Self-Regulatory Organizations; Order Approving Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Foreign Hearing Locations, 12257 [E5-1022]

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• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 47 (Friday, March 11, 2005)]
[Notices]
[Page 12257]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1022]



[[Page 12257]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51324; File No. SR-NASD-2004-042]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Foreign Hearing Locations

March 7, 2005.

I. Introduction

    On March 9, 2004, National Association of Securities Dealers, Inc. 
(``NASD''), through its wholly owned subsidiary, NASD Dispute 
Resolution, Inc. (``Dispute Resolution''), 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 (1) to amend NASD Rule 10315 to 
permit arbitrations to occur in a foreign hearing location, and (2) to 
amend IM-10104 to allow the Director of Arbitration to authorize a 
higher or additional honorarium for the use of a foreign hearing 
location. NASD amended the proposal on September 29, 2004,\3\ and 
November 23, 2004.\4\ Notice of the proposed rule change was published 
for comment in the Federal Register on February 3, 2005.\5\ The 
Commission did not receive any comment letters on the proposal. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Mignon McLemore, Counsel, NASD, to Katherine A. 
England, Assistant Director, Division of Market Regulation, 
Commission, dated September 29, 2004.
    \4\ Form 19b-4 dated November 23, 2004.
    \5\ Securities Exchange Act Release No. 51082 (February 3, 
2005), 70 FR 5713 (``Notice'').
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II. Description of Proposed Rule Change

    The proposed rule change amends NASD Rule 10315 to permit 
arbitrations to occur in a foreign hearing location in order to 
accommodate parties who desire to conduct their arbitrations abroad. 
Under the proposal, the foreign hearing location process will be 
strictly voluntary. According to NASD, once Dispute Resolution has 
determined that an arbitration can be handled using a foreign hearing 
location, Dispute Resolution will inform claimants about the 
availability and the additional costs of the appropriate foreign 
hearing location, as well as seek the agreement of the respondents if a 
claimant wishes to use a foreign hearing location. Under the proposal, 
parties will pay an additional surcharge for use of the foreign hearing 
location. Also, under the proposal, all foreign arbitrators selected by 
NASD to conduct arbitrations in foreign hearing locations must: (1) 
Meet NASD background qualifications for arbitrators; (2) receive 
training on NASD arbitration rules and procedures; and (3) satisfy at 
least the same training and testing requirements as those arbitrators 
who serve in U.S. locations of NASD. In addition, the proposed rule 
change amends IM-10104 to allow the Director to authorize a higher or 
additional honorarium for the use of a foreign hearing location to 
cover the additional daily cost for the foreign arbitrators' service in 
that location. Under the proposal, this surcharge will initially be 
apportioned equally among the parties, unless they agree otherwise, but 
the foreign arbitrators will retain the authority to apportion the 
surcharge as provided for in NASD Rules 10205 and 10332.
    According to NASD, the NASD Dispute Resolution Business Development 
staff, with the cooperation of the administrative staff of the groups 
providing the foreign arbitrators, will administer all cases designated 
for hearing in a foreign location. Also, according to NASD, the first 
foreign hearing location for NASD arbitrations will be in London. NASD 
represented that Dispute Resolution has formed a relationship with the 
Chartered Institute of Arbitrators (``CIArb''), which is based in 
London and maintains a worldwide roster of neutrals. NASD believes that 
a partnership between CIArb and NASD will provide its international 
constituents with access to a local roster of experienced neutrals, as 
well as the convenience and cost efficiency of conducting hearing 
sessions within a reasonable distance from their place of business or 
residence.

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 association.\6\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 15A(b)(6) of the Act,\7\ which requires, among other things, 
that NASD's rules 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 
Commission believes that the proposed rule change should improve NASD's 
ability to conduct arbitrations because it will provide those parties 
residing in foreign locations with the option of holding their 
arbitration hearings closer to home, using local arbitrators, and 
saving the expense of traveling to the United States to resolve their 
disputes. At the same time, the Commission notes that the voluntary 
aspect of the proposed rule change will allow these parties to decide 
in each matter whether a foreign hearing location or U.S. hearing 
location is preferable for them.
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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-NASD-2004-042) be, 
and it hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    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. E5-1022 Filed 3-10-05; 8:45 am]
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