Emergency
Management Agency \12\ also use random list selection. Some state
courts that provide alternative dispute resolution services also use
random list selection to choose arbitrators for their hearings.\13\
---------------------------------------------------------------------------
\8\ The SEC approved for immediate effectiveness a NYSE request
to extend its pilot program, the Voluntary Supplemental Procedures
for Selecting Arbitrators (``Voluntary Procedures''), which allows
parties to, among other things, select arbitrators using the Random
List Selection method. See Securities Exchange Act Rel. No. 49915
(June 25, 2004), 69 FR 39993 (July 1, 2004).
\9\ Society of Maritime Arbitrators, Inc., Recreational and
Small Commercial Vessel Salvage Arbitration (visited Sept. 29, 2004)
<https://www.smany.org/sma/salvrule.html>.
\10\ California Department of Industrial Relations, State
Mediation and Conciliation Services, How to Request an Arbitration
List (visited Sept. 1, 2004) <https://www.dir.ca.gov/csmcs/
HowToRequestPanel.html>.
\11\ Federal Mediation and Conciliation Service, Arbitration
FAQs (visited Sept. 1, 2004) <https://www.fmcs.gov/internet/
faq.asp?categoryID=133#Q16532>.
\12\ Federal Emergency Management Agency, Arbitration Guidelines
For The Cerro Grande Fires (visited Sept. 1, 2004) <https://
www.fema.gov/cerrogrande/arbitration/guide.shtm>.
\13\ See, e.g., U.S. Bankruptcy Court for the Middle District of
Tenn. (ADR Program); Nev. Sup. Ct. Arb. R. 6; and Minn. R. 5530.0900
(2004).
---------------------------------------------------------------------------
Second, in order for a rotational system to operate effectively and
efficiently, a large amount of computer code is required to manage and
maintain the arbitrator rotation. According to NASD, a rotational
selection system works best if the data that the system uses to
generate the lists remain static. However, the data input into NLSS
changes frequently. For example, in the last two years, NASD Dispute
Resolution has added eight hearing locations, and, in that time, has
added approximately 1,000 new arbitrators to the database. Once these
changes to the data are input into NLSS, the rotational system attempts
to incorporate them when it generates new lists. Any attempt to modify
the computer code to accommodate these changes is time-consuming and
costly. Also, maintaining a selection system that is purely rotational
is cumbersome because additional code is needed to track the histories
of each selection to ensure that all arbitrators have an equal
opportunity to appear in the rotation, which directly affects list
selection.
Last, NASD understands that, under a random selection system, it is
possible for a particular arbitrator to be selected for consecutive
lists more frequently than another arbitrator. However, a statistical
comparison of one arbitrator's selection to another, using a large
sample of eligible arbitrators and lists generated, should show that
one arbitrator is not being selected for lists more frequently than any
other.\14\ While NASD acknowledges this anomaly in a random selection
system, NASD believes that the benefits of such a system, such as ease
of design, cost-efficient maintenance, and overall fairness of random
selection (as well as the increased perception of fairness) will
strengthen the operation of the forum.\15\
---------------------------------------------------------------------------
\14\ In fact, the same comparative analysis conducted under a
rotational method should yield a statistically similar result.
\15\ NASD will hire an outside consultant to audit the random
selection system after it has been operational for one year and
independently verify that the random selection system is operating
as described in this proposed rule change. NASD will also keep
statistics on the arbitrators selected by the random selection
system who appear on an arbitrator list in order to monitor the
effectiveness of the random selection system. See supra note 3.
---------------------------------------------------------------------------
NASD Dispute Resolution believes that the proposed rule change
ultimately will protect investors and benefit the public by providing
parties and arbitrators with an automated system, MATRICS, which will
help the forum operate more efficiently while maintaining the core goal
of providing arbitrators who have an equal probability of being listed
for service on any given list of proposed arbitrators. In an effort to
sustain the progress made on the MATRICS upgrades, NASD proposes to
amend Rule 10308(b)(4) with a delayed implementation date, so that the
developers can program this component for MATRICS using the random
selection method of generating arbitrator lists in order to be ready
when this phase of MATRICS becomes operational. NASD is, therefore,
requesting accelerated review and approval for this proposed rule
change to allow the programmers to begin creating the code, so that
they will remain on development schedule while the Commission is
reviewing the Code revisions.\16\ According to the technology
development plan, NASD is scheduled to complete the arbitrator
selection function of MATRICS in the third quarter of 2005. For the
developers to meet this goal, NASD must amend the rule now to introduce
the concept of random selection in order to provide the developers with
the lead-time necessary to create the software and implement it on the
MATRICS platform.\17\ While the software is being created, NLSS will
continue to generate lists of arbitrators on a rotating basis. Subject
to Commission approval of this rule, NASD will upgrade MATRICS with the
random selection function, phase out NLSS, and replace it with MATRICS.
---------------------------------------------------------------------------
\16\ The proposed Customer Code and Industry Code revisions,
which have already been filed with the SEC, contain a random
selection provision. See supra note 4.
\17\ The alternative would result in duplicative effort and
wasted resources, because programmers would have to develop and
program MATRICS to select arbitrators under the current rules, and
then discard that programming and create new software once the Code
revision has been approved.
---------------------------------------------------------------------------
[[Page 5499]]
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A of the Act,\18\ in general, and with Section
15A(b)(6) \19\ of the Act, in particular, in that the proposal is
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. NASD Dispute Resolution
believes that the proposed rule change ultimately will protect
investors and benefit the public by providing parties with an automated
system that will help the forum operate more efficiently.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78o-3.
\19\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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. 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:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an E-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2004-164 on the subject line.
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-2004-164. 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 (https://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 the
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 Number SR-
NASD-2004-164 and should be submitted on or before February 22, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission has reviewed carefully the proposed rule change as
amended and finds that it is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities association and, in particular, the requirements of Section
15A(b)(6) \20\ of the Act.\21\ Section 15A(b)(6) requires, among other
things, that the rules of a national securities association are
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 Commission believes that
the proposed rule change ultimately will protect investors and benefit
the public by providing parties with an automated case management
system that will help the NASD Dispute Resolution arbitration forum
operate more efficiently.\22\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78o-3(b)(6).
\21\ The Commission has considered the proposed rule's impact on
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
\22\ See supra note 15.
---------------------------------------------------------------------------
The Commission finds good cause for approving the proposed rule
change as amended prior to the thirtieth day after the publication of
notice of filing thereof in the Federal Register. Accelerated approval
will provide NASD Dispute Resolution with the certainty it needs to
upgrade its computer technology to select arbitrators on a random,
rather than a rotational, basis and to ultimately replace NLSS with
MATRICS.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NASD-2004-164) as amended be, and
hereby is, approved on an accelerated basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-397 Filed 2-1-05; 8:45 am]
BILLING CODE 8010-01-P